2016 (4) TMI 596 - AT - Service Tax

Demand of differential tax - Commercial or industrial construction service - non-inclusion of free supplies values in gross receipts before applying abatement of 67% allowed in notification no. 15/2004-ST, dated 10.9.2004. Held that - there is no doubt that the value of free supplies has not been included for computing tax liability by the appellant. The logic of essentiality of the material so supplied by the recipient of service is not comprehensible; the terms of supply are merely matters of commercial agreement between the supplier and recipient of service. That its inclusion is mandated by the reference to gross amount in section 67 of Finance Act, 1994 also does not find favour. Gross amount is a much misused term in taxation of services arising from the convenient uncoupling from the qualifying phrase i.e. for taxable service . We do not intend to delve deeply into this misconception; suffice it to say, that the use of gross receipts is intended to enable coverage of non-monetised consideration. Mutually agreed upon compensatory payments that are not reflected in invoices are intended to be captured for computing tax liability. Service Tax (Determination of Value) Rules, 2006 flows from the legislative empowerment in section 67 of Finance Act,1994 and the tax collector does not have the authority to read beyond the Rules and to adapt the provisions of section 67 for devising a formula that is, in his mind, compatible with his sense of equity and harmony. The issue is squarely covered by the decision of this Tribunal in Bhayana Builders (P) Ltd v. Commissioner of Service Tax, Delhi 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) , value of free supplies by service recipient do not comprise the gross amount charged under Notification No. 15/2004-ST, including the Explanation thereto as introduced by Notification No. 4/2005-ST. - Decided in favour of appellant

Summary

Issues:
1. Tax liability on construction services including free supplies.
2. Inclusion of value of free supplies in gross amount for tax computation.
3. Applicability of abatement notifications for tax liability calculation.
4. Interpretation of Service Tax (Determination of Value) Rules, 2006.
5. Legal constraints on inclusion of amounts in 'gross amount' for tax calculation.

Analysis:

1. The appellant, a construction service provider, appealed against an order confirming a differential tax amount for rendering 'commercial or industrial construction service' to M/s Raymonds Ltd. The issue arose from non-inclusion of the value of free supplies in the gross amount charged for tax computation.

2. The impugned order relied on notifications applicable to construction services and the necessity to include the value of goods and materials supplied in the gross amount. The adjudicating authority emphasized the indispensability of supplied materials for the service and cited legal provisions to support inclusion of free supplies in tax calculation.

3. The appellant argued that the issue was settled by a Larger Bench decision and contested the findings of the adjudicating authority. The Authorized Representative listed arguments supporting the impugned order, referencing legal precedents for their stance.

4. The Tribunal analyzed the legal framework and legislative intent behind tax laws. It emphasized the specific contents of the Rules for determining the value of taxable services and rejected the argument that free supplies constitute consideration for tax calculation.

5. Ultimately, the Tribunal found in favor of the appellant, setting aside the impugned order. It referenced the decision in Bhayana Builders (P) Ltd case, concluding that the value of free supplies by the service recipient does not form part of the gross amount charged for tax valuation.

This detailed analysis highlights the complexities surrounding tax liability on construction services, the inclusion of free supplies in tax computation, and the interpretation of relevant legal provisions and precedents in reaching a decision.