CESTAT rules that Call Free Allowance given by Bharti Airtel to employees is not subject to service tax under Finance Act, 1994.

CESTAT rules that Call Free Allowance given by Bharti Airtel to employees is not subject to service tax under Finance Act, 1994.

Bharti Airtel wins service tax appeal as Tribunal holds no consideration flows from employees for Call Free Allowance

In a significant decision impacting the interpretation of service tax provisions, the Customs, Excise and Service Tax Appellate Tribunal has ruled in favour of Bharti Airtel Ltd., holding that the Call Free Allowance provided to employees does not constitute a taxable consideration under the Finance Act, 1994. The Tribunal’s judgment reinforces key principles of taxation law, particularly concerning the requirement of “consideration” for the levy of service tax.

Airtel Employees Services Scheme

Bharti Airtel, a leading telecommunications service provider in India, offers its employees a benefit known as the Airtel Employees Services Scheme. Under this scheme, employees are granted a waiver on telephone charges up to a predetermined CFA limit. The company contended that this waiver is a form of discount or concession, extended purely as an employment benefit, and not as a result of any consideration flowing from the employee to the employer. Consequently, it argued that such a benefit should not be included in the assessable value for calculating service tax liability.

Revenue’s Stand

The Revenue Department, however, initiated proceedings demanding service tax on the CFA value. It asserted that Bharti Airtel derived non-monetary benefits, such as goodwill and employee services, in return for the CFA, and therefore such benefits should be considered as implied consideration. To support its demand, the Revenue relied on the best judgment assessment method, computing service tax liability based on assumed data regarding employee growth and operational turnover in different telecom circles.

CESTAT’s Analysis

A bench comprising Members S.S. Garg and P. Anjani Kumar conducted a thorough review of the matter. Referring to the provisions of the Finance Act, 1994, the Tribunal underscored that taxation can only apply when there is a consideration flowing from the recipient of a service to the provider.

In this instance, the primary beneficiary of the CFA was the employee, and there was no financial or equivalent exchange from them to the company. The Tribunal categorically rejected the Revenue's argument that “goodwill” could be treated as a form of taxable consideration, pointing out the absence of any legal basis or valuation framework for such a claim under existing service tax law.

Furthermore, the Tribunal criticized the Revenue’s method of computation as being based on presumptions, rather than verifiable facts or documentation—a practice that runs counter to foundational principles of taxation.

Final Verdict: CFA is a Non-Taxable Discount

In its final ruling, the CESTAT concluded that:

• The Call Free Allowance constitutes a discount, not a service provided in exchange for consideration.
• There is no enforceable or quantifiable consideration flowing from employees to the employer.
• The Revenue's computation was unreliable and speculative, and cannot be the basis for legitimate tax demand.

Accordingly, the Tribunal allowed Bharti Airtel’s appeals and dismissed the Revenue’s claims, affirming that the service tax demand lacked both legal and factual justification.

Implications of the Ruling

This decision provides much-needed clarity on the definition and scope of "consideration" under Indian service tax law. It reinforces the principle that notional or intangible benefits, such as goodwill or employee morale, cannot form the basis for taxation unless expressly defined and valued under the statute. The ruling also serves as a caution to tax authorities against raising demands based on unfounded assumptions, ensuring better compliance with the principles of fairness and objectivity in tax administration.

The CESTAT’s judgment in favour of Bharti Airtel sets a progressive precedent in Indian indirect tax jurisprudence. It upholds the doctrine that only tangible, measurable consideration can attract service tax liability and reiterates the need for fact-based assessment over presumption-based computation. As businesses navigate the complexities of tax compliance, this decision will likely serve as a guiding benchmark in similar cases involving employee benefits and service tax disputes.