Inclusion of Free Supply Material in Works Contract Gross Value Upheld

The tribunal upheld the inclusion of free supply material in the gross value of works contract service for service tax calculation. The demand for service tax and penalty under Section 78 of the Finance Act was deemed sustainable due to the lack of ambiguity in the legal provision and the appellant's failure to disclose the value of free supply material. The impugned order was upheld, and the appeal was dismissed on 28/09/2017.

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Issues:
- Whether free supply material should be included in the gross value of works contract service for the purpose of service tax calculation.
- Whether the demand for service tax and penalty under Section 78 of the Finance Act is sustainable.

Analysis:
1. Inclusion of Free Supply Material in Gross Value:
- The appellant argued that free supply material should not be included in the gross value of works contract service based on various judgments, including Bhayana Builders Pvt. Ltd. case.
- The appellant contended that service tax should only be charged on consideration received in money, citing the decision of Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. UOI.
- The tribunal examined the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, which clearly state that the value of all goods used in the execution of the works contract should be included in the gross value, whether supplied for consideration or not.
- The tribunal upheld that the value of free supply material should indeed be added to the gross value of works contract, making the demand for service tax sustainable on merit.

2. Sustainability of Demand and Penalty:
- The Revenue argued that there was no ambiguity regarding the inclusion of free supply material as per the contract terms and the Works Contract Rules.
- The tribunal noted that the contract explicitly stated that service tax would be applicable on the value of free issue materials, indicating the appellant's awareness of this requirement.
- It was observed that the appellant did not disclose the value of free supply material in their returns, indicating suppression of facts.
- The tribunal found no legal ambiguity in the provision regarding the inclusion of free supply material, leading to the conclusion that the demand for an extended period and penalty under Section 78 were legally justified.
- Consequently, the tribunal upheld the impugned order, dismissing the appeal and affirming the sustainability of the demand and penalty.

In conclusion, the tribunal ruled in favor of including free supply material in the gross value of works contract service for service tax calculation. The demand for service tax and penalty under Section 78 of the Finance Act was deemed sustainable due to the lack of ambiguity in the legal provision and the appellant's failure to disclose the value of free supply material. The impugned order was upheld, and the appeal was dismissed on 28/09/2017.

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