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Reliance Infratel Ltd. Versus Commissioner of Service Tax, Mumbai - II

2015 (4) TMI 129 - CESTAT MUMBAI

Business Support Services - nature of receipt - repayment of loan or advance towards services to be rendered - whether the sum of ₹ 1,493/- crores received by the appellant from RCM is an advance for the taxable services rendered or to be rendered by the appellant to M/s. RCM or is it a loan by way of Inter Corporate Deposits given to the appellant - Held that:- On details scrutiny of the balance sheets produced by the learned Counsel for appellant, we find that accounts of the appellant a .....

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have been shown as received and loans repaid. - provisions of Section 67 of the Finance Act, 1994 refers to gross service charges paid or payable for the services rendered or to be rendered has to be read as it is. In our view, the entire sum of ₹ 1,493/- crores does not qualify as an advance towards the services to be rendered by the appellant to RCM. - Decided in favour of assessee. - Appeal No.ST/86072/2013 - Final Order No. A/579/2015-WZB/STB - Dated:- 4-3-2015 - M V Ravindran, Member .....

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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 .....

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Revenue is incorrect and amount of ₹ 1,210/- crore and ₹ 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 ar .....

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ing us to the Master Service Agreement he would submit that the entire reliance placed by the adjudicating authority on clause number 4.1 and 4.2 thereof are totally misplaced as the said clauses, on a careful reading would mean that it is an agreement to agree, that there was no conclusive contract with regard to the nature of the payment on the definitive terms and conditions thereof. He also drew our attention to clause 11 of the same agreement which deals with the service charges divided int .....

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he fact that the appellant as well as the said RCM had shown in the half yearly balance sheet that that amounts have been repaid and received. He would then take us through the correspondence with the Department during the investigation and the statements of Shri R.K. Bansal to show that the details of loan amounts and that the payment thereof by the appellant have been furnished and that the finding of the Commissioner that some portion of the loan amount has not been repaid is factually incorr .....

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me when there was no separate entity namely RCM and the appellant. He also submitted that the invoices which have been raised separately indicate service charges from June, 2007 onwards and payment was received until March, 2008 aggregating to ₹ 993/- crores, on which service tax liability of ₹ 109/- crores has been paid as acknowledged in Annexure to the show cause notice. It is his submission that the demand of service tax on the amount of ₹ 1,493/- crores when the service ta .....

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and without prejudice to other submissions that at best the liability is limited to the interest payment for about 3 to 4 months on account of deferred payment of service tax but there cannot be any demand for service tax as full tax liability has been duly discharged in time and by the due date as and when appellant received payment for the services rendered. 4. 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 Mas .....

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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 ₹ .....

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thought 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 .....

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at on one hand we have Master Service Agreement; auditors report and audited accounts and balance sheets submitted by the appellant for the period ended 30 th September, 2007 and 31st of March, 2008; and on the other statement of the officials of RCM; which needs to be addressed to come to a conclusion whether service tax liability arises on the appellant or otherwise. 6. The short point involved in this case is whether the sum of ₹ 1,493/- crores received by the appellant from RCM is an a .....

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ent. In our considered view, it is at best an agreement to agree and the parties were to negotiate and mutually decide the nature of payment, the amount, the terms and conditions of repayment thereof, the manner of payment. The combine reading of clause 4.1 and 4.2 read with clause 11 of Master Service Agreement does not lead to a conclusion that the amount which was received by the appellant was in nature of advances for the services to be rendered. This, in our view is supported by the audited .....

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companies in which Directors are interested. These provisions of the Companies Act are not applicable in the present case and therefore the auditor's note is aligned with the reference to unsecured loans received by the appellant from RCM. We also find strong force in the submissions made that the repayment of the amount of 1,493/- crores is not an afterthought as even prior to the investigations, on 20 th September, 2007 the appellant had recorded and treated the amount a I.C.D. in the hal .....

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mount was undisputedly incurred by RCM before demerger when it was a single entity, when there was no different entities, service provider and service recipient at that stage, which is a prerequisite for levy of service tax. 8. On details scrutiny of the balance sheets produced by the learned Counsel for appellant, we find that accounts of the appellant as well as RCM do not indicate any co-relation in the repayment of the loan and receipt of the service charges by the appellant. The emphasis of .....

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vice charges paid or payable for the services rendered or to be rendered has to be read as it is. In our view, the entire sum of ₹ 1,493/- crores does not qualify as an advance towards the services to be rendered by the appellant to RCM. 10. Since we have disposed of the appeal on merits, we are not recording any findings on various other submissions made by both sides. 11. In view of the foregoing, we set aside the impugned order and allow the appeal with consequential relief if any. (Pro .....

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he disclosure in respect of transactions which are more 10% of the total transactions of same type with related parties during the year. "2. Loans and Advances include loan granted during year of ₹ 1,434.63 crore to Reliance Communications Infrastructure Limited, ₹ 102.00 crore to Reliance Telecom Limited, ₹ 300.30 crore to Reliance Webstore Limited, ₹ 22.59 crore to Campion Properties Limited, ₹ 545.64 crore to Reliance Infocomm Infrastructure Private Limited, .....

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ore to Reliance Internet Services Limited, ₹ 1,283.49 crore to Reliance Telecom Limited, ₹ 933.99 crore to Reliance Webstore Limited, ₹ 36.78 crore to Campion Properties Limited, ₹ 630.00 crore to Reliance Infocomm Infrastructure Private Limited, ₹ 6,342.95 crore to Reliance Communications Infrastructure Limited and loans repaid during the period of ₹ 5,834.37 crore by Reliance Communications Infrastructure Limited, ₹ 190.70 crore by Reliance Telecom Lim .....

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eration for any services rendered. These books of accounts have been audited and are in the public domain. Therefore, the argument of the Revenue that the amount of ₹ 1,210/- crore is a consideration for the services rendered does not flow from the audited books of accounts of the company. There is also no dispute about the fact that the appellant had repaid the amount of ₹ 1,210/- crore received from M/s. RCOM during the same financial year, by 31/12/2007. 13.2. Similarly, in the ca .....

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