There is no dispute that the appellant provided option to its employees, employees of Bharti Group company as well as selective relatives of such employees who were eligible as described in clause 1 of the policy. The eligible employees were treated as regular post paid customers. Service provided by the appellant was mobile phone connection/fixed line and Broad Band services and fixed wireless phone as well as Black Berry services or push mail service under clause 3.2 and 4.1 of the policy. Various modalities of providing such services were stated in clause 3.3.2 of policy. Clause 3.3.3 gave another option to the employees to avail free calls to the extent of 20% of the amount against fixed line and the rest against mobile. Calls to certain limit were provided free and beyond that was recoverable as per clause 3.3.4 read with clause 3.3.3 of the policy.
So far as Black Berry service is concerned, mobile set was given to the employees at a rate prescribed. Call facility above was applicable to ISD /STD plus roaming facility in cellular phones. Waiver of call charges is covered by clause 6.4 of the policy. Wherever calls were beyond limit, the excess calls, if proved to be work related, remission was permissible and for different categories of employees the limit was prescribed in different slabs.
With the aforesaid background when free telecom services were provided by the appellant to its own employees relative of employees and employees of Bharti Group company, Revenue issued notice to it under Delhi jurisdiction to charge service tax on such service which did not include the amount of demand proposed in the two show cause notices issued in Bangalore jurisdiction. This aspect is very clear from Para 40(x) of adjudication order. The appellant did not take registration under the jurisdiction of the respondent prior to 1.10.2009. Accordingly, for loss of Revenue, the Respondent issued show cause notice to the appellant and adjudicated the demand to the best of his Judgment on failure of appellant to provide relevant information since no returns were filed by it for the period October, 2004 to September, 2009. Demand as set out was raised.
Adjudicating Authority by a speaking order considering entire pleading of appellant on different grounds including limitation and Revenue neutrality stated the reason why the demand arises by his elaborate order. He justified the reason why the department was bound to determine the demand taking the basis of figures supplied by the appellant to Bangalore jurisdiction as has been stated in Para 40 of adjudication order elaborately. Prima facie, the basis adopted by Adjudicating Authority appears to be most reasonable.
In Para 38 of adjudication order, ld. Authority dealt that under telecom policy, value of the charges was at a reduced rate than the market rate. He also indicated in that Para that the employees were receiving consideration indirectly as perquisite which was part of their remuneration package and was incentive other than cash at the cost of Revenue and such benefit was provided evading service tax. Similarly, the package also included free service to the relatives of the employees. So also employees of Bharti Group companies for no output service linked to such benefit under Finance Act, 1994.
Bare perusal of respective clauses of telecom policy prima facie throws light that service recipients of free telecom service provided by appellant were employees of the appellant, their relatives and Bharti Group companies who otherwise would have paid service tax for the telecom service availed had there been no exercise of option by them under the Policy of Appellant or availed such service from other telecom service providers. The value of charges indicated in the policy was found by the Adjudicating Authority as far below the market charges . The manner of providing free telecom service by appellant was made apparently shows that perquisite was given to the employees in the garb of free calls at reduced rate beyond certain call limit without payment of service tax and the appellant was enriched at the cost of Revenue. There was no nexus brought out to demonstrate that how the free calls were used by above persons and for what purpose. The telecom service provided had value in monetary terms under law being taxable under a taxing entry under section 65 (105) of the Act. But suppression of such value was made to serve mutual interest of service provider and service recipient. Revenue was thereby prejudiced seriously. Had the service been proved to be used to provide taxable output service by the appellant Revenue would not have been prejudiced. But that was not the case of the appellant. Revenue neutrality was baseless plea. When there was no consideration disclosed by appellant the rule of valuation prescribed under section 67 of the Act was invocable and value was rightly determined by the Adjudicating Authority in Para 38 of his order . Appellant is unable to avail benefit of the citation made for the reasons of no nexus with output service established by appellant.
Further reading of the policy throws light that the employees were encouraged to avail telecom service provided by the appellant granting an option to avail so at a lesser tariff rate, instead of switching over to avail such service provided by other telecom service providers. Varied choice and options granted by Appellant, prima facie, demonstrate that the value of calls provided to employees and relatives were less than the market value and unaccounted. Such service provided was at the cost of Revenue. Had the call charges been valued and as per market value and disclosed in the accounts, Revenue would not have been affected. But that was not done by the appellant .
Appellant was furnishing evasive reply to Revenue without calculating its liability according to its accounts, if any, maintained under the Jurisdiction of Respondent. No doubt, the company having large number of customers in its business network cannot operate without a proper software and accounts of different customers computerised . The figures should have been furnished to the authority when show cause notice was issued on 23.4.2010 and adjudication was done on 4.4.2012 i.e. nearly after one and half year of the date of show cause notice. The appellant having records to show simply denied its liability even without seeking registration under the jurisdiction of the Respondent when the authority was kept in dark as to the determination of liability of the appellant, plea of time bar failed to get any support for which that was discarded by learned Adjudicating Authority in Para 42 of his order.
When the appellant pleaded that there should be Revenue neutrality that was also discarded by the Adjudicating Authority in Para 41(ii) of the order bringing out that there was no integral connection between the calls allowed free by the appellant and the taxable output service that produced. Therefore appellant's failure to furnish relevant facts and figures denying liability proved suppression. That has been brought out in Para 42 (iv) of adjudication order.
Revenue did not fail to workout the liability taking into consideration the law relating to value of service depicted in Para 38 of the order which appears to be reasonably done in Para 40 of adjudication order. Prima facie, it appears that taxable service provided was determinable and has escaped levy of service tax. According to Rule of Valuation prescribed under section 67 of the Act, the economic activity carried out by appellant had economic value. Circular relied upon by the appellant cannot run counter to the law as taxable service was provided by the appellant. The Circular relied by the appellant no more remained in force and new concept of valuation came into force under the Service Tax (Determination of Valuation) Rules 2006. Merely creating a fiction of no consideration received by the appellant in respect of the aforesaid nature of free service provided by it, the appellant appears to have been immensely benefited by reduction of monetary package of remuneration to its eligible, employees, their relatives and employees of Bharti Group of companies. Such undisclosed benefit of appellant was at the cost of Revenue. The appellant failed in the course of hearing to satisfy that value of service were disclosed perquisite to its employees in its account and disclosed to Income tax Authority.
All the aforesaid aspects, prima facie, prove that substance of the policy gives rise to the demand as has been rightly adjudicated.
In the course of hearing, the appellant reiterated as that was submitted before learned Adjudicating Authority that it has calculated its liability of service tax to the tune of Rs . 21 crores but the Adjudicating Authority by his speaking order in Para 40(x) brought out that service tax demand shall be Rs . 118,70,19,472/- followed by consequence of penalty and interest stated at the very outset.
Keeping in view that Revenue was deprived of realising its legitimate dues and the questionable modus operandi followed by the appellant as well as irreparable injury caused to Revenue, as an interim measure the appellant is directed to deposit Rs . 80.00 (eighty) crores only within a period of four weeks and make compliance on 23.5.2013.
Subject to above compliance, realisation of balance tax demand of Rs.38.70 crores (Rupees thirty eight crores seventy lakhs approximately), penalty of Rs. 125.00 (Rupees one hundred twenty five crores ) and interest on the service tax demand shall be stayed during pendency of the appeal or till 3.12.2013 whichever date is earlier.
(See 2013-TIOL-654-CESTAT-DEL)
