Service Tax Not Leviable on Employee Call free Allowance: CESTAT allows Bharti Airtel's Appeal [Read Order]
The Tribunal also found the Revenue's method of computation to be flawed, based on presumptions rather than hard facts, which is contrary to the fundamental principles of taxation.
Bharti - Airtel - Taxscan
Bharti - Airtel - Taxscan
In a recent ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) allowed Bharti Airtel's appeal, holding that the Call Free Allowance (CFA) provided to its employees is not liable to service tax as it does not constitute taxable consideration.
The appellant, M/s Bharti Airtel Ltd., is engaged in providing telecommunication services and offers an "Airtel Employees Services Scheme" which includes a waiver of telephone charges up to a certain CFA limit. They argued that this waiver is a discount or concession for which no consideration flows from the employee to the company, and therefore, it should not be included in the value for calculating service tax. They relied on a previous final order passed by the same Bench in their favour.
The Revenue, however, initiated proceedings demanding service tax on the value of the CFA, contending that the company received 'goodwill' and the services of its employees as consideration for the free allowance. The Revenue's demand was computed using a best judgment method based on various assumptions about employee growth and turnover across different circles.
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A bench of Members S.S. Garg and P. AnjaniKumar, after analyzing the provisions of the Finance Act, 1994, observed that for service tax to be levied, there must be a consideration flowing from the service recipient to the provider. In this case, the benefit accrued to the employees, not the appellant, and there was no such flow of consideration. The Tribunal rejected the Revenue's argument that 'goodwill' could be treated as taxable consideration, noting that there is no provision in service tax law to amortize goodwill for valuation purposes and the adjudicating authority failed to quantify its value.
The Tribunal also found the Revenue's method of computation to be flawed, based on presumptions rather than hard facts, which is contrary to the fundamental principles of taxation.
Consequently, the CESTAT held that the CFA is a discount and not includable in the assessable value for service tax. While allowing the appeals filed by Bharti Airtel, the Tribunal dismissed the Revenue's appeals, affirming that the demand for tax based on presumptions and an incorrect understanding of 'consideration' could not be sustained.
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