High Court Order: Taxable Service Calculation Excludes Free Material

The High Court of Calcutta issued an interim order in response to a writ petition challenging a Show Cause-cum-Demand Notice under Section 67(3) of the Finance Act, 1994. The Court directed that the adjudication proceedings should not include the supply of free material in determining taxable service, aligning with a similar decision by the Delhi High Court. The order allowed the proceedings to continue while emphasizing compliance with the legal provisions and fairness to all parties involved, subject to further orders and without prejudice to their rights.

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Issues: Challenge to Show Cause-cum-Demand Notice under Section 67(3) of the Finance Act, 1994; Consideration of free material supply in taxable service; Jurisdiction of Assessing Officer.

The judgment by the High Court of Calcutta dealt with a writ petition challenging a Show Cause-cum-Demand Notice issued by the Commissioner of Service Tax, Kolkata, on the grounds of violating Section 67(3) of the Finance Act, 1994. The petitioner argued that free-of-charge supplied material should not be included in the "gross amount charged" as per the Act, thus not constituting taxable service under Section 67. Reference was made to a similar case in the Delhi High Court where an interim order was passed excluding free material from taxable service determination. The respondent contended that since the petitioner responded to the notice, directions should be issued to dispose of the matter.

The Court directed the filing of an affidavit-in-opposition by a specified date and scheduled further proceedings. Considering the Explanation against Serial No. 7 and Section 67(3) of the Finance Act, the Court found a prima facie case for an interim order. The order directed the adjudication proceedings to continue without including the supply of free material in determining taxable service, in line with the Delhi High Court's decision. The order was passed without prejudice to the parties' rights and subject to further orders.

The judgment emphasized that all parties must act based on the signed copy of the order's operative portion. The decision highlighted the importance of the interim order in excluding free material from taxable service determination, ensuring fairness and adherence to legal provisions while allowing the adjudication proceedings to proceed.

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