In the Supreme Court of India
CIVIL APPEAL NOS. 1335-1358 OF 2015
M/S. Karamjit Singh
Date of Judgement
19 February, 2018
K. Sikri, J.; Ashok Bhushan, J.
Numerous civil appeals were clubbed to address the question of valuation that has to be arrived at in respect of taxable services for commercial or industrial construction rendered by the assessees. The different benches of the Customs, Excise and Service Tax Appellate Tribunal (‘CESTAT’) have had conflicting opinions on the aforementioned dispute rendering the matter to be referred to a Larger Bench. The bench by impugned judgment dated September 6, 2013, held in favour of assessees that the value of the goods/materials cannot be added for the aforesaid notification dated September 10, 2004, as amended by notification dated March 01, 2005. It is the said judgment’s, of the Larger Bench dated September 6, 2013, correctness whereof is the subject matter of present appeals.
Facts of the case
The Respondents herein are involved in the business of construction and provide Commercial or Industrial Construction Service. Section 65(105) (zzq) of the Finance Act, 1994 levies service tax on this category of service. The assessees/service providers accept that they are paying service tax on this service however the dispute is concerned with the valuation of tax as provided under Section 67 of the Act. The Government issued a notification dictating the procedure to calculate the service charge based on ‘gross amount charged’. A subsequent amendment to this notification, for optional application, added meaning to this term and directed it to be inclusive of the value of goods and material supplied or used by the service provider for providing such construction services. The assessees availed the benefit accordingly, however, some of the goods/materials used in the construction process were supplied by the service recipients themselves. The dispute arose as the materials being provided by the service recipients bore no costs but the Department demanded that the value of such goods/materials be included as well while deciding the “gross value charged” for levying service tax.
Statues & provisions discussed
- Finance Act, 1994 – Section 65(105)(zzq), Section 65(25b), Section 67
- Notification 15/2004-ST dated September 10, 2004
- Notification No. 4/2005-ST dated March 01, 2005
- Whether, the value of goods/material supplied or provided free of cost by a service recipient himself and used for providing the taxable service of construction or industrial complex, is to be included in computation of gross amount charged by the service provider, for valuation of the taxable service under Section 67of the Finance Act and for availing the benefits under Notification No. 15/2004-ST dated September 10, 2004, with amendment by Notification No. 4/2005-ST dated March 01, 2005?
The learned counsel for the Revenue relied on Explanation (c) to sub-section (4) and argued that payment received in ‘any form’ and ‘any amount credited or debited, as the case may be…’ is to be included to arrive at the gross amount charged and is leviable to pay service tax. This interpretation would make the value of goods/materials supplied free, a form of payment, making it eligible to be added. The Appellant argued that if the assessees did not want to include the value of goods/materials supplied free of cost by the service recipient, they would not be entitled to the benefit of the notification dated September 10, 2004, read with the notification dated March 01, 2005. That since building construction contract is a composite contract of providing services as well as the supply of goods, the said notifications were issued for the convenience of the assessees. The counsel submitted that this percentage of 33% attributing to service element was prescribed with the view that in the entire construction project, around 67% comprises the cost of material and 33% the value of services. However, this figure of 67% was arrived at keeping in mind the totality of goods and materials that are used in a construction project. Therefore, it was incumbent upon the assessees to include the value of goods/material supplied free of cost by the service recipient as well otherwise it would create imbalance and disturb the analogy that is kept in mind while issuing the said notifications and in such a situation, the AO can deny the benefit of aforesaid notifications.
The Court upheld the decision of Full Bench of CESTAT and dismissed all the appeals of the Revenue.
By throwing light on Section 65 and 67 of the Finance Act, 1994 and the exemption notifications, the Court pointed out that the assessees and the services rendered by them fall under the said sections of the Act. To determine the service tax payable on these services, valuation is made on the ‘gross amount charged’ which merely indicates the total amount without deduction of expenses and does not allow the Department to exercise excess jurisdiction and go beyond the contract value for determination of the same. Unless the amount is charged by the service provider to the service recipient, it does not enter into the equation for determining the value on which service tax is payable. It is also imperative that the amount charged has to necessarily be a consideration for the service provided which is taxable and thus the amount charged needs to have nexus with the taxable service. The cost of free supply of goods provided by the service recipient to the service provider is neither an amount “charged” by the service provider nor can it be regarded as a consideration for the service provided by the service provider. It thus, has no nexus with the taxable services for which value is sought to be determined. Since no price is charged by the service provider from the service recipient in respect of goods/materials provided by the recipient himself and no service is rendered in respect of such goods/materials, it would not be included while arriving at the ‘gross amount’ to determine tax payable.
As far as Explanation (c) to Section 67 is concerned, it only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. With the supply of free goods/materials by the service recipient, it cannot be established that any credit notes or debit notes were issued or any book adjustments were made. The explanation does not expand the meaning of the term “gross amount charged” to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered and add the value of free supply goods over and above the contract value to arrive at the value of taxable services.
No such manner is prescribed in Section 67 which includes the value of free goods/ material supplied by the service recipient for determination of the gross value charged. The Court dismissed the arguments of the counsel for the Revenue for lack of evidence to determine the intention of the Central Government in issuing these notifications and that nowhere was it mentioned in the amended notification the inclusion of value goods and material supplied or provided by the service recipient in arriving at gross amount ‘gross amount charged’.
Edited by Parul Soni
Approved & Published – Sakshi Raje