2014 (7) TMI 1049 - AT - Service Tax

Valuation - Construction of complexes - inclusion of free material supplied - Abatement of 67% - Exemption Notifications - Whether the value of free supply material supplied by the customers is to be included in the gross amount for the purpose of notification no.15/2004-ST dated 10.09.2004 and notification no.18/2005-St dated 7.6.2005 - Held that - since the building was used for commercial purposes, the construction service provided in respect of the same would have to be treated as civil or industrial construction service. However, the appellant s plea that the amount of ₹ 8,26,971/- also includes the service tax demand on the free supply material supplied by M/s. Ashok Leyland Ltd. and service tax charged on account of free supply material in all the project executed by the appellant is included in the amount of ₹ 31,38,281/-, this point has to be examined by the adjudicating authority for which the same would have to be remanded. Building to be used by the Tanzania High Commission is not covered by the definition of Commercial or Industrial Construction Service as given in Section 65(25b) - service tax demand of ₹ 31,58,281/- in respect of the value of free supply materials supplied by the customers and the service tax demand of ₹ 10,65,742/- in respect of the construction of Tanzania High Commission s building and their staff quarters is set aside - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of exemption notifications for service tax on construction services.
2. Inclusion of value of free supply material in the gross amount charged.
3. Tax liability for construction projects for specific clients.
4. Applicability of service tax on construction for international organizations.

Analysis:
1. The appellant was engaged in providing taxable services of commercial or industrial construction and construction of complex services. They availed exemptions under specific notifications for service tax payment. However, discrepancies were found regarding the inclusion of the value of free supply material in the gross amount charged for service tax calculation. The appellant was issued a show cause notice for demand of service tax, interest, and penalties.

2. The Commissioner confirmed the service tax demand against the appellant, leading to an appeal. One of the main issues revolved around the inclusion of the value of free supply material in the gross amount for exemption notifications. Due to conflicting judgments on this matter, a larger bench was constituted to decide, resulting in a decision favoring the appellant. The appeal was listed for a final hearing based on this decision.

3. The appellant argued against the service tax demands, stating that the construction for specific clients did not fall under commercial or industrial categories, thus challenging the sustainability of the demands. The Departmental Representative defended the impugned order, emphasizing the tax liability on the construction projects in question.

4. After considering submissions from both sides, the Tribunal ruled in favor of the appellant on the issue of the value of free supply material. The demand related to this was set aside. Regarding the construction projects for specific clients, the Tribunal found that the construction for the Tanzania High Commission did not qualify as commercial or industrial construction service. The service tax demands for this project and the value of free supply materials were set aside. However, the matter concerning the construction for M/s. Ashok Leyland Ltd. was remanded for re-quantification by the adjudicating authority.

Conclusion:
The Tribunal set aside the service tax demands related to the value of free supply materials and the construction for the Tanzania High Commission. The demand for the construction for M/s. Ashok Leyland Ltd. was remanded for further assessment. Penalties under sections 76 and 78 were also set aside pending re-determination after the re-quantification of the service tax demand.