Win for BSNL: CESTAT Rules Free Telecom Services to Employees Not Taxable as It Constitutes Service to Self [Read Order]

Bharat Sanchar Nigam Limited,appellant-assessee,was engaged in providing telecommunication services and regularly deposited service tax. During an audit, it was found that the assessee had offered free postpaid mobile services to its employees up to a certain limit. For usage beyond this limit, bills were raised and tax was paid.

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However, the Department noted that no bills were generated for the free services and therefore, no tax was paid on them. The audit held that the value of these services was taxable under Section 67 of the Finance Act, 1994, read with the Valuation Rules.

A show cause notice dated 19.12.2016 proposed recovery of ₹1,07,46,516/- in unpaid tax, along with interest and penalty under Section 78, invoking the extended period of limitation. The demand was confirmed by order dated 4.5.2017. The assessee's appeal against this order was dismissed, leading to the present appeal.

The issue in the appeal was whether service tax was payable on free telecom services the assessee had provided to its employees.

The two member bench comprising Binu Tamta ( Judicial Member) and Hemambika R.Priya ( Technical Member) noted that both parties agreed the issue had already been decided in the appellant’s favour in an earlier case related to its Gurgaon unit.

In that case, the tribunal held that free mobile services given to employees were not taxable since no payment was received and the services were meant for improving efficiency. It treated the service as provided to self, and therefore, not liable to service tax under Section 67(1) of the Finance Act, 1994.

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The assessee also referred to other tribunal decisions, including Executive Engineer E, C/O BSNL and Gondwana Club, which held that services provided to oneself or within the employer-employee relationship were not taxable. A CBEC circular was also cited, confirming that no service tax was due when services were provided free of charge.

Since the issue on merits was already settled in favour of the assessee the CESTAT did not go into the limitation aspect. The impugned order was set aside and quashed.

Accordingly, the appeal was allowed.

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