2021 (2) TMI 49 - AT - Service Tax

Valuation of taxable services - inclusion in assessable value, the items supplied on free of cost - whether comes within the ambit of the term consideration or not - HELD THAT - This precise issue came up for consideration before the Supreme Court in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT as the issue before the Supreme Court was also whether the value of goods/material supplied or provided free of cost by a service recipient and used for providing the taxable service of construction or industrial complex is to be included in the computation of gross amount for valuation of the taxable service under section 67 of the Finance Act. The Supreme Court observed that a plain reading of the expression the gross amount charged by the service provider for such service provided or to be provided by him‟ would lead to the conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the gross amount‟ for the reason that no price is charged by the assessee/ service provider from the service recipient in respect of such goods/materials. The decision of the larger bench of the Tribunal in M/S BHAYANA BUILDERS (P) LTD. OTHERS VERSUS CST, DELHI OTHERS. 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) and the decision of the Supreme Court in Bhayana Builders are clearly applicable to the facts of the present case inasmuch as the charge in the show cause notice is that the cost of material supplied free of cost should be included in the gross value of the taxable service provided by the appellant. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Inclusion of value of items supplied free of cost in the taxable value of mining services.
2. Applicability of section 67 of the Finance Act, 1994.
3. Relevance of the decision in Bhayana Builders (P) Limited vs CST, Delhi.
4. Invocation of the extended period of limitation and imposition of penalties.

Detailed Analysis:

1. Inclusion of Value of Items Supplied Free of Cost in Taxable Value:
The appellant, M/s TCL - MMPL Consortium, challenged the inclusion of the value of items supplied free of cost by M/s Hindustan Copper Limited (HCL) in the taxable value of mining services. The Commissioner of Central Excise, Jodhpur, had confirmed the demand for service tax on these items, asserting that without these items, the taxable service could not have been rendered. The Commissioner argued that these items are essential and have a nexus with the services provided, thereby includible in the gross value of taxable service.

2. Applicability of Section 67 of the Finance Act, 1994:
The appellant contended that the value of items supplied free of cost does not form part of the taxable value of mining services under section 67 of the Finance Act, 1994. Section 67(1)(ii) states that the value of a service provided for a consideration "not wholly or partly consisting of money" should be such an amount in money that, with the addition of service tax, is equivalent to the consideration. The appellant argued that since the items provided free of cost do not constitute consideration, they should not be included in the taxable value.

3. Relevance of the Decision in Bhayana Builders (P) Limited vs CST, Delhi:
The Supreme Court in Bhayana Builders had ruled that the value of goods/materials provided free of cost by a service recipient should not be included in the gross amount charged for taxable services. The Tribunal's larger bench had also concluded that such free supplies are neither monetary nor non-monetary consideration and are outside the taxable value of the "gross amount charged" under section 67 of the Finance Act. The appellant relied on this decision, which was affirmed by the Supreme Court, to argue that the value of items supplied free of cost should not be included in the taxable value of mining services.

4. Invocation of the Extended Period of Limitation and Imposition of Penalties:
The appellant also argued against the invocation of the extended period of limitation and the imposition of penalties. However, the Tribunal did not find it necessary to examine these contentions in detail, given the decision on the primary issue.

Tribunal's Decision:
The Tribunal concluded that the decision in Bhayana Builders is applicable to the present case. The Tribunal noted that the Division Bench decision in ABL Infrastructure Pvt. Ltd., which the Department relied upon, was based on the provisions of the works contract composition scheme and not relevant to the present case. The Tribunal found no rule or notification requiring the inclusion of the cost of materials supplied free of cost in the value of mining services. Consequently, the Tribunal set aside the order dated November 29, 2016, passed by the Commissioner and allowed the appeal.

Conclusion:
The Tribunal's judgment emphasized that the value of items supplied free of cost by the service recipient should not be included in the taxable value of mining services provided by the appellant, aligning with the Supreme Court's decision in Bhayana Builders. The Tribunal set aside the Commissioner's order and allowed the appeal, providing relief to the appellant.