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Issues involved: Interpretation of Notification No. 1/2006-S.T. u/s Finance Act, 1994 for service tax on free supply of materials in construction services.
Summary: The Appellate Tribunal CESTAT AHMEDABAD considered the case of an appellant engaged in providing construction services, specifically laying pipelines, to customers like ONGC, GAIL, BPCL, and IOCL. Two show cause notices were issued to the appellant for the period from October 2006 to March 2008, demanding service tax on the value of free supply of materials. The notices were based on the classification in Notification No. 1/2006-S.T., which states that the gross amount charged for the service should include the value of goods and materials supplied by the provider of the construction service. The impugned order confirmed the demand for service tax and imposed penalties under sections of the Finance Act, 1994. Upon hearing both sides, the Tribunal noted that a previous order had held that the cost of materials supplied by the service receiver should be included in the taxable value. However, the appellant cited a different decision in the case of Cemex Engineers v. CST, where it was held that the cost of materials need not be included in the taxable value. The appellant argued that this decision was not brought to the notice of the Tribunal during their own case proceedings. Additionally, the appellant contended that the service was not liable to service tax before 1-6-07 as it was a works contract. After considering the submissions, the Tribunal acknowledged the conflicting views and the time-barred nature of one show cause notice. Recognizing the possibility of two interpretations, the Tribunal found merit in the argument that the appellant had a prima facie case for waiver of pre-deposit and stay against the recovery of service tax, interest, and penalties during the appeal. Consequently, the Tribunal waived the requirement of pre-deposit and allowed the stay petition unconditionally during the pendency of the appeal.
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