2023 (3) TMI 738 - AT - Service Tax

Valuation of services - inclusion of value of the free supplies in the taxable value - Abatement claim - appellant had constructed 11 culverts at the premises of India Cements Limited and paid service tax for the work on 33 % of the value and claimed 67% abatement - Department was of the view that as the appellant has received free supply of materials, they are not eligible to claim abatement under Notification No. 1/2006-ST. HELD THAT - The issue is no longer res integra and decided by the Hon ble Apex Court in the case of COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT . The said judgment has taken into consideration the issue even after the amendment brought forth in Section 67 of the Finance Act, 1994 - It was held in the case that The value of the goods/materials cannot be added for the purpose of aforesaid notification dated September 10, 2004, as amended by notification dated March 01, 2005. Thus, the demand cannot sustain and requires to be set aside - appeal allowed.

Summary

Issues:
Whether the appellant can claim abatement under Notification No. 1/2006-ST due to receiving free supplies of materials.

Analysis:
The appellant constructed culverts and paid service tax on 33% of the value, claiming 67% abatement. The department contended that as the appellant received free materials, they cannot claim abatement. A Show Cause Notice was issued, resulting in the confirmation of service tax by the original authority and the Commissioner (Appeals). The main issue was whether the value of free supplies should be included in the taxable value for service tax payment. The appellant relied on a Supreme Court judgment in the case of M/s. Bhayana Builders (P) Ltd., emphasizing that the gross amount charged should be for the service provided. The Tribunal analyzed Section 67 of the Finance Act, 1994, which specifies that service tax is payable on the gross amount charged by the service provider for the service provided. The Tribunal noted that the value of free supplies by the service recipient should not be included in the taxable value. The judgment highlighted that the language of the notification supported this interpretation, as it referred to the gross amount charged from the service recipient. The Tribunal set aside the demand, following the Supreme Court's decision, and allowed the appeal with consequential relief.

Conclusion:
The Tribunal ruled in favor of the appellant, holding that the demand for service tax cannot be sustained as the value of free supplies should not be included in the taxable value. The judgment provides a detailed analysis of the legal provisions and relevant case law to support the decision, emphasizing the importance of the gross amount charged for the service provided in determining the taxable value for service tax payment.