2014 (8) TMI 627 - AT - Service Tax

Valuation - inclusion of material supplied by the customers - Commercial and Industrial Construction service - Works Contract Service - Penalties under Section 76, 77 and 78 - Held that - value of gods and material supplied free of cost by the service recipient to the provider of taxable construction service, being neither monitory or non-monitory construction paid by or flowing from the service recipient, occurring to the benefit of service provider, would be outside the taxable value or the gross amount charges, within the meaning of later expression in Section 67 of the Finance Act, 1994 and these free supplies do not comprise the gross amount charged under Notification no. 15/04-ST including the explanation thereto as introduced by Notification 4/05-ST. Therefore, we hold that these demands are not sustainable at all. Demand has been confirmed for the value of material supplied by the customers under the category of Works Contract Service. As per Notification 23/09 dated 07.07.2009 shall not be included where works has been commenced prior to issuance of the said Notification. As submitted by the counsel for the appellant that out of 10 contracts, in 3 contract work has been commenced before 07.07.2009 where service tax on free material supplied is not leviable. This fact is to be verified from the records. Therefore, it needs examination at the end of the Adjudicating Authority to ascertain the fact that if the work has commenced prior to 07.07.2009 the free supply of material may not be includable in the taxable service. Therefore, free supply of material shall not be includable in the taxable service under the category of Works Contract Service. Demand has been confirmed on the basis of figures of Profit & Loss Account during October 2007 to March 2012 under the category of Commercial and Industrial Construction service, Erection, Commissioning or Installation Service. In the impugned order, no classification has been provided and it has not been specified why the service tax is payable under these categories. Moreover, the value of service tax paid by the appellant is shown in Profit & Loss Account figures in the gross value of service provided. Further, till 31.3.2011, the service tax was payable on realisation basis. In these circumstances, the Adjudicating Authority requires verification/examination of the documents to ascertain the correct liability of service tax payable by the appellants - matter remitted back - Decided in favour of assessee.

Summary

Issues:
1. Demand of service tax under Commercial and Industrial Construction service.
2. Demand of service tax under Works Contract Service.
3. Demand of service tax based on Profit & Loss Account figures.

Analysis:

1. Demand of service tax under Commercial and Industrial Construction service:
The appellant contested the demand of service tax on the value of materials supplied by customers, arguing that such materials should not be considered as consideration for abatement purposes. The appellant relied on the decision in Bhayana Builders (P) Ltd. case. The Tribunal held that free supplies of goods and materials by the service recipient do not form part of the taxable value, as they do not constitute monetary or non-monetary consideration. Therefore, the demand of &8377; 1,48,74,141/- was deemed unsustainable.

2. Demand of service tax under Works Contract Service:
A demand of &8377; 9,90,50,094/- was confirmed for the value of materials supplied by customers under Works Contract Service. The appellant argued that for contracts commenced before 07.07.2009, the free supply of materials should not be included in taxable service. The Tribunal directed the Adjudicating Authority to verify the commencement dates of the contracts to determine the applicability of service tax on free material supply. It was held that free supply of material should not be included in the taxable service under Works Contract Service.

3. Demand of service tax based on Profit & Loss Account figures:
The demand based on Profit & Loss Account figures for Commercial and Industrial Construction service, Erection, Commissioning, or Installation Service lacked proper classification and justification. The Tribunal noted that till 31.3.2011, service tax was payable on realization basis, while the accounts were prepared on an accrual basis. The Adjudicating Authority was directed to examine the documents to determine the correct service tax liability. The Tribunal remanded the matter back for denovo adjudication, considering the appellant's defenses and ensuring a fair opportunity for presenting their case.

In conclusion, the Tribunal set aside the impugned order, waived the requirement of pre-deposit for the balance amount, and remanded the case back to the Adjudicating Authority for a fresh determination of the correct service tax liability.