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TMI Blog2018 (2) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... see is to be included to arrive at the gross amount , or not is the poser. On this aspect, there is no difference in amended Section 67 from unamended Section 67 of the Act and the parties were at ad idem to this extent. Explanation 3 to subsection (1) of Section 67 removes any doubt by clarifying that the gross amount charged for the taxable service shall include the amount received towards the taxable service before, during or after provision of such service, implying thereby that where no amount is charged that has not to be included in respect of such materials/goods which are supplied by the service recipient, naturally, no amount is received by the service provider/assessee. Though, sub-section (4) of Section 67 states that the value shall be determined in such manner as may be prescribed, however, it is subject to the provisions of sub-sections (1), (2) and (3). Moreover, no such manner is prescribed which includes the value of free goods/material supplied by the service recipient for determination of the gross value. 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 som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OR, Mr. Susmit Pushkar, AOR, Mr. Abhijeet Swaroop, Adv., Mr. Ayush Mehrotra, Adv., Mr. R. Chandrachud, AOR, Ms. Madhumita Bhattacharjee, AOR, Mr. Praveen Swarup, AOR, Mr. M. P. Vinod, AOR, Mr. Shishir Deshpande, AOR, Mr. Tarun Gulati, Adv., Mr. Kishore Kunal, AOR, Mr. Sparsh Bhargava, Adv., Mr. Shashi Mathews, Adv., Ms. Rachana Yadav, Adv., Mr. Abeer Kumar, Adv., Mr. Vinayak Mathur, Adv., Mr. Anupam Mishra, Adv., M/S. Mitter Mitter Co., AOR, Mr. Rajat Joseph, AOR, Mr. Punit Dutt Tyagi, AOR, Mr. Bhargava V. Desai, AOR, Mr. Vinay Garg, AOR And Mr. Upendra Mishra, Adv. JUDGMENT A.K. SIKRI, J. Delay condoned in Diary No. 42349 of 2016. 2) The respondents herein are engaged in the business of construction and, in the process, providing the services known as Commercial or Industrial Construction Service . This service is exigible to service tax as per the provisions of Section 65(105) (zzq) of the Finance Act, 1994 (hereinafter referred to as the Act ). The assessees accept that they are covered thereby and, therefore, are paying service tax as well. The dispute, however, is with regard to the valuation of taxable service provided by them. Under Section 67 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 67 of the Act and for availing the benefits under Notification No. 15/2004-ST dated September 10, 2004 as amended by Notification No. 4/2005-ST dated March 01, 2005 (whereby an Explanation was added to Notification No. 15/2004-ST). 5) We may mention here that different benches of the Customs, Excise and Service Tax Appellate Tribunal (for short CESTAT ) had given conflicting views on the aforesaid question and, therefore, the matter was referred to the Larger Bench which has, by impugned judgment dated September 6, 2013 rendered in a batch of matters, has decided the issue in favour of the assessees by holding that the value of the goods/materials cannot be added for the purpose of aforesaid notification dated September 10, 2004, as amended by notification dated March 01, 2005. It is the said judgment of the Larger Bench dated September 6, 2013, correctness whereof is the subject matter of present appeals. 6) For answering the question, it would be necessary to refer to the relevant provisions of the Act and the Notifications, which are as under: As mentioned above, commercial or industrial construction service is a taxable service enumerated under Section 65(105) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer; and (g) the commission or any amount received by the rail travel agent from the Railways or the customer, but does not include- (i) initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit; (ii) the cost of unexposed photography film, unrecorded magnetic tape or such other storage devices, if any, sold to the client during the course of providing the service; (iii) the cost of parts or accessories, or consumable such as lubricants and coolants, if any, sold to the customer during the course of service or repair of motor cars, light motor vehicle or two wheeled motor vehicles; (iv) the airfare collected by air travel agent in respect of service provided by him; (v) the rail fare collected by rail travel agent in respect of service provided by him; (vi) the cost of parts or other material, if any, sold to the customer during the course of providing maintenance or repair service; (vii) the cost of parts or other material, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any account, whether called suspense account or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.] 8) After the amendment, Section 67 of the Act is as follows: Section 67. Valuation of taxable services for charging service tax (1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,- (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided by a commercial concern to any person, in relation to construction service, from so much of the service tax leviable thereon under Section 66 of the said Act, as is in excess of the service tax calculated on a value which is equivalent to thirty-three per cent of the gross amount charged from any person by such commercial concern for providing the said taxable service Provided that this exemption shall not apply in such cases where- (i) the credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or (ii) the commercial concern has availed the benefit under the notification of the Government of India, in the Ministry of Finance (Department of Revenue) No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503(E), dated the 20th June, 2003]. (c) Notification No. 4/2005-ST was issued on March 01, 2005, introducing an Explanation at the end of Notification No. 15/2004-ST. This Explanation reads: Explanation. For the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice, provision is made in Section 67 of the Act which enumerates that it would be the gross amount charged by the service provider for such service provided or to be provided by him . Whether the value of materials/goods supplied free of cost by the service recipient to the service provider/assessee is to be included to arrive at the gross amount , or not is the poser. On this aspect, there is no difference in amended Section 67 from unamended Section 67 of the Act and the parties were at ad idem to this extent. 12) On a reading of the above definition, it is clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients: a. Service tax is payable on the gross amount charged:- the words gross amount only refers to the entire contract value between the service provider and the service recipient. The word gross is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word gross the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word charged , it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereby that where no amount is charged that has not to be included in respect of such materials/goods which are supplied by the service recipient, naturally, no amount is received by the service provider/assessee. Though, sub-section (4) of Section 67 states that the value shall be determined in such manner as may be prescribed, however, it is subject to the provisions of sub-sections (1), (2) and (3). Moreover, no such manner is prescribed which includes the value of free goods/material supplied by the service recipient for determination of the gross value. 14) We may note at this stage that Explanation (c) to sub-section (4) was relied upon by the learned counsel for the Revenue to buttress the stand taken by the Revenue and we again reproduce the said Explanation hereinbelow in order to understand the contention: (c) gross amount charges includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called suspense account or by any other name, in the books of account of a person liable to pay service t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services. The value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider. 17) Faced with the aforesaid situation, the argument of the learned counsel for the Revenue was that in case the assessees did not want to include the value of goods/materials supplied free of cost by the service recipient, they were not entitled to the benefit of notification dated September 10, 2004 read with notification dated March 01, 2005. It was argued that since building construction contract is a composite contract of providing services as well as supply of goods, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of goods and materials supplied or provided or used by the provider of construction service. Thus, though it took care of the value of goods and materials supplied by the service provider/assessee by including value of such goods and materials for the purpose of arriving at gross amount charged, it did not deal with any eventuality whereby value of goods and material supplied or provided by the service recipient were also to be included in arriving at gross amount gross amount charged . 19) Matter can be looked into from another angle as well. In the case of Commissioner, Central Excise and Customs, Kerala v. M/s. Larsen Toubro Ltd. (2016) 1 SCC 170. This Court was concerned with exemption notifications which were issued in respect of taxable services covered by sub-clause (zzq) of clause (105) read with clause (25b) and sub-clause (zzzh) of clause (105) read with clause (30a) and (91a) of Section 65 of Chapter V of the Act. This Court in the aforesaid judgment in respect of five taxable services [viz. Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh)] has held as under: 23. A close look at the Finance Act, 1994 would show that the fixed taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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