2011 (8) TMI 586 - HC - Service Tax

Assessee paid service tax, service receiver supplied diesel/HSD oil, explosives and other accessories at the site - value of goods unknown not included in taxable services - Revenue issued show cause notice on differential amount - The case of the petitioner before the Appellate Tribunal was as per the notification 12/2003-ST, dated June 20, 2003 consumables supplied at free of cost by the recipient of the service is not consideration received by it indudible in the taxable value and free supply of these materials did not entail any benefit to the assessee and therefore, the same do not constitute consideration indudible in the taxable value. - Held That - Oncee the recipient of service SCCL agreed to supply material, cost of the same has to be included in the taxable value or not has to be decided by the Appellate Tribunal on interpretation of agreed clause, etc. No prima facie case for waiver of pre deposit. Writ petition is accordingly dismissed

Issues:
Assessment of penalties under sections 76 and 77 of the Finance Act, 1994 for service tax non-payment on goods supplied by the service receiver. Appeal for waiver of pre-deposit before the Customs, Excise and Service Tax Appellate Tribunal. Interpretation of statutory provisions and notifications regarding taxable value in service contracts involving supply of goods by the service receiver.

Detailed Analysis:

1. Assessment of Penalties:
The petitioner, a registered dealer in the Service Tax Department, faced penalties under sections 76 and 77 of the Finance Act, 1994, for not paying service tax on goods supplied by the service receiver. The adjudicating authority confirmed the demand without quantifying penalties, leading to the petitioner's appeal before the Appellate Tribunal seeking waiver of pre-deposit. The Tribunal, in a similar case, granted total waiver of pre-deposit, but in this instance, the waiver was conditional upon payment of a significant amount within a specified period. The petitioner contended that the value of goods supplied was not known to them and should not be included in the taxable value.

2. Interpretation of Statutory Provisions:
The petitioner argued that the value of goods supplied by the service receiver should not be considered in the taxable value for service tax purposes, citing Notification No. 12/2003 S. T., which exempts the value of goods and materials sold by the service provider to the recipient of service from service tax, provided there is documentary proof of the value. The petitioner relied on precedents and notifications to support their claim that free supplies by the service receiver should not be part of the consideration charged under the Finance Act.

3. Legal Precedents and Notifications:
The petitioner referenced legal precedents and notifications to support their argument that the cost of goods supplied by the service receiver should not be included in the taxable value for service tax calculation. They cited a case where the Supreme Court upheld a decision that the value of materials consumed in providing services should not be included in the taxable value for service tax purposes. The petitioner contended that the free supplies by the service receiver did not constitute consideration indudible in the taxable value.

4. Contractual Interpretation:
The contractual terms between the petitioner and the service receiver regarding the supply of explosives and accessories were examined. The terms specified that the service provider would select an explosive supplier, and the prices of explosives and accessories would be based on prevailing order prices. The agreement outlined penalties for excess consumption of explosives and accessories, recoverable from the contractor's bills. The interpretation of these contractual clauses was crucial in determining whether the cost of supplies should be included in the taxable value.

5. Final Judgment:
The High Court dismissed the writ petition, stating that the petitioner did not establish a prima facie case for waiver of pre-deposit on the value of goods supplied by the service receiver. However, the Court extended the time for pre-deposit by four weeks and directed the Tribunal to proceed with the appeal promptly. The Court emphasized the need for expeditious resolution of the case, preferably within four months from the date of the order.

In conclusion, the judgment addressed issues related to penalties for non-payment of service tax on goods supplied by the service receiver, interpretation of statutory provisions and notifications governing taxable value, legal precedents supporting the exclusion of certain costs from taxable value, and the contractual terms between the parties. The Court's decision highlighted the importance of compliance with tax regulations and the need for a thorough analysis of contractual terms in service transactions involving the supply of goods.

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