By TIOL News Service

MUMBAI, DECEMBER 04, 2018: THE Appellantis a 'telecom service' provider whose employees, according to their employee category,are entitled to use of airtime on the value of which service tax liability was not being discharged for the period from 2008-09 to 2011-12.

SCN was issued and a demand of Rs. 2,71,97,608/-was confirmed along with penalties.

The appellant is before the CESTAT and submitsthat employees are classified in various categories and a scale of eligibility to free service is provided to them as part of the policy of the appellant; that the bills raised in the automated system for each such connection is written off by the appellant to the extent of eligibility and service tax liability is duly discharged on any recovery for usage in excess of eligibility.

The appellant also contended that for most of the period covered by the SCN, the tax liability was to be discharged on actual receipts and, therefore, imposition of tax on a free service rendered to its employees was not legal and that recourse to rule 3(a) of Service Tax (Determination of Value) Rules, 2006 could be had only when the value was not determinable in monetary terms which would not apply to the appellant whose bills on the employees are written off to the extent of eligibility. In addition, it is pleaded that revenue neutrality and absence of any evidence of suppression or misrepresentation would immunize them from recovery of tax liability beyond the normal period.

The Bench considered the submissions and inter alia observed -

On merits:

+ That the amount is first billed and thereafter written off is categorical evidence of a service having been rendered to an individual recipient and liable to tax; undoubtedly, till June 2011 the tax was to be collected on receipt but the appellant, instead of recording the amount as due sometime in the future, opts for writing off without waiting, or even anticipating, any recovery. This would, therefore, not be consideration that will be subject to tax when collection occurs. The tax liability crystallizes when the debt of the employee is erased. The demand and applicable interest stands.

On Revenue neutrality:

+ Billings are not attributable to business activity but entirely to personal use by the employees. … In the absence of entitlement to such credit, the exercise cannot be claimed to be revenue neutral.

On Limitation:

+ Had the appellant disclosed in their returns that there was no uncertainty on the non-recoverability of the amount decided in advance to be written off, the claim of disclosure could have been accepted.

On Penalty:

+ Penalty imposed under section 78 of Finance Act, 1994 is confirmed. Owing to the statutory exclusion of simultaneous imposition of penalty under section 76 of Finance Act, 1994, penalty u/s 78 is set aside (for a small portion of the demand).

The impugned order was upheld with the modification in the matter of penalty as mentioned.

(See 2018-TIOL-3644-CESTAT-MUM)