RELIANCE INFRATEL LTD. Vs. COMMISSIONER OF SERVICE TAX

JUDGEMENT

(1.) THIS appeal is directed against Order -in -Original No. 38/ST -II/RS/2012 dated 30/11/2012 passed by the Commissioner of Service Tax, Mumbai -II.

(2.) THE relevant facts that arise for consideration are that the appellant herein is a subsidiary of Reliance Communications Limited (hereinafter referred to as RCM). The appellant are providing taxable service falling under 'Business Support Services' as defined in Section 65(124C) read with Section 65(105) of the Finance Act, 1994. The officers of DGCEI received an intelligence that M/s. RCM were not discharging service tax liability properly. After conducting detailed investigation it was noticed that the appellant had entered into Master Service agreement dated 10th April 2007 with RCM. Investigations also revealed that RCM financed the appellant as per the Master Service Agreement the financial support given to appellant was to be set off against the bills that would be raised by the appellant on RCM. The DGCEI issued a show cause notice demanding service tax liability with interest and also imposition of penalty. The period that involved for demand of the duty by show cause notice dated 18th August, 2011 was 10th April 2007 to 31st March, 2008. The appellant contested the demand on merits and submitted that the demands raised by the Revenue is incorrect and amount of Rs. 1,210/ - crore and Rs. 283/ - crores were repaid by them to RCM during the same financial year and they were not, therefore, consideration for the services rendered but interest -free loans received from holding -company. The adjudicating authority after following due process of law, did not agree with the contentions raised by the appellant and confirmed the demand along with interest and also imposed penalties. Aggrieved by such an order appellants are before us.

(3.) SHRI D.K. Acharya, learned Special Counsel appearing on behalf of the revenue submits that on reading of clause 4.1 to 4.4 of the Master Service Agreement, it is clear that the amount of Rs. 1,483/ - crores is nothing but an advance towards the consideration for the services and therefore needs to be considered as an amount on which service tax liability arises as per the provisions of Section 67 of the Finance Act, 1994. He would take us to the entire Master Services Agreement and submit that the adjudicating authority has clearly brought on record to hold the said agreement is for the adjustment of the amounts due given as loan to the appellant. It is his submission that the statements of the officers of the RCM clearly indicate that the amounts are shown as deposit and not as unsecured loan in the customer Ledger account. He would submit that the officials of RCM initially stated that they were unsecured loans but subsequently it was stated as an advance from RCM. It is his submission that the invoices which were raised by the appellant from June 2007 but no payment was made by RCM except the amount of Rs. 1,483/ - crores from June, 2007 to September, 2007 presumably for adjustment towards the due which are for services rendered. It is also his submission that in business it is unusual to provide interest -free loans and that too of huge amounts as is in this case. He would submit that for raising such a loan both appellant as well as RCM need to pass a Board resolution. It is his further submission that the repayment started after investigation commenced on 26/11/2007 and the repayment is an afterthought to show that the amount is a loan. He would then dwell upon the auditor's report of the appellant and submit that the auditor has specifically qualified that the appellant had not taken any loans secured or unsecured from companies, firms or other parties as recorded in the register maintained under Section 301 of the Companies Act. He would submit that this itself is a blatant lie as on records amounts have been given to appellant by RCM. It is also the submission that in RCM's annual report for the period ending 31st of March 2008 it is stated that the company has neither granted nor taken any loan, secured or unsecured, which itself is incorrect as the amounts which are reflected in the appellants records were in fact advances to be adjusted for the services rendered. He therefore submitted that the order of the adjudicating authority does not require interference.