2018 (12) TMI 875 - AT - Service Tax

Valuation - includibility - inclusion of value of reinforcement steel and cement received free of cost in assessable value - N/N. 1/2006-ST dated 1.3.2006 - Held that - Explanation (c) to Section 67 only provides for the modes of payments of book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term gross amount charged to enable the department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered - the value of the items supplied by the customers to the service provider on FOC basis is not includable in the taxable value of the service - demand set aside. Levy of equal penalty - Held that - The appellants are big players in the field of construction. They cannot claim themselves to be at par with common man with average intelligence as claimed - appellant have not made any case to show the absence of mala fide intention - penalty imposed is restricted to 25% i.e. ₹ 8,19,008/-. Appeal allowed in part.

Summary

Issues:
1. Includability of items supplied free of cost by customers in taxable value of service.
2. Imposition of penalty under Sections 76, 77, and 78.
3. Levy of equal penalty on duty liability accepted by the appellant.

Analysis:

Issue 1: Includability of items supplied free of cost by customers in taxable value of service

The case involved M/s. Shapoorji Pallonji and Company Ltd., providing construction services. The dispute arose when the department contended that the appellant did not include the value of reinforcement steel, cement, and ready mix concrete supplied free of cost by customers in the taxable value of the service. The Commissioner imposed a significant penalty under Sections 76, 77, and 78. The appellant relied on the case of Commissioner of Service Tax vs. Bhayana Builders Pvt. Ltd. where it was held that the value of goods/materials supplied by service receivers on a free-of-cost basis should not be added to the gross amount charged for service tax computation. The Tribunal concurred with this view, setting aside the demand for service tax on items supplied free of cost by customers, thereby nullifying the associated interest and penalty.

Issue 2: Imposition of penalty under Sections 76, 77, and 78

Regarding the penalty imposed under Sections 76, 77, and 78, the appellant argued that there was no mala fide intention to evade tax, and they had paid the service tax along with interest before the show-cause notice. The Tribunal noted that the appellant failed to provide substantial evidence to prove the absence of mala fide intention. However, considering the appellant's compliance with the tax payment before the notice, the penalty was restricted to 25% of the duty amount, amounting to &8377; 8,19,008.

Issue 3: Levy of equal penalty on duty liability accepted by the appellant

The appellant had accepted the duty liability on the ready mix concrete supplied to a customer. The Tribunal acknowledged the payment of service tax before the show-cause notice and the absence of mala fide intention. Consequently, the penalty was reduced to 25% of the duty amount, totaling &8377; 8,19,008. The Tribunal allowed the appeal concerning the demand for service tax on items supplied by customers on a free-of-cost basis and confirmed the duty on the ready mix concrete, restricting the penalty to 25% of the duty amount.

This detailed analysis of the judgment highlights the key issues addressed by the Tribunal and the legal principles applied to resolve the dispute.