2017 (10) TMI 407 - AT - Service Tax

Works contract service - valuation - inclusion of material supplied free of cost by the service provider in assessable value - the eligibility of the abatement N/N. 15/04-ST where under 67% abatement from the value of construction service provided - Held that - From the Explanation clause (a) (1) which can be seen that for the purpose of value of goods used in or in relation to the excecution of the works contract value of all the supplies which for a consideration or otherwise should be added. Therefore it is clear that whether the goods used by the service provider or otherwise supplied by the service recipient free of cost, value of all the goods should be included to arrive at the gross value of works contract - the value of free supply material also be added in the gross value of works contract, therefore the demand is sustainable on merit. Extended period of limitation - penalty u/s 78 - Held that - the appellant having knowledge about the inclusion of free supply material did not include the same and also suppressed the said fact from the department. It is also observed that they did not disclose the value of the free supply material in their ST-3 returns. This is not the case where the issue was under litigation or there is any interpretation of law involved - demand of extended period is sustainable - for the same reason the penalty imposed under Section 78 upheld. Appeal dismissed - decided against appellant.

Issues:
- Whether free supply material should be included in the gross value of works contract service for the purpose of service tax calculation.
- Whether the demand for service tax and penalty under Section 78 of the Finance Act is sustainable.

Analysis:
1. Inclusion of Free Supply Material in Gross Value:
- The appellant argued that free supply material should not be included in the gross value of works contract service based on various judgments, including Bhayana Builders Pvt. Ltd. case.
- The appellant contended that service tax should only be charged on consideration received in money, citing the decision of Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. UOI.
- The tribunal examined the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, which clearly state that the value of all goods used in the execution of the works contract should be included in the gross value, whether supplied for consideration or not.
- The tribunal upheld that the value of free supply material should indeed be added to the gross value of works contract, making the demand for service tax sustainable on merit.

2. Sustainability of Demand and Penalty:
- The Revenue argued that there was no ambiguity regarding the inclusion of free supply material as per the contract terms and the Works Contract Rules.
- The tribunal noted that the contract explicitly stated that service tax would be applicable on the value of free issue materials, indicating the appellant's awareness of this requirement.
- It was observed that the appellant did not disclose the value of free supply material in their returns, indicating suppression of facts.
- The tribunal found no legal ambiguity in the provision regarding the inclusion of free supply material, leading to the conclusion that the demand for an extended period and penalty under Section 78 were legally justified.
- Consequently, the tribunal upheld the impugned order, dismissing the appeal and affirming the sustainability of the demand and penalty.

In conclusion, the tribunal ruled in favor of including free supply material in the gross value of works contract service for service tax calculation. The demand for service tax and penalty under Section 78 of the Finance Act was deemed sustainable due to the lack of ambiguity in the legal provision and the appellant's failure to disclose the value of free supply material. The impugned order was upheld, and the appeal was dismissed on 28/09/2017.

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