2018 (11) TMI 225 - AT - Service Tax

Valuation - Commercial or Industrial Construction Services - inclusion of FOC material while claiming abatement of 67% as provided under N/N. 15/04-ST or N/N. 1/2006-ST dated 01.03.2006 - whether the value of construction material as provided free by M/s.NTPC (the service recipient) to M/s. NBCC (the service provider) for the purpose of providing services under the category of commercial or industrial construction services is required to be added in the value of the services or not? Held that - After the amendment, Section 67 of the Act says that where the service tax is chargeable on any taxable service with reference to its value, then such value shall in a case when the provision of service is for consideration in money be the gross-amount charged by the service provider for such service. (as is mentioned in sub-clause (i) thereof). However, as per sub-clause (ii) thereof where provision of service is for a consideration not wholly or partly consisting of money, the value shall be such amount in money as with addition to service tax charged is equivalent to consideration and where the provision of service is for consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. Thus, after the amendment in Section 67 of the Act the explanation thereof purports to define the expressions consideration money and gross amount charged . Such material provided by the service recipient is to be used for service recipient only. Hence no benefit has accrued to the service provider due to the said free construction material. Therefore, we are of the opinion that the said construction material would not constitute a non-monetary consideration - Thus, gross amount charged shall include the construction material if and only if some value is charged for the same. Hence, the construction material supplied by the service recipient free of cost, the amount thereof is not the gross amount taxable value as not being charged. However, for the construction material (may be minor) as used by the service provider i.e. the appellant he is liable to take the benefit of this Notification. The adjudicating authority has committed an error while interpreting the provisions qua valuation of the taxable service and has also committed an error while ignoring the settled principle of law rather has relied upon the over ruled decision. The findings are therefore liable to be set aside. Time Limitation - Held that - Burden of proof of proving malafide conduct under the proviso to Section 28 of the Act lies with the Revenue that in furtherance of the furtherance of the same specific averments should find mention in the SCN, which is the mandatory requirement for commencement of the action under the said proviso, and where nothing on record displays a wilful default on the part of the assessee, extended period of limitation under the said provision couldn t be invoked against the assessee - the impugned SCN as being barred by time. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the value of construction material provided free by the service recipient (M/s. NTPC) should be included in the taxable value of services provided by the appellant (M/s. NBCC).
2. Whether the appellant is entitled to the benefit of Notification No. 15/2004-ST or Notification No. 1/2006-ST.
3. Whether the Show Cause Notice (SCN) was issued within the permissible time limit.

Detailed Analysis:

1. Inclusion of Free Construction Material in Taxable Value:
The primary issue was whether the value of construction materials provided free of cost by M/s. NTPC to M/s. NBCC should be included in the taxable value for service tax purposes. The Tribunal observed that Section 66 of the Finance Act levies tax only on the taxable service, and Section 67 provides the valuation mechanism. Before the amendment on 18.04.2006, the value of any taxable service was the gross amount charged by the service provider. The Tribunal noted that the consideration, as defined in Section 2 D of the Contract Act, 1872, means a reasonable equivalent for other valuable benefits passed from the promisee to the promisor. Applying this interpretation, the Tribunal concluded that since the construction materials provided by M/s. NTPC were used for their own benefit and no benefit accrued to M/s. NBCC, such materials did not constitute non-monetary consideration. Therefore, the value of these free materials should not be included in the taxable value.

2. Entitlement to Notification Benefits:
The Department contended that the appellant was not entitled to the benefits of Notification No. 15/2004-ST or Notification No. 1/2006-ST as the cost of materials supplied by the service provider was not included. The Tribunal referred to the Notifications, which exempt taxable services provided by a commercial concern to any person in relation to construction services from so much of the service tax as is in excess of the service tax calculated on a value equivalent to 33% of the gross amount charged. The Tribunal clarified that the "gross amount charged" includes the value of goods and materials supplied or provided by the service provider. However, since the materials were supplied free of cost by the service recipient, their value was not included in the gross amount charged. Therefore, the appellant was entitled to the abatement as per the Notifications, and the Department's objection was not sustainable.

3. Timeliness of the Show Cause Notice:
The Tribunal addressed the issue of whether the SCN was issued within the permissible time limit. The period in dispute was from October 2004 to March 2006, and the SCN was issued on 12.04.2010. The normal period for raising a demand is one year, but the Department can invoke an extended period of up to five years under the proviso to Section 73 of the Central Excise Act, 1944, provided there is suppression or misrepresentation of facts with an intention to evade tax. The Tribunal emphasized that the burden of proving malafide conduct lies with the Department, which must provide specific averments in the SCN. In this case, the Tribunal found no evidence of willful default by the appellant and held that the SCN was barred by time.

Conclusion:
The Tribunal set aside the order under challenge, concluding that the adjudicating authority erred in interpreting the provisions related to the valuation of taxable services and ignored settled legal principles. The appeal was allowed, and the operative part of the judgment was pronounced in open court.