Jurisprudentiol – Friday's cases

By Vijay Kumar

Legal Corner Icon — the image was hosted by the publisher and was not captured.Service Tax

Free Phones to Employees - Bharti Airtel directed to deposit Rs. 80 Crores out of a demand of Rs. 119 Crores - Stay granted up to 3.12.2013 or disposal whichever is earlier: CESTAT

THE appellant as a provider of "telecom service" had made available of such service (mobile phone, fixed line and broad band service as well as fixed wireless phone (FWP) connection) free of cost to its employees as well as their family members and employees of Bharti Group Companies during the period October, 2004 to September 2009 under "Bharti Airtel Limited Employees Phone Policy" The Commissioner confirmed a service tax demand of Rs.1,18,70,19,472/- under section 73 of the Act, penalty of Rs. 125,00,00,000/- under Section 78 of the said Act followed by interest under section 75 as well as penalty under section 76 & 77.

Bharti Airtel is in appeal before the Tribunal in appeal and also Stay Application. Keeping in view that Revenue was deprived of realising its legitimate dues and the questionable modus operandi followed by the appellant as well as irreparable injury caused to Revenue, as an interim measure the appellant is directed to deposit Rs. 80.00 (eighty) crores only within a period of four weeks. Subject to above compliance, realisation of balance tax demand of Rs.38.70 crores (Rupees thirty eight crores seventy lakhs approximately), penalty of Rs. 125.00 (Rupees one hundred twenty five crores) and interest on the service tax demand shall be stayed during pendency of the appeal or till 3.12.2013 whichever date is earlier.

Income Tax

Whether Education Cess paid by assessee can be treated as revenue expenditure - NO, it is a part of tax liability: ITAT

THE questions before the Bench are - Whether for invoking the provisions of section 14A read with rule 8D a proximate connection between the expenditure incurred and income earned is sine-qua-non; Whether burden of proving the proximate nexus between the exempt income and expenditure incurred is on Revenue; Whether any disallowance under section 14A can be made without proving the proximate nexus; Whether expenses which are not directly related to the exempt income can be disallowed merely because rule 8D permits to do so; Whether for invoking the provisions of rule 8D the “satisfaction” of the AO about the inaccuracy of accounts and also to correctness of expenses suo-motto disallowed is a condition precedent; Whether Revenue can sit in the arm chair of a businessmen and decide what expense is necessary; Whether once it is proved that an expense is bonafide and has been incurred wholly and exclusively for the purpose of business any disallowance can be made by checking the necessity of the expense; Whether necessity behind an expense is an alien if the expense is incurred in the interest of business; Whether any disallowance under section 40(a)(ia) can be made on account of payment of commission to foreign residents and Whether education cess is revenue expense. And the verdict partly goes in favour of the assessee.

VAT

Dispensing of medicines by doctors not sale; no tax: Tribunal

THE transactions effected by the appellant so far as dispensation of medicine is not a transaction of sale: As held in BSNL case, the dominant nature being rendering of medical services, the transaction cannot be split into service and goods components. The transactions in question does not fit under any of the sub-clauses of Article 366 (29-A). By applying the dominant nature test as well as the transaction nature it is decided that the dispensing of medicine by the doctors during the course of integrated package treatment cannot be considered as sale for the purpose of the Act.

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