2017 (9) TMI 1191 - AT - Service Tax

Valuation - construction service - inclusion of free of cost materials supplied - Revenue entertained a view that supply of such free of cost materials should be considered as advance payment for taxable service, with reference to date of supply of such materials - interpretation of Section 67 of the Finance Act, 1994 - Held that - reliance placed in the case of M/s Bhayana Builders (P) Ltd. & Others Versus CST, Delhi & Others. 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) , where it was 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 Finance Act, 1994. Free supplies by service recipient cannot be included in the gross value charged for taxable service - appeal allowed - decided in favor of appellant.

Summary

Issues: Valuation of construction service for tax liability, consideration of free materials as advance payment, interest liability, penalty under Section 76 of the Finance Act, 1994

In this case, the appellants, engaged in providing construction services, included the value of free materials received from the service recipient in their running bill for Service Tax purposes. The Revenue contended that the free materials should be considered as advance payment for taxable service, leading to interest liability. The original authority confirmed interest and imposed a penalty under Section 76 of the Finance Act, 1994. The appellant argued that free materials should not be considered as consideration for tax liability, citing a Tribunal decision. The Revenue maintained that the gross consideration, including the cost of materials, should be considered for tax liability under Section 67 of the Finance Act, 1994.

The Tribunal analyzed the case and noted that the appellant included the free materials in the gross value for Service Tax purposes but contested their includability. Relying on the Tribunal decision in a similar case, it was held that free supplies by the service recipient should not be included in the gross value charged for taxable service. The Tribunal interpreted Section 67 and relevant notifications on abatement to support this reasoning. Following the precedent set in the previous Tribunal case, the impugned order was set aside, and the appeal was allowed.