2023 (1) TMI 250 - AT - Service Tax

Valuation - mining services - inclusion of diesel and explosives were supplied free of cost, consumed during the mining process, in the assessable value - HELD THAT - This precise issue came up for consideration before the Supreme Court in Bhayana Builders 2018 (2) TMI 1325 - SUPREME COURT as the issue before the Supreme Court was also whether the value of goods/material supplied or provided free of cost by a service recipient and used for providing the taxable service of construction or industrial complex is to be included in the computation of gross amount for valuation of the taxable service under section 67 of the Finance Act. The Supreme Court observed that a plain reading of the expression the gross amount charged by the service provider for such service provided or to be provided by him‟ would lead to the conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the gross amount‟ for the reason that no price is charged by the assessee/ service provider from the service recipient in respect of such goods/materials. It needs to be noticed that the appellant had also placed the decision of the larger bench of the Tribunal in Bhayana Builders 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) before the Commissioner, which decision, was affirmed by the Supreme Court. The larger bench of the Tribunal had concluded that the value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service, being neither monetary or non-monetary consideration, would be outside the taxable value of the gross amount charged within the meaning of section 67 of the Finance Act - the decision of the larger bench of the Tribunal in Bhayana Builders and the decision of the Supreme Court in Bhayana Builders are clearly applicable to the facts of the present case inasmuch as the charge in the show cause notice is that the cost of material supplied free of cost should be included in the gross value of the taxable service provided by the appellant. The Commissioner was not justified in distinguishing the decision of the Larger Bench of the Tribunal in Bhayana Builders for the reason that it related to a different construction service and not mining service. The Commissioner should have followed the law laid down by the Supreme Court. Appeal allowed.

Summary

Issues:
Inclusion of value of free items in taxable value of mining services.

Analysis:
The judgment pertains to Service Tax appeals challenging an order confirming the demand raised in show cause notices for the inclusion of the value of free items provided by Rajasthan Mines to the appellant in the taxable value of mining services. The appellant provided mining services to Rajasthan Mines under various Letters of Acceptance. The dispute centered around whether the value of free items should be included in the taxable value of services. The Commissioner confirmed the demand, stating that diesel and explosives, though provided free of cost, were essential for mining services and should be included in the taxable value. The appellant argued against this, citing the decision in Bhayana Builders, where the Supreme Court held that the value of goods/materials provided free of charge by the service recipient need not be included in the gross amount charged for the service.

The Commissioner distinguished the Bhayana Builders case, which dealt with construction services, from the present case involving mining services. However, the appellant contended that the principles laid down in Bhayana Builders were applicable to their situation. The Tribunal agreed with the appellant, emphasizing that the value of free items provided should not be included in the taxable value of services. The Tribunal noted that the Commissioner should have followed the law laid down by the Supreme Court in Bhayana Builders rather than distinguishing the case based on the type of service provided. Consequently, the Tribunal set aside the Commissioner's order and allowed the Service Tax appeals filed by the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the value of free items provided by Rajasthan Mines should not be included in the taxable value of mining services provided by the appellant. The decision was based on the precedent set by the Supreme Court in Bhayana Builders, which established that the value of goods/materials supplied free of charge by the service recipient need not be included in the gross amount charged for the service.