CA Bimal Jain
Reliance Infratel Ltd. (the Appellant or the Company) is a subsidiary of Reliance Communications Limited (RCM) (collectively referred to as parties) providing taxable service falling under Business Support Services. The Company was formed when RCM demerged the business of Telecom infrastructures and Telecom operating services into different entities and the business of Telecom infrastructure was demerged into the Appellant. Rs. 283/- crore were given by RCM to the Appellant towards the expenditure incurred by RCM even before the Appellant came into existence by way of expenses towards the initial setting up and also by way of payments made to vendors for supply of materials. Further, since the Telecom towers require huge investments the Appellant borrowed Rs. 1210/- crore from RCM during June, 2007 and September, 2007 as interest-free loan which was repaid/ returned by December 31, 2007.
Investigation of the Appellant was initiated on November 26, 2007 by the officers of DGCEI and it was alleged that the financial support given to Appellant by RCM in terms of the Master Service Agreement dated April 10, 2007 (the Agreement) was in the nature of advance for the taxable services rendered or to be rendered by the Appellant to RCM and is required to be set off against the bills that would be raised later by the Appellant on RCM.
Therefore, DGCEI issued a SCN demanding Service tax liability along with interest and penalty for the period from April 10, 2007 to March 31, 2008 which was confirmed by the Adjudicating Authority.
Being aggrieved the Appellant preferred an appeal before the Hon’ble Tribunal, Mumbai contending that the sum of Rs. 1, 493/- crores (“impugned amount”) received by the Appellant from RCM is a loan by way of Inter Corporate Deposits given to the Appellant.
The Hon’ble CESTAT, Mumbai held as under:
Thus, the Hon’ble Tribunal allowed the appeal in favour of the Appellant and held that no Service tax liability arises on loans and advances if it is revealed in the audited balance sheet.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: email@example.com)