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TMI Blog2010 (1) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... he customers, the appellants have not only to provide the construction services, but also supply various materials such as cement, steel, cables, valves, etc. Pipes are, however, provided by the customer/service receiver to the appellants. The exact contractual arrangement with the parties varies from case to case basis. However, in all the cases, the pipes are being supplied by the service receiver to the appellants. 5. In terms of Notification No. 15/2004-ST, dated 10-9-2004 as amended from 16-6-2005 the appellants were paying service tax on 33 per cent of the gross amount charged by the appellants from the service receiver. 6. Relying on the Explanation to the abovesaid Notification, the Department was of the view, that for availing the benefit under the Notification, the appellants had to include the value of the free supply material namely pipes provided by the service receiver. According to the Department, since the appellants did not include the value of the pipes provided by the customer for arriving at the "gross amount charged" under the Notification No. 15/2004-ST, appellants were not entitled to the benefit of the Notification No. 15/2004. Accordingly, investigation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service of laying the pipeline. Therefore, as per the Explanation to the Notification, the value of the free supply material, i.e., pipes has to be added to the "gross amount charged" by the appellant from service receiver. Since appellants are not so considering/adding the value of pipes given by customer, appellant is not eligible for benefit of the notification. Therefore, according to the department, appellant has to pay service tax on the value charged from service receiver, without benefit of Notification No. 15/2004. Hence, appellant cannot pay service tax only on 33 per cent of the gross amount by appellant from service receiver. 11. Appellants made following submissions : 11.1 Main/operative part of the Notification refers to tax being payable "on 33 per cent of gross amount charged from any person". Hence, goods and material given by customer is not relevant. This also accords with sections 66 and 67, which are reproduced below : 11.2 Section 66 of the Act is the charging section. It provides that "there shall be levied a tax at the rate of ..... on the value of the taxable services referred in sub-clauses of ..... clause (105) of section 65 and collected in such mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scope of the main/operative part of the Notification-Explanation cannot expand or go behind the main/operative part of the Notification. 13.1 In Oblum Electrical Industries (P.) Ltd. v. CC 1997 (94) ELT 449 the Supreme Court held as under:- '. . . But the said definition in the Explanation has to be read in consonance with the main part of the notification. It is a well-settled principle of statutory construction that the Explanation must be read so as to harmonize with and clear up any ambiguity in the main provision. (See: Bihta Co-operative Development Cane Marketing Union Ltd. v. The Bank of Bihar 1967 (1) SCR 848 at P. 854]. . .' 13.2 In Cine Super 8 (P.) Ltd. v. Union of India 1994 (72) ELT 20 (Bom.) (Page 83 of the compilation, Para 6), the Bombay High Court held as under:- "It is axiomatic that Explanation only explains and does not expand or add to the scope of the main provision and it makes plain or clear from obscurity something which may arise from the main provision." 13.3 Therefore, purpose of the Explanation is to clarify the scope of the main provision and it cannot expand the scope of the main/operative provision. The Explanation has to be read along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must invariably be attached to these words or expressions. . . ." (p. 605) 14.2 In the present context, the expression "includes" cannot apply to thing which is not even charged by the service provider. However, Explanation takes care of situation when the service provider has supplied the material but has not included the value of the same even while seeking the benefit of the Notification No. 15/2004-ST. The Explanation steps in such a situation and debars the assessee from the benefit of the notification in such a situation. Explanation does not at all seek to artificially add the value of material given by the customer, as a condition for availing benefit of Notification No. 15/2004. 15. The expression "used" employed in the Explanation has to be read along with and that too contextually with the expression "supplied" or "provided". 15.1 The expression 'supplied' covers a situation when the goods or material are supplied by the service provider to service receiver. If a contractor supplies foundation bolts and similar materials while undertaking the construction service, foundation bolt would be supplied by service provider. The expression 'provided' also has the similar mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Pipe is not the material which is used in providing the service of laying the pipeline. The subject of the activity, i.e., pipes cannot be said to be used for providing the construction services of pipeline. 16.4 Therefore, Explanation to the notification referring to goods and materials used for providing service is not relevant to the present case, since pipes are not used for construction service of pipelines. 17. Budget Circular dated 17-9-2004 is in the nature of contemporaneo exposition. 17.1 Budget Circular No. 80/10/2004-ST, dated 17-9-2004, inter alia, reads as follows : "13.5 The gross value charged by the building contractors include the material cost, namely, the cost of cement, steel, fittings and fixtures, tiles etc. Under the Cenvat Credit Rules, 2004, the service provider can take credit of excise duty paid on such inputs. However, it has been pointed out that these materials are normally procured from the market and are not covered under the duty paying documents. Further, a general exemption is available to goods sold during the course of providing service (Notification No. 12/2003-S.T.) but the exemption is subject to the condition of availability of docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the show-cause notice. 19.1 The ld. Commissioner has observed that no material whatsoever have been supplied by the appellants and therefore, the appellants are not entitled for the benefit of the Notification No. 15/2004-ST. This finding of the learned Commissioner is contrary to the factual position on record and goes even beyond the charges raised in the show-cause notice. 19.2 The various work orders and agreement entered into with various service receivers clearly show the nature of the material supplied by the appellants. These documents have been made available to department even during investigation of the case. 19.3 The Appellants sought deduction of Rs. 9,51,36,847 on account of value of material from the gross amount charged of Rs. 22,54,01,181for the period from 16-6-2005 to 31-3-2006, vide calculation available at page 82 of the Paper Book. This calculation has been filed along with the letter dated 6-2-2007 addressed to the investigating officer during investigation of the case. 19.4 The ld. Commissioner vide para 50 of the impugned order has rejected an alternate claim of the appellants to deduct the works contract tax from value of taxable service. The fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-2006 Payment of Service Tax of Rs. 7,61,042. 25-4-2006 Service Tax Return for the period from October, 2005 to March, 2006 was filed 8-5-2006 Summons issued by the Department 30-5-2006 Statement of Mr. Navin N. Darji has been recorded in reply to the summons dated 8-5-2006 20.2 From the above list of dates and events, it is clear that there was concurrent verification by the department almost simultaneous with execution of the work by appellant, starting from summons dated 2-12-2005 whereas the levy of service tax came on 16-6-2005. Thus, department sought for and obtained all details and monitored the assessee practically from the date of levy of service tax itself. 20.3 The appellants in their return dated 7-2-2006 filed for the month of April, 2005 to September, 2005 had mentioned that they have not included the value of the free supply goods while availing the benefit of Notification No. 15/2004-ST (albeit for the reason as the value of the free supply goods is not available with them). This return is a complete disclosure to the department that : (a) customer is giving pipes, (b) appellant is availing Notification No. 15/2004, and (c) appellant has not added valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and section 67 of Finance Act, 1994. According to them, section 66 provides for collection of service tax on the value of taxable services and section 67 defines the value as the gross amount charged by the service provider. Therefore, the value of taxable services is the amount charged by the service provider from the service receiver and if money is not charged, it will not form a part of the value of the taxable service. It was submitted that the notification should be read in harmony with these sections. This also applies to the value of the goods or material provided by the service provider. Where there is no amount charged by the service provider for any material supplied or provided for such services, it cannot form a part of the value for applying abatement of 33 per cent. We find that the interpretation of gross amount charged by the appellant is not in line with the provisions of law. Section 67 clearly provides that for calculating value of a service, consideration in monetary as well as non-monetary terms are required to be taken into account and where consideration is not ascertainable, it has to be determined in the prescribed manner. Service Tax (Determination of Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm of money and, therefore, the value has to be included. Rule also provides that if such value cannot be determined, service provider has to determine equivalent money value of such consideration. Therefore, we are unable to agree with the contention of the appellant made by the paragraph 12 above. 25. The next submission made relates to the interpretation of "supplied, provided or used" in the Explanation notification. 26. The appellants contended that the department's interpretation cannot expand or go behind the main/operative part of the notification and this can-not be done. We find that this is not so. There are three provisions to the notification. First proviso provides that exemption was not available if credit of duty paid on input or capital goods has been taken. Second proviso provides commercial concern should not have availed the benefit of Notification No. 12/03-ST which provides that where the goods have been sold, the value of goods can be deducted subject to the conditions therein. What the Explanation does is to explain what is the meaning of gross amount charged. It has to be noted that the notification provides exemption to the extent of 33 per cent of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 66, 67 of Finance Act, 1994, we have already considered this and held that the gross amount charged is not limited to the amount charged by the service provider. Once this aspect is not to be considered, expression "includes" cannot be said to have been used in restrictive sense. In view of the clear provisions in section 67 and Valuation Rules for service tax, the decision of the Apex Court in South Gujarat Roofing Tiles Manufacturers' Association's case (supra) cited by the appellant and extracted earlier is not relevant. The appellants are going on the assumption that the service tax is chargeable only on the amounts charged by the service provider, which is not correct. 27. It was submitted that the expression "used" employed in the Explanation has to be read along with and with contextual expressions "supplied" or "provided". We have considered the dictionary meanings of "supplied & provided" and we find that the appellant's contention that both are used in over lapping sense, is correct. However, we are unable to agree with the contention that expression "used" relates to consumable items which are actually used. We also do not agree with the contention that the depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Valuation Rules, which requires all types of monetary and non-monetary considerations to be taken into account to arrive at the value of service provided. It was also submitted that pipes cannot be said to be used for providing the service of construction of pipelines. We do not agree with the appellant that the activity in this case can be compared to painting of aircrafts or installation of computer system. Unlike aircraft, computer system, in this case, the pipe is only a part of pipeline and not the final product. Service is laying of the pipelines and not simply providing the pipes. If the service provided happens to be service like sand blasting, painting of the pipes, the contention of the appellant that the pipes cannot be said to have been used, would be perfectly in order, but not in the case of pipeline. 29. We have also considered the submissions relating to the Budget circular dated 17-9-2004. We are unable to accept the interpretation that the Budget clarification clearly show that the material supplied free of cost by the client was not at all the matter remotely contemplated by the Government while enacting the notification. It has to be noted that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion No. 15/2004-ST, dated 10-9-2004 as amended and Notification No. 1/2006-ST, dated 1-3-2006, exemption in excess of the service tax calculated on a value which is equivalent to 33 per cent of the gross amount charged is available in relation to commercial or industrial construction service subject to the condition that no credit of input goods, capital goods and no benefit under Notification No. 12/2003-ST is availed. In the Notification No. 15/2004-ST, dated 10-9-2004, the following Explanation was added at the end, vide Notification No. 4/2005-ST, dated 1-3-2005. "Explanation.-For the purposes of this Notification, the 'gross amount charged' shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service." From the above Explanation, it is clear that for the purpose of availing abatement of 67 per cent of gross amount charged, 'gross amount charged' includes service charges plus value of materials supplied or provided or used by the provider of the construction service for providing such service. In the present case, goods and materials were supplied by the recipients of the service and not by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss amount charged by them and they are required to pay service tax on the gross amount charged by them towards providing commercial or industrial construction service." 30. From the facts of the case, it can be seen that the said service provider has not supplied any materials/goods while providing the taxable service of commercial or industrial construction service to their service receiver/client and has raised the bills for service charges. In other words, the said service provider has charged their clients in respect of the services provided by them and not for the value of the materials/goods since they have not provided material/goods to their clients. 31. Subsequently, in the same paragraph, he says "it is apparent that the benefit of said notification is available in case the gross amount charged is inclusive of value of the goods and the materials supplied or provided or used by the service provider". In this case, it is clear that the materials/goods are provided by the service receiver and the said service provider has charged for the service portion only. Therefore, the value of the materials/goods has not been included. It was the appellant's contention that for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1994 and the Valuation Rules relating to the service tax clearly show that the matter in this case is of interpretation of law and the appellants cannot be found fault with for entertaining a view that value of pipes need not be included and claiming on the basis that they are eligible for exemption. The decision of the Tribunal in case of P. Chandran (supra) even though for prima facie view yet is relevant to show how different interpretations were possible and are possible. Therefore, we are unable to agree with the view taken in the impugned order that the suppression has been correctly invoked. Accordingly, penalty should not have been imposed under section 78 of Finance Act, 1994. 34. The appellants have claimed that the comparison of penalties under section 76 is for delayed payment of tax admitted to be payable by the assessee and therefore, is not imposable. However, since the matter has to be remanded back to revise the duty demandable within the period of limitation, we consider that it would be appropriate for the original adjudicating authority to consider liability of penalty under section 76 of Finance Act, 1994. 35. The impugned order also involves demand of se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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