2017 (4) TMI 704 - AT - Service Tax

Site formation service - contract for production, Drilling & Associates Work in Underground Sindesar Khurd Mine - case of appellant is that impugned order failed to examine the limited scope of definition of site formation service and when several activities are undertaken, ultimately leading to mining then the gamut of activities cannot be taxed under site formation service - Held that - the activities of services under consideration are to be treated as an activity auxiliary to the mining, their contract being indivisible contract. Such services are not taxable under the category of site formation clearance service, but they would be covered under the category of mining service, which has become taxable w.e.f. 01.06.2007 only - CESTAT, Delhi in the case of M/s.Aravali Construction Co. Pvt. Ltd. vs. CCE, Jaipur-II 2016 (8) TMI 675 - CESTAT NEW DELHI has held that such services are not covered under the category of site formation and clearance, excavation and earth moving and demolition - service tax demand of ₹ 21,58,467/- under the category of site formation service cannot be sustained and is hereby dropped. Chargeability of the value of free supplies which include electricity and other items - appellant case is that it is only consideration paid which is taxable and not any material supplied for use during the course of rendition of service - Held that - the issue is covered in favour of the appellant by the Larger Bench decision in the case of Bhayana Builders P. Ltd. 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) , where it was held that free supplies made by the service receiver shall not be added to the value of the services - the demand of service tax of ₹ 44,66,679/- confirmed on the free supplies, which includes the value of electricity and other items is not sustainable and is hereby dropped. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Taxability of services under the category of site formation service.
2. Taxability of free supplies received by the appellant.

Issue 1: Taxability of services under the category of site formation service:
The appeal was against the confirmation of a service tax demand of &8377; 21,58,467/- under the category of site formation service. The appellant argued that the services provided were auxiliary to mining and should be categorized as mining services, taxable from 01.06.2007 onwards. The Tribunal referred to a previous case, M/s. Aravali Construction Co. Pvt. Ltd. vs. CCE, Jaipur-II, where it was held that activities ancillary to mining should not be taxed under site formation service. The Tribunal cited relevant case laws and concluded that the demand of service tax under site formation service could not be sustained and was dropped.

Issue 2: Taxability of free supplies received by the appellant:
The appellant contested the demand of service tax of &8377; 44,66,679/- on free supplies received from the service recipient, arguing that such supplies should not be included in the taxable value of services rendered. The appellant relied on the case of Bhayana Builders P. Ltd. where it was clarified that free supplies do not constitute consideration accruing to the benefit of the service provider and should not be included in the taxable value. The Tribunal concurred with this interpretation, citing the scope of Section 67 of the Finance Act, and held that the demand of service tax on free supplies was not sustainable. Therefore, the demand was dropped.

In conclusion, the Tribunal allowed the appeal with consequential relief, if any, on 11.04.2017, based on the findings related to the taxability of services under the category of site formation service and the taxability of free supplies received by the appellant.