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2015 (4) TMI 129 - CESTAT MUMBAI

2015 (4) TMI 129 - CESTAT MUMBAI - 2015 (39) S.T.R. 829 (Tri. - 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 t .....

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companies, have clearly indicated in their balance sheets that the amounts 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 - Fin .....

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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 2 .....

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ntested the demand on merits and submitted that the demands raised by the 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 int .....

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nd not raising the same through Banks or financial institutions. After taking 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 .....

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start of the investigation on 26/11/2007. He would draw our attention to the 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 th .....

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83/- crores is part of the pre-demerger expenses incurred by RCM at the time 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 .....

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1/12/2007. On this factual matrix, it is his contention in the ordinary to 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 beh .....

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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 .....

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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 be .....

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red the submissions made by both sides and perused the records. We find that 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 th .....

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nnot be said as a concluded contract with regard to the nature of the payment. 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 .....

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97 and 299 of the Companies Act which deals with loans, contracts with the 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, .....

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also returned/repaid by the appellant notwithstanding the fact that this amount 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 .....

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iew, 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. 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 .....

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. The balance sheet of M/s. RCOM for the year ending 31/03/2008 shows in the 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, .....

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s and Advances include loan granted during the period of ₹ 175.30 crore 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 Communica .....

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, the amount of ₹ 1,210/- crore is shown as a loan and not as consideration 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 .....

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