2014 (8) TMI 921 - AT - Service Tax

Valuation of service - Industrial or commercial construction - erection, commissioning and installation service - Held that - The Larger Bench of the Tribunal held that value of goods and materials supplied free of cost by the service recipient to the provider of taxable construction service, being neither monetary or non-monetary consideration paid by or flowing from the service recipient, accruing to the benefit of service provider, would be outside the taxable value of the gross amount charged within the meaning of the expression in Section 67 of the Finance Act. The Larger Bench further held that the value of free supply by service recipient does not comprise the gross amount charged under Notification No. 15/2004-ST, including the Explanation thereto as introduced by Notification No. 4/2005-ST - Decided in favour of assessee.

Summary

Issues:
- Applicability of service tax on free supply material in industrial or commercial construction activities.

Analysis:
The judgment by the Appellate Tribunal CESTAT MUMBAI, delivered by S S Kang, addressed the issue of whether the value of free supply material by the service recipient should be considered for calculating the assessable value for service tax in cases of industrial or commercial construction activities. The appellants had filed appeals against adjudication orders confirming service tax demands along with interest and penalties, taking into account the free supply material. The Revenue argued that the value of free supply material should be included in the assessable value for service tax. However, the Tribunal referred to the decision in the case of Bhayana Builders (P) Ltd. vs. CST, Delhi, where the Larger Bench held that the value of goods and materials supplied free of cost by the service recipient does not form part of the taxable value. The Tribunal concluded that the free supply material, not constituting monetary or non-monetary consideration from the service recipient, does not accrue to the benefit of the service provider and thus falls outside the taxable value as per Section 67 of the Finance Act.

Therefore, based on the precedent set by the Larger Bench, the Tribunal set aside the impugned orders and allowed the appeals. This judgment clarifies the treatment of free supply material in the context of service tax on industrial or commercial construction activities, providing a clear interpretation of the relevant legal provisions and established principles.