Tribunal excludes value of free supply material from service tax calculation

The Tribunal upheld the Commissioner (Appeals) decision that the value of free supply material by the principal should not be included in the calculation of service tax under Notification No. 15/2004-ST. The Tribunal relied on a precedent set by a Larger Bench decision in a similar case, confirming that the value of free supplies does not form part of the gross amount charged for service tax purposes. The appeal filed by the Revenue was dismissed, establishing a clear interpretation for future cases under the said notification.

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Issues:
Interpretation of Notification No. 15/2004-ST regarding payment of service tax and consideration of free supply material in 'Industrial Construction Service'.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner (Appeals) regarding the payment of service tax by the respondents providing 'Industrial Construction Service' and availing the benefit of Notification No. 15/2004-ST. The main contention was whether the value of free supply material by the principal should be considered for the purpose of service tax payment under the said notification.

The Commissioner (Appeals) accepted the respondents' argument that the value of free supply material should not be factored in for service tax payment under Notification No. 15/2004-ST. However, the Revenue argued that an explanation through Notification No. 4/2005-ST amended Notification No. 15/2004-ST to include the value of goods and materials supplied for providing the service in the gross amount charged.

The Tribunal referred to a decision by the Larger Bench in the case of M/s. Bhayana Builders (P) Ltd. Vs. CST, Delhi, where it was held that the value of free supplies by the service recipient does not form part of the gross amount charged under Notification No. 15/2004-ST, even with the Explanation introduced by Notification No. 4/2005-ST. Based on this precedent, the Tribunal found no error in the Commissioner (Appeals) order and dismissed the appeal filed by the Revenue.

Therefore, the judgment clarified that the value of free supply material by the principal is not to be included in the calculation of service tax under Notification No. 15/2004-ST, as per the interpretation provided by the Larger Bench decision, setting a precedent for similar cases in the future.

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