2019 (4) TMI 535 - AT - Service Tax

Short payment of Service tax - Commercial Construction Services - recovery of short paid service tax with interest and penalty - inclusion of value of free supplied material in assessable value - Exemption Notification dated 01 March, 2006. Inclusion of Cost of material supplied free by the service recipient - non-consideration of judgement on which reliance was placed upon - principles of natural justice - Held that - The decision of the larger Bench of the Tribunal in Bhayana Builders (P) Ltd. 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) and the decision of the Supreme Court in Bhayana Builders (P) Ltd. 2018 (2) TMI 1325 - SUPREME COURT OF INDIA , are clearly applicable to the facts of the case inasmuch as the charge in the show cause notice was that the cost of free supplied material should have been included in the gross value. The Commissioner has ignored the decision of the larger Bench by simply observing that the facts of the case before the Commissioner were not squarely covered, without even giving any reason as to why they were not covered. In fact, as noticed above, the issue required to be decided by the Commissioner stood answered in favour of the Appellant in the said decision - there is no hesitation in setting aside the finding recorded by the Commissioner that the value of goods supplied free of cost to the Appellant was required to be included in the gross value. Denial of benefit of Exemption Notification dated 01 March, 2006 - denial for the reason that the Appellant had availed the benefit of Cenvat Credit in relation to the work order relating to soil testing - Held that - The proviso to the Exemption Notification dated 01 March, 2006 provides that the Notification shall not apply if the Cenvat Credit has been used for providing such taxable service . The taxable service under consideration is Commercial or Industrial Construction Service . The Cenvat Credit availed by the Appellant in regard to Consulting Engineer Service cannot, therefore, be taken into consideration - The Appellant had not availed any input credit for the second works order relating to actual construction. It cannot be urged that the taxable service of Consulting Engineer Service can be considered as a composite service with Commercial Construction Service since it has an essential character of construction - the benefit of Exemption Notification dated 01 March, 2006 cannot be denied. Benefit of abatement of service tax - demand of Service Tax amounting to ₹ 7,81,030/- on amount of ₹ 63,19,012/- - Commissioner has recorded that the benefit of 67% abatement obtained by the Appellant would not be available as the Appellant did not fulfil the condition of the said Exemption Notification dated 01 March, 2006 - Held that - The Appellant had taken a specific stand in response to the show cause notice that the details in the data sheet were of invoices submitted to M/s GTL from May 2007 to August 2007 against which the Appellant expected payments to be made, but had actually received payment in 2008 and, thereafter, the Service Tax on the payment received against these invoices were paid on 09 July, 2008 and were included in the ST-3 Returns for the period April, 2008 to September, 2008. This factual position has been found to be correct by the Commissioner, but what prevailed upon the Commissioner to deny the benefit of 67% abatement claimed by the Appellant was that the conditions set out in the Exemption Notification dated 01 March, 2006 had not been fulfilled. The order dated 28 August, 2014 passed by the Commissioner is set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Non-inclusion of value of free supplied material in gross value.
2. Denial of benefit of Exemption Notification dated 01 March, 2006.
3. Non-payment of Service Tax amounting to ?7,81,030/- on the amount of ?63,19,012/-.

Issue-wise Detailed Analysis:

1. Non-inclusion of value of free supplied material in gross value:

The Commissioner held that the Appellant short-paid Service Tax by paying on the abated value instead of the gross value, as it did not include the value of free supplied material in the gross value declared in the Service Tax returns. The Appellant contended that the value of free supplied material was not required to be included as per the larger Bench decision in Bhayana Builders (P) Ltd. vs Commissioner of Service Tax, Delhi, which was affirmed by the Supreme Court. The Tribunal observed that the larger Bench decision clearly stated that the value of goods and materials supplied free of cost by a service recipient to the provider of taxable construction service would be outside the taxable value or the gross amount charged. The Commissioner ignored this decision without providing reasons. Thus, the Tribunal set aside the finding that the value of goods supplied free of cost was required to be included in the gross value.

2. Denial of benefit of Exemption Notification dated 01 March, 2006:

The Commissioner denied the benefit of the Exemption Notification on the ground that the Appellant availed Cenvat Credit on input services for soil testing, which was considered directly related to ‘Commercial Construction Service’. The Appellant argued that two separate work orders were issued: one for soil testing (Consulting Engineer Service) and another for construction (Commercial Construction Service), and Cenvat Credit was availed only for the former. The Tribunal noted that soil testing is conducted to determine the feasibility of construction, and no Cenvat Credit was availed for the construction service. The Tribunal held that the taxable service of ‘Consulting Engineer Service’ cannot be considered a composite service with ‘Commercial Construction Service’. The proviso to the Exemption Notification specifies that it shall not apply if Cenvat Credit has been used for providing 'such taxable service', which in this case is ‘Commercial or Industrial Construction Service’. Therefore, the Tribunal set aside the finding that the benefit of the Exemption Notification was not available due to availing Cenvat Credit for soil testing.

3. Non-payment of Service Tax amounting to ?7,81,030/- on the amount of ?63,19,012/-:

The Commissioner recorded that the Appellant did not fulfill the condition of the Exemption Notification dated 01 March, 2006, thus denying the benefit of 67% abatement. The Appellant clarified that the amount of ?63,19,012/- pertained to invoices submitted from May 2007 to August 2007, and payments were received in 2008, with Service Tax paid in July 2008 and included in the ST-3 Returns for April 2008 to September 2008. The Tribunal found that the Commissioner’s denial was based on the grounds of non-inclusion of free supplied material and availing Cenvat Credit for ‘Consulting Engineer Service’, both of which were set aside. Consequently, the Tribunal set aside the finding that Service Tax amounting to ?7,81,030/- was recoverable from the Appellant.

Conclusion:

The Tribunal set aside the order dated 28 August, 2014 passed by the Commissioner, allowing the consequential benefits to the Appellant.