2019 (11) TMI 385 - AT - Service Tax

Valuation - Site formation and clearance, excavation, earthmoving and demolition service and survey and exploration of mineral service - inclusion of the value of free supply of the explosives in the taxable value for calculation of service tax - Whether service tax confirmed by the Commissioner (Appeals) on the value of free supply of the explosives by J.K. White Cement to the appellant is includable in the assessable value of the taxable service or not? - period from September 2004 to May 2007. HELD THAT - The issue at hand has already been decided by Supreme Court in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT wherein it has been held that for levy of the service tax as per the provision of Section 67 of the Act the gross amount charged by the service provider from the service recipient means the amount which is billed by the service provider on the service recipient in the invoice and, therefore, the free supplies provided by service recipient to the service provider cannot form part of the taxable value of service. The value of the free supplies of the explosives by the service recipient to the appellant is not includable in the taxable value - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Service tax demand on site formation and clearance, excavation service.
2. Demand on inclusion of the value of free supply of explosives in taxable value.
3. Imposition of penalty under Sections 76, 77, and 78 of the Finance Act, 1994.

Analysis:

Issue 1: Service tax demand on site formation and clearance, excavation service
The show cause notice mentioned the appellant's engagement in providing taxable services under sections 65 (97a) and 65 (104a) of the Finance Act, 1994. The Additional Commissioner confirmed a service tax amount of &8377; 20,18,622/- but dropped the demand of &8377; 9,66,504/- related to the inclusion of the cost of explosives in the assessable value of the taxable service. The Commissioner (Appeals) held that the service tax leviable on the free supplies made by the recipient of the service should be considered as part of the taxable value. However, the appellant challenged this decision, arguing that the service tax demand was barred by the period of limitation and relied on previous court decisions to support their case.

Issue 2: Demand on inclusion of the value of free supply of explosives in taxable value
The Department appealed against the dropping of the demand of &8377; 9,66,504/- related to the free supply of explosives. The Commissioner (Appeals) allowed the appeal, stating that the service tax leviable on the difference between the value of free supplies and the service tax leviable on this amount should be recovered from the appellant. However, the Tribunal referred to a Supreme Court judgment which clarified that free supplies provided by the service recipient cannot form part of the taxable value of the service. Based on this precedent, the Tribunal set aside the decision of the Commissioner (Appeals) and held that the value of the free supplies of explosives should not be included in the taxable value.

Issue 3: Imposition of penalty under Sections 76, 77, and 78 of the Finance Act, 1994
The Department also challenged the decision of not imposing a penalty under Sections 76, 77, and 78 of the Finance Act, 1994. The Commissioner (Appeals) upheld the Adjudicating authority's decision, citing that the appellant had deposited the tax before the show cause notice was issued, showing a bonafide intent for compliance with the law. The Tribunal agreed with this reasoning and found no grounds to modify the decision regarding the penalty.

In conclusion, the Tribunal allowed the appeal, setting aside the decision of the Commissioner (Appeals) and holding that the value of the free supplies of explosives should not be included in the taxable value. The Tribunal also upheld the decision of not imposing a penalty under Sections 76, 77, and 78 of the Finance Act, 1994.