By TIOL News Service

MUMBAI, NOV 30, 2018: THIS is a Revenue appeal against the order passed by the Commissioner dropping a Service Tax demand of Rs.32,67,10,573/-.

The facts are -

During the Course of Audit, it was observed that in their Balance Sheet/Profit and Loss Account the Respondent had shown Rs.297 Crores as "Other Operating Income" and which was gathered as having arisen on account of "Assignment of Debts".

The department opined that on this amount received, the respondent was required to pay service tax under the category of "Online Data Information and Retrieval" service.

As mentioned, the adjudicating authority dropped the demand by concluding that the amounts received were not attributable to services provided by the respondent and, therefore, the SCN was issued on apparent error on facts.

The Revenue inter alia argued that the order fails to appreciate that the receivables as defined by the agreement refers to receivables as arising out of sale of services to its customers and, therefore, service tax has been rightly demanded.

After considering the submissions advanced by both sides, the CESTAT observed thus -

+ The right, title and interest in the receivables amounting to Rs.1212.12 crores of respondent have been assigned to the assignee under the said agreement for a consideration of Rs.297 crores.

+ It is not even the case of the department in the show cause notice that any amount in respect of the amounts so assigned has been collected by the respondents.

+ In the present case, undisputed fact is that respondents are having certain outstanding receivables in their book of accounts. These receivables are in respect of the sale of goods and services provided by them to their customer.

+ The transaction perse between the respondents and assignee for which a consideration of Rs.297 Crore has been received is not in respect of telecom services provided by the respondents to its customers.

+ The transactions between the respondent and its customers are distinct from the transaction between the respondents and assignees.

After extracting paragraph 8 of the reply (which explains the factual matrix) to the SCN, the Bench further observed -

++ Undisputed fact is that RCOM was recipient of certain services from RIL which included the services of sale of handsets to the customers of RCOM. RIL was the provider of services and selling the handsets to customers of RCOM in respect of which the outstanding dues has arisen. These outstanding dues amounting to Rs 3901 Crores were assigned by M/s RIL to M/s SESPL for a consideration of Rs.3426 Crores. SESPL paid the entire amount of Rs.3426 Crores to RIL 26.03.2004.

++ Later, SESPL got merged with M/s RCIL (the respondent), and all the assets including the receivables assigned by the RIL became assets in the hand of RCIL. RCIL, after writing of the bad debts and other adjustments reduced the net receivables to Rs.1212.12 Crores and assigned the same to Mahimna and Traitrya for a consideration of Rs.297 Crores.

++ Thus, in fact the transaction between the respondents and assignee is one of the assignment/sale of receivables for a consideration and not one of providing the taxable service under the category of "Online Information and Data Retrieval" services. These receivables may have arisen on account of some taxable services provided by M/s RIL or M/s RCOM or M/s RCIL to their customers, but the sale of assignment of the said receivables cannot be said to be in respect of the provisions of the said taxable services.

++ It is not the case of the department that in the present case the transaction sought to taxed is in respect of the services provided by respondent to its customers either directly or indirectly.

Concluding that no service has been provided by the respondents under the category of "Online Information and Data Retrieval" in the matter of the transaction under consideration, the Revenue appeal was dismissed as being bereft of any merits.

(See 2018-TIOL-3604-CESTAT-MUM)