2018 (11) TMI 228 - AT - Service Tax

Tribunal excludes free materials from service tax calculation, sets aside interest and penalties

The Tribunal held that the value of free materials provided by the service recipient should not be included in the calculation of service tax liability. ... Valuation - inclusion - receiving certain materials free of cost, such as, cement, rods etc, which were to be used by the appellant in the construction works - N/N. 15/2004-ST dated 10.09.2004 - Revenue was of the view that the value of materials supplied free of cost, should also be included in the gross amount charged since such materials have been used in the provision of service - benefit of abatement of 67%. Held that:- The present issue came before the Larger Bench of the Tribunal in the case of Bhayana Builders Pvt. Ltd. Vs. Commissioner of Service Tax, Delhi [2013 (9) TMI 294 - CESTAT NEW DELHI (LB)]. The Larger Bench decided that the gross amount charged cannot include the value of free supplied materials provided by the receiver of the service - thus, there is no justification for including the value of free supplied materials while determining the gross amount charged for the purpose of benefit of Notification No.15/04-ST ibid as amended. Consequently, there is no justification for the demand of service tax. The demand of interest as well as penalties imposed under various Sections of the Finance Act, 1994, are set aside - demand of service tax is already paid and is upheld - appeal allowed - decided in favor of appellant. Issues:Challenge to imposition of penalty despite payment of service tax and interest before show-cause notice.Analysis:The appellant, a contractor for industrial construction, received free materials from the service recipient for executing contracts. The dispute arose regarding the inclusion of the value of these free materials in the gross amount charged for service tax calculation. The Revenue contended that the value of free materials should be included, leading to a demand for differential service tax. However, the appellant voluntarily paid the differential amount along with interest before the show-cause notice was issued. The Adjudicating Authority upheld the demand and imposed penalties under various sections of the Finance Act, 1994.The appellant challenged the imposition of penalties in the appeal, arguing that the service tax and interest had been paid before the show-cause notice. The appellant relied on a Supreme Court judgment in a similar case to support their argument against the penalties. The Revenue justified the impugned order, leading to a detailed examination of the issue by the Tribunal.After hearing both parties and examining the records, the Tribunal focused on whether the value of free supplied materials should be included in the gross amount charged for service tax calculation. The Tribunal referred to a previous decision by the Larger Bench and the Supreme Court, which emphasized that the gross amount charged should not include the value of free materials provided by the service recipient. The Tribunal applied the Supreme Court's decision and concluded that there was no justification for including the value of free materials in the calculation of service tax liability.The Tribunal found that the appellant had already paid the entire differential service tax amount before the show-cause notice and that the payment was not challenged in the appeal. Therefore, the Tribunal set aside the demand for interest and penalties imposed under the Finance Act, 1994. The Tribunal upheld the payment of service tax made before the issuance of the show-cause notice and allowed the appeal in favor of the appellant.