2018 (8) TMI 323 - AT - Service Tax

Benefit of N/N. 01/2006-ST - inclusion of value of free supplied materials in the gross amount - Held that - The issue of materials supplied free by the service receiver has been finally settled by the Hon ble Supreme Court in the case of M/s Bhayana Builders (P) Ltd., 2018 (2) TMI 1325 - SUPREME COURT OF INDIA , where it has been held that the value of free supply of goods or materials by the service recipient is not includible in the gross amount, for calculation of Service Tax even if the assessee claims abatement of service tax - demand set aside. Demand on mobilization advance paid - point of Taxation Rules - the relevant period of demand in this show cause notice is 2007-2008 to 2011-2012 and the last mobilization advance was paid on 01.12.2010 - Held that - It has been held in the case of Thermax Instrumentation Ltd., 2015 (12) TMI 1222 - CESTAT MUMBAI that the advances received by the appellants are not receipts but are in the form of loan given to them and not a payment against invoice and service tax cannot be levied on them - In this case, although interest is not charged by the service provider he takes a counter guarantee in the form bank guarantee from the service provider for an equal amount while providing advance. The service recipient is free to encash the bank guarantee at any time. The cost of the bank guarantee is incurred by the appellant - Thus, there is no case to add an amount of notional interest in the value of taxable services rendered - demand set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Inclusion of the value of free supply of materials in the assessable value for service tax calculation.
2. Tax liability on mobilization advance received towards service provision.

Issue 1 - Free Supply of Materials:
The case involved a contractual agreement between parties for construction work, where the service recipient provided materials like cement and steel for the project. The appellant argued that the value of free materials should not be included in the assessable value for service tax calculation, citing a Supreme Court judgment. The tribunal agreed with this argument, following the precedent set by the Supreme Court in the case of M/s Bhayana Builders Pvt. Ltd. The tribunal held that the value of free materials supplied by the service recipient is not to be included in the gross amount for service tax calculation, even if abatement is claimed.

Issue 2 - Mobilization Advance Tax Liability:
Regarding the tax liability on mobilization advance received, the tribunal considered the Point of Taxation Rules, 2011, which determine the point of taxation for advances received towards services. The tribunal noted that the mobilization advances in question were received before the rules came into force, and thus, the appellant was not liable to pay service tax on these advances. Citing a previous case, the tribunal held that advances received are akin to loans and not payments against services, and therefore, service tax cannot be levied on them. The tribunal also rejected the argument that notional interest should be added to the value of taxable services, as the appellant had provided a bank guarantee to secure the advance. Ultimately, the tribunal found the demand on this account not sustainable and allowed the appeal, setting aside the Order-in-Original.

In conclusion, the tribunal allowed the appeal, setting aside the impugned Order-in-Original, based on the findings related to the non-inclusion of the value of free supply of materials in the assessable value and the tax liability on mobilization advance received towards service provision.