2016 (1) TMI 67 - AT - Service Tax

Valuation - inclusion of value of free supply - works contract - activity of blast hole drilling, controlled blasting with shock tube initiation, excavation, loading, transportation and dumping etc. of over-burden - Held that - value of diesel supplied by the service recipient free of cost to the assessee, who was providing site formation services, would not be a component of the gross value charged for services provided for the purpose of computation of tax under Section 67 of the Finance Act. - Decided in favor of assessee. Nature of bonus received conservative and efficient use of diesel and explosives - levy of service tax on such incentive received - Held that - the incentives given by M/s Singareni are for appreciating the appellants performance in utilizing less quantum of oil and explosives. In fact the said incentives were not even known at the time of performance of the service and are always calculated subsequent to the completion of the service. As such it can be safely concluded that the same is more in the nature of a prize money for a good performance by the appellant and are in no way linked to the value of the services. As such we find no justification for including the same in the value of the services and to confirm service tax on the same. - Demand set aside - Decided in favor of assessee.

Summary

Issues: Assessment of service tax on the value of free supply items and bonus received by the service provider.

Analysis:

1. Assessment of Service Tax on Free Supply Items:
The appellant, a service provider, was providing site formation services to M/s Singareni under an agreement which included the supply of explosives and diesel oils by Singareni. The Revenue contended that the value of these free supplies should be added to the assessable value of services for service tax assessment. The Commissioner confirmed the demand of service tax, interest, and penalties. The main issue was whether the value of free supply items should be considered for service tax assessment. The Tribunal referred to a previous decision by the Larger Bench in the case of Bhayana Builders (P) Ltd and held that the cost of free supply items should not be added to the assessable value of services. The Tribunal also cited other cases to support this decision, emphasizing that the value of free supplies cannot be considered a charge for the services provided. Consequently, the Tribunal set aside the demand on this count, ruling in favor of the appellant.

2. Assessment of Service Tax on Bonus Received:
The second issue revolved around the bonus received by the appellant from Singareni for efficient use of explosives and diesel oil. The bonus was contingent on the quantity of explosives and oil used by the appellant. The Tribunal analyzed various precedents where incentives or bonuses given to service providers were not considered part of the value of services for service tax purposes. The Tribunal cited cases such as Kerala Publicity Bureau Vs CCE and Euro RSCG Advertising Ltd Vs CST Bangalore to support its decision. It concluded that the bonus received by the appellant was more akin to prize money for good performance and was not linked to the value of services provided. Therefore, the Tribunal found no justification for including the bonus in the value of services for service tax assessment. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant.

In conclusion, the Tribunal ruled in favor of the appellant on both issues, holding that the value of free supply items and the bonus received should not be included in the assessable value of services for service tax assessment. The decision was based on established legal principles and precedents, ensuring a fair and just outcome for the appellant.