2008 (8) TMI 230 - AT - Service Tax

Appellant is providing taxable service of Commercial and Industrial Construction and also Construction of Residential Complex - appellant is entitled for an abatement of 67% of the gross amount charged by them - whether in view of the explanation to Notification No. 15/2004-S.T., the value of materials supplied by the clients should also be taken into account while calculating the gross receipts - prima facie, the appellants have a strong case in view of the various decisions quoted by them stay granted

Summary

Issues:
1. Whether the appellant is required to pre-deposit a sum for Service Tax short-paid and penalties under Sections 76 and 77 of the Finance Act, 1994.
2. Whether the value of materials supplied by the client should be included while calculating the gross receipts for a taxable service.

Analysis:

Issue 1:
The appellant, engaged in taxable services like "Commercial and Industrial Construction" and "Construction of Residential Complex," was directed to pre-deposit a significant sum for Service Tax short-paid and penalties. The department's stance was based on an explanation to Notification No. 15/2004-S.T., requiring consideration of materials supplied by clients in calculating gross receipts. However, the appellant contested this requirement, citing judicial precedents. Notably, the appellant referred to the Madras High Court's stay order in a similar case and the Supreme Court's decision emphasizing exclusion of materials supplied by the client for profit calculation in works contracts. The appellant also highlighted their registration and payment of Sales Tax under works contracts, arguing against double taxation.

Issue 2:
The dispute revolved around whether the value of materials supplied by the client should factor into the gross receipts calculation. The appellant relied on legal decisions emphasizing the exclusion of such material values for income computation in contract works. In contrast, the JCDR representing the revenue insisted on including the value of materials used by the service provider as per the notification's explanation. After thorough consideration, the Tribunal found merit in the appellant's arguments, noting the strength of their case supported by various judicial decisions and stay orders from High Courts. Consequently, the Tribunal granted a complete waiver of the pre-deposit amount and penalties until the appeal's disposal, with a stay on recovery even after 180 days. The final hearing was scheduled for a later date due to the complexity and significance of the matter.