Supreme Court Dismisses Rs 244 Crore Service Tax Plea Against Bharti Airtel Over Employee Scheme

The Supreme Court has recently dismissed a nearly Rs 244 crore service tax appeal filed by the Commissioner of Central Goods and Service Tax, Gurugram, against telecom giant Bharti Airtel Ltd. The dispute concerned the company's Airtel Employees Services Scheme (AESS), which offered free or discounted telecom services to its employees.

The appeal challenged a January 27, 2025 order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh, which had set aside the entire tax demand.

A Bench of Justices J B Pardiwala and K V Viswanathan upheld the tribunal's order, observing

"We find no good reason to interfere with the impugned order dated 27.01.2025 passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chandigarh.The appeal is, accordingly, dismissed."

The case arose after tax authorities claimed that Bharti Airtel had provided taxable services to its employees under the AESS, launched in October 2004. Under the scheme, employees were billed internally for mobile and broadband services but received a Call Free Allowance (CFA), a fixed amount of free usage based on their designation.

The Revenue treated the value of these services as taxable consideration and issued a show cause notice on April 23, 2010, demanding Rs 118.7 crore in service tax for the period October 2004 to September 2009, along with interest and penalties. The Commissioner of Service Tax, by an order dated April 4, 2012, confirmed the demand and imposed a Rs 125-crore penalty on Airtel.

In appeal, CESTAT set aside the order, holding that no service tax was payable as there was no actual monetary consideration. It found that the CFA benefits were internal allowances, not payments received from employees. The tribunal also rejected the argument that employee goodwill was non-monetary consideration and held that the department's best judgment assessment based on extrapolated data was unsustainable.

The Revenue then approached the Supreme Court, arguing that the CFA was part of employees' pay packages and became taxable after the April 18, 2006 amendment to Section 67 of the Finance Act, 1994, which brought non-monetary benefits within the scope of taxable services. It also claimed Bharti Airtel had withheld data, justifying the use of estimates as against actual data. 

On November 3, 2025, the Supreme Court dismissed the appeal and upheld the CESTAT's view that Bharti Airtel was not liable to pay service tax on free or concessional telecom services provided to its employees.

Case Title: Commissioner of Central Excise & Service Tax-Commissioner of Central Goods & Service Tax, Gurugram, Haryana vs Bharti Airtel Ltd.

Case Number: Diary No. 49079/2025

For Appellant: Additional Solicitor General N venkataraman with Advocates Gurmeet Singh Makker, V C Bharathi, Prashant Singh, Purnendu Bajpai and  Rajendra Singh Rana

For Respondent: Senior Advocate Kavin Gulati, Advocates Kumar Visalaksh, Udit Jain and Abhishek Vikas

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