2022 (9) TMI 1061 - AT - Service Tax

Valuation of mining services - inclusion of free of cost fuel/diesel supplied by service recipient i.e., ONGC in terms of agreement is includible in taxable value of mining services - HELD THAT - The decision in the case of COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT is squarely on the issue under consideration, where it was held that The service tax is to be levied in respect of taxable services and for the purpose of arriving at 33% of the gross amount charged, unless value of some goods/materials is specifically included by the Legislature, that cannot be added. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Inclusion of free-of-cost fuel/diesel supplied by ONGC in the taxable value of mining services.
2. Applicability of previous judgments and legal precedents to the present case.

Issue-wise Detailed Analysis:

1. Inclusion of Free-of-Cost Fuel/Diesel Supplied by ONGC in the Taxable Value of Mining Services:
The Applicant is engaged in chartering rigs to ONGC and has been paying service tax on the amounts charged for such services under 'mining services.' The core issue is whether the free-of-cost fuel/diesel supplied by ONGC should be included in the taxable value of the mining services. The Principal Commissioner argued that the supply of diesel and other consumables by ONGC constitutes additional consideration for the mining services. According to Section 67 of the Finance Act, 1994, and the Service Tax (Determination of Value) Rules, 2006, the value of such free supplies should be included in the taxable value. The Principal Commissioner distinguished this case from the Bhayana Builders case, asserting that the latter dealt with construction services and specific notifications, whereas the present case pertains to mining services.

2. Applicability of Previous Judgments and Legal Precedents:
The Applicant cited the Bhayana Builders case, upheld by the Supreme Court, and subsequent decisions in Vantage International Management Company and Greatship (India) Ltd., which ruled that the value of goods/materials provided free of charge by the service recipient should not be included in the taxable value. The Tribunal noted that the Principal Commissioner's attempt to distinguish the Bhayana Builders case was incorrect. The Supreme Court in Bhayana Builders clarified that the gross amount charged does not include the value of goods/materials provided free of charge by the service recipient, as no price is charged by the service provider for such goods/materials.

Judgment:
The Tribunal found that the issue in the present case is identical to the issues addressed in the Bhayana Builders, Vantage International Management Company, and Greatship (India) Ltd. cases. The Supreme Court's interpretation in Bhayana Builders was directly applicable, emphasizing that the gross amount charged should only include monetary consideration received for the service provided. Consequently, the Tribunal ruled that the free-of-cost fuel/diesel supplied by ONGC should not be included in the taxable value of the mining services provided by the Applicant.

Conclusion:
The appeals were allowed, and the early hearing applications were granted. The Tribunal's decision reaffirmed that the value of goods/materials supplied free of charge by the service recipient is not to be included in the taxable value of the service provided, aligning with previous legal precedents and the Supreme Court's interpretation in Bhayana Builders.