2017 (5) TMI 1196 - AT - Service Tax

Construction service - Valuation - value of material supplied free by clients for rendering services of commercial or industrial construction services - includibility - Held that - the issue is no more res integra as Larger Bench of the Tribunal in the case of Bhayana Builders (P) Ltd. vs. CST, Delhi 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) has held that the value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service, being neither monetary or non-monetary consideration paid by or flowing from the service recipient, accruing to the benefit of service provider, would be outside the taxable value or the gross amount charged, within the meaning of the later expression in Section 67 of the FA, 1994 - the value of free supplied material from the service recipient need not to be included in the value of discharge of service tax liability - appeal allowed - decided in favor of assessee.

Summary

Issues Involved:
1. Whether the value of material supplied free by clients should be included in the gross taxable value for service tax liability.
2. Whether certain non-taxable services provided by the appellant should be excluded from service tax computation.
3. Correctness of the service tax demand and interest imposed.
4. Correct imposition of penalty under Section 78 of the Act.

Analysis:

Issue 1: Value of Free Material in Taxable Value
The main issue in this case pertains to the service tax liability on the value of material supplied free by clients. Both lower authorities maintained that service tax should be calculated based on the value including the cost of free materials. However, referencing the precedent set by the Larger Bench in the case of Bhayana Builders (P) Ltd. vs. CST, Delhi, it was clarified that non-monetary considerations like free supplies should not be included in the taxable value. The judgment emphasized that for a consideration to be included, it must flow from the service recipient to the provider and accrue to the latter's benefit. As per the ruling, the value of free supplied material need not be considered in determining the service tax liability.

Issue 2: Exclusion of Non-Taxable Services
The appellant also raised the issue of excluding certain non-taxable services from the computation of service tax demand. However, the details of these services and their taxability were not explicitly discussed in the summary of the judgment provided.

Issue 3: Correctness of Service Tax Demand
The correctness of the service tax demand of ?42,72,793 along with interest was questioned. The judgment did not delve into the specifics of the demand calculation or the grounds on which it was contested.

Issue 4: Imposition of Penalty
The imposition of a penalty amounting to ?42,72,793 under Section 78 of the Act was challenged. The judgment did not elaborate on the circumstances leading to the penalty imposition or the arguments presented in this regard.

In conclusion, the appellate tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal based on the settled law established by the Larger Bench decision in the case of Bhayana Builders. The judgment emphasized that the value of free supplied material need not be factored into the service tax liability calculation, thereby rendering the impugned order unsustainable.