2020 (4) TMI 103 - AT - Service Tax

Valuation - repair and servicing of earthmoving equipment - free supply of goods by recipient of service - separate invoicing of the materials utilised in rendering the service - to be included in assessable value or not - section 67 of Finance Act, 1994 as clarified in circular no. 96/7/2007-ST dated 23th August 2007 of Central Board of Excise Customs - HELD THAT - In the present instance, it is not in doubt that goods have been transferred to the recipient of the service; it is the incorporation of the goods within the article that has been subject to the service, and the ramifications thereof, that is. In the context of judicially determined mutuality, the extent to which section 67 of Finance Act, 1994 can be stretched is the crux of resolution. The jurisdictional competence to enforce VAT liability excludes us, as well as the adjudicator, from authority to ascertain the discharge of tax liability on the goods component of the impugned transactions. The adjudicating authority has, thus, erred in presuming to the contrary in the absence of particulars in the invoices. The supply of consumables by the recipient does not constitute consideration to which value was required to be assigned for enhancing the gross amount charged in section 67 of Finance Act, 1994. Neither the circulars of Central Board of Excise Customs, advising the inclusion of all expenditure incurred for rendering services, nor the expansion of consideration to encompass consumables , that does not add to the assets of the provider of service, have sanction of law. The differential tax confirmed in the impugned order cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:

1. Whether free supply of goods by the recipient of service constitutes additional consideration mandated by section 67 of the Finance Act, 1994.
2. Whether the 'gross amount charged by the service provider for such service provided' in section 67 of the Finance Act, 1994 suffices to overcome the constitutional barrier erected by Article 366 (29A) of the Constitution of India.

Issue-wise Detailed Analysis:

1. Free Supply of Goods by Recipient of Service:

The adjudicating authority included the cost of materials invoiced separately and consumables supplied by the recipient of the service in the assessable value, treating them as inputs integral to the value of taxable service. This was based on section 67 of the Finance Act, 1994, as clarified by Central Board of Excise & Customs circular no. 96/7/2007-ST dated 23rd August 2007, which mandated goods used in providing service to be treated as inputs.

However, the tribunal referenced the Supreme Court ruling in Commissioner of Service Tax v. Bhayana Builders Pvt Ltd [2018 (10) GSTL 118 (SC)], which established that the value of goods/materials provided by the service recipient free of charge should not be included in the gross amount charged by the service provider. The tribunal concluded that the supply of consumables by the recipient does not constitute consideration and thus should not be included in the gross amount charged under section 67 of the Finance Act, 1994.

2. Gross Amount Charged and Constitutional Barrier:

The tribunal examined whether the 'gross amount charged' in section 67 of the Finance Act, 1994, could include the value of goods supplied free of charge by the recipient, in light of the constitutional provisions under Article 366 (29A). The tribunal noted that the adjudicating authority's rejection of excluding the goods component due to lack of evidence of VAT liability was incorrect. The Supreme Court in Commissioner of Central Excise, Kerala v. Larsen & Toubro Ltd [2015 (39) STR 913 (SC)] had clarified that the goods element in a composite contract should be excluded from service tax liability.

Further, the tribunal referred to the Supreme Court's decision in Union of India v. Intercontinental Consultants and Technocrats Pvt Ltd [2018 (10) GSTL 401 (SC)], which emphasized that service tax should be levied only on the value of the service provided and not on the value of goods supplied by the recipient. The tribunal held that the adjudicating authority erred in including the goods component in the value of services rendered, as it lacked legal backing.

Resolution:

The tribunal set aside the impugned orders, holding that the inclusion of the goods and consumables supplied by the recipient in the assessable value was not justified. The appeals were allowed, and the differential tax confirmed in the impugned order was not sustained.

Conclusion:

The tribunal's judgment clarified that the value of goods and consumables supplied by the recipient should not be included in the assessable value for service tax purposes. The decision reinforced the principle that service tax should be levied only on the value of the service provided, in accordance with section 67 of the Finance Act, 1994, and relevant judicial precedents.