2010 (1) TMI 186 - AT - Service Tax

Commercial or industrial construction services- The assessee was engaged in lying of pipeline for its customers. As per the arrangement with the customers, the pipe were being supplied by the service receivers to the assessee. In terms of Notification No. 15/2004-ST, dated 10.09.2004 as amended from 16.6.2005, the assessee was paying service tax on 33 percent of the gross amount charged from the service receiver. The department relying upon Explanation to said notification took view that since the assessee did not include the value of the pipes provided by the customers for arriving at the gross amount charged under the Notification No. 15/2004-ST, it was not entitled to the benefit of the said notification. Held that- the value of the pipes which was used for lying pipeline was not included, the assessee would not be eligible for abatement under Notification No. 15/04-ST as amended. Penalty- under section 76 and 78 for suppressing the value of taxable services. Held that matter in the instant case was related to interpretation of law. thus no penalty u/s 78 and for the penalty u/s 76 the matter is to be remanded.

Issues Involved:
1. Liability to include the value of free supply materials (pipes) in the gross amount charged for service tax purposes.
2. Eligibility for abatement under Notification No. 15/2004-ST.
3. Applicability of extended period of limitation and penalties under sections 76 and 78 of the Finance Act, 1994.
4. Demand of service tax under the category of erection, commissioning, and installation services.

Issue-Wise Detailed Analysis:

1. Liability to Include Value of Free Supply Materials:

The appellants, engaged in laying pipelines, did not include the value of pipes supplied free of cost by customers in the gross amount charged for service tax purposes. The Department argued that under Notification No. 15/2004-ST, the value of free supply materials must be included in the gross amount charged. The appellants contended that the main part of the notification refers to tax being payable "on 33 per cent of the gross amount charged from any person," and thus, materials provided by the customer should not be included. They argued that sections 66 and 67 of the Finance Act, 1994, which define the value of taxable services as the gross amount charged by the service provider, support their position. However, the Tribunal found that section 67 and the Service Tax (Determination of Valuation Rules), 2006, require consideration in both monetary and non-monetary terms to be included in the value of taxable services. Therefore, the value of free supply materials must be included in the gross amount charged.

2. Eligibility for Abatement Under Notification No. 15/2004-ST:

The appellants claimed eligibility for abatement under Notification No. 15/2004-ST, which allows service tax to be calculated on 33 per cent of the gross amount charged. They argued that the notification should be read in harmony with sections 66 and 67, and that the value of free supply materials should not be included. The Tribunal disagreed, stating that the Explanation to the notification clarifies that the gross amount charged includes the value of goods and materials supplied, provided, or used by the service provider. The Tribunal concluded that the value of pipes supplied by the customer must be included in the gross amount charged to avail the abatement.

3. Applicability of Extended Period of Limitation and Penalties:

The appellants argued that there was no suppression of facts and that the dispute was a matter of interpretation of a new levy. They provided a detailed list of dates and events to show that they had disclosed all necessary information to the Department. The Tribunal agreed that the issue was a matter of interpretation and that different views were possible. Therefore, the extended period of limitation could not be invoked, and penalties under section 78 of the Finance Act, 1994, should not have been imposed. The Tribunal remanded the matter to the original adjudicating authority to revise the duty demand within the period of limitation and reconsider the liability for penalty under section 76.

4. Demand of Service Tax Under Erection, Commissioning, and Installation Services:

The appellants provided sand blasting, painting, coating, and wrapping services to a customer and paid service tax under the category of erection, commissioning, and installation services. They did not contest the levy of service tax but argued against the imposition of penalties. The Tribunal noted that the services provided may or may not attract service tax under the specified category but accepted the appellants' undertaking to pay the interest on delayed payment of service tax. The penalties under various sections of the Finance Act, 1994, were set aside.

Conclusion:

The Tribunal set aside the impugned order and remanded the matter for fresh decision. The original adjudicating authority was instructed to issue a notice revising the duty payable in terms of the Tribunal's conclusions and provide the appellants with a reasonable opportunity to present their case. The appellants were given the option to pay service tax as per the exemption notification or other relevant provisions/notifications applicable to them.

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