Decided on March 04,2015

Reliance Infratel Ltd. Appellant


M.V. Ravindran, Member (J) - (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.
Learned Senior Counsel Shri V.S. Nankani contended that RCM emerged the business of Telecom infrastructures and Telecom operating services into different entities. The business of Telecom infrastructure was emerged into the appellant company. According to him, 'telecom infrastructure' means that the Telecom towers which required huge investments and for this purpose, appellant borrowed money from RCM and 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 11 of the same agreement which deals with the service charges divided into fixed and variable characteristics. He contends that if the amount of Rs. 1,493/ - crores was an advance, the same would have been adjusted against the service charges, but there is no provision for such adjustment in clause 11 or any other clauses of the said agreement. He would rely upon the half yearly balance sheets for the appellant as well as RCM for the half -year ended 30th September 2007; which is before the 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 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 incorrect. He contends that the entire amount of loan of Rs. 1,493/ - crores has been repaid by 31/12/2007. It is his further submission that although Clause 4.3 of the Master Service Agreement provides that the amount of Rs. 283/ - crores shall be adjusted against dues by RCM, in reality the parties always treated the same as loan and full amount was returned. He submits that there is no dispute that the loan of Rs. 283/ - 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 Rs. 993/ - crores, on which service tax liability of Rs. 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 Rs. 1,493/ - crores when the service tax has been paid and collected by the by the Department each time the appellant received payment from RCM against the invoices, would amount to double taxation. He would submit that loan was granted by RCM during the period June and September, 2007 with bulk of the amount being paid in August and September, 2007; the repayment of the same started from October, 2007 and thereafter the entire amount has been paid off before 31/12/2007. 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.

(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.

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