2023 (7) TMI 257 - AT - Service Tax

Tribunal grants appellant's appeal, excludes free materials from taxable value, allows abatement extension.

M/s. Dharatal Infrastructures Versus Commissioner, Central Excise, Customs and Service Tax, Central Excise building, Tikarapara, Raipur (C.G.)

The Tribunal ruled in favor of the appellant, setting aside the Commissioner's order. It held that the value of free materials should not be included in ... Valuation of services - commercial or industrial construction service - abatement of 67% under the notification dated 1.3.2006 - inclusion of value of free of cost items in the gross value for availing abatement - extended period of limitation. Whether the value of free of cost items can be included in the gross value for availing abatement? - HELD THAT:- This issue has been settled by the Supreme Court in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. [2018 (2) TMI 1325 - SUPREME COURT], which decision affirmed the decision of the Larger Bench of the Tribunal in M/S BHAYANA BUILDERS (P) LTD. & OTHERS VERSUS CST, DELHI & OTHERS. [2013 (9) TMI 294 - CESTAT NEW DELHI (LB)] where it was held that sub-section (4) of Section 67 states that the value shall be determined in such manner as may be prescribed, however, it is subject to the provisions of sub-sections (1), (2) and (3). Moreover, no such manner is prescribed which includes the value of free goods/material supplied by the service recipient for determination of the gross value. Thus, the value of materials provided free of cost by customers to the appellant cannot form part of the taxable services rendered by the appellant as neither any price was charged by the appellant for such items, nor any monetary benefit accrued to the appellant from such supplies against provision of the service. The free of cost material cannot, therefore, be included in the gross value for claiming abatement. The denial of the abatement under the notification dated 01.03.2006, cannot be sustained. Whether abatement under the notification dated 01.03.2006 is extendible on subsequent reversal of credit? - HELD THAT:- The appellant had reversed CENVAT credit amounting to Rs. 13,82,845 which was taken in the ST-3 returns during the relevant period. Such reversal of credit would be equivalent to non-availment of credit. Hence, abatement under the notification dated 01.03.2006 could not have been denied to the appellant and the demand is liable to be set aside. In this connection reliance can be placed on the judgement of the Supreme Court in CHANDRAPUR MAGNET WIRES (P) LTD. VERSUS COLLECTOR OF C. EXCISE, NAGPUR [1995 (12) TMI 72 - SUPREME COURT], wherein it was held that credit reversed is equivalent to non-availment of credit. In this view of the matter it would not be necessary to examine the contention raised by the learned counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the case. The impugned order dated 19.01.2015 passed by the Commissioner cannot be sustained and is set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the value of materials supplied free of cost by the service recipient must be included in the gross amount charged for the purpose of claiming abatement under the notification granting 67% abatement for commercial or industrial construction services. 2. Whether an assessee who has taken CENVAT credit during the relevant period but subsequently reversed that credit (including cess) is barred from claiming the abatement - i.e., whether reversal of CENVAT credit is equivalent to non-availment such that the proviso excluding simultaneous benefit does not apply. 3. (Ancillary) Whether invocation of extended period of limitation required separate examination in light of conclusions on the above issues (addressed only to the extent necessary). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Inclusion of free-of-cost materials in gross amount for abatement Legal framework: The statutory valuation provisions define 'gross amount charged by the service provider for such service provided or to be provided by him' as the base for taxable value; explanation to the relevant notification and sectional explanations regarding amounts received before, during or after provision of service are relevant to determine what is includible in gross amount for availing abatement. Precedent Treatment: The question has been the subject of prior adjudications including a Larger Bench of the Tribunal and subsequent Supreme Court pronouncement which interpreted the phrase 'gross amount charged' and related statutory provisions to exclude value of goods/materials supplied free by the service recipient. Interpretation and reasoning: The Court reads the phrase 'gross amount charged by the service provider for such service provided or to be provided by him' in its plain meaning and concludes that where no price is charged by the service provider for goods/materials supplied by the recipient, such value does not form part of the gross amount charged for the taxable service. This construction is reinforced by the explanation to the valuation provision which contemplates amounts received for the taxable service; if no amount is charged for the free goods, nothing is includible. The Court finds no prescribed valuation method that compels inclusion of such free supplies. Ratio vs. Obiter: Ratio - The correct meaning of 'gross amount charged' excludes free-of-cost materials from the taxable gross for purposes of claiming abatement; the prior higher authority decision affirming this construction is treated as binding on this point and forms the decisive legal principle applied to the facts. Conclusion: The value of materials provided free of cost by customers cannot be included in the gross value for claiming abatement under the notification; denial of abatement on this ground is unsustainable. Issue 2 - Effect of subsequent reversal of CENVAT credit on entitlement to abatement Legal framework: The notification granting abatement contained a proviso excluding the simultaneous availment of CENVAT credit and abatement. The statutory CENVAT scheme recognizes scenarios where credit taken may later be reversed; the legal effect of reversal on entitlement to other benefits is determinative. Precedent Treatment: Binding precedent of the Supreme Court has held that reversal of credit is equivalent to non-availment of credit for relevant purposes; that principle is applied to interpret the proviso to the abatement notification. Interpretation and reasoning: The Court treats the recorded reversal of credit (with produced challans evidencing payment/reversal) as tantamount to non-taking of credit during the relevant period. Given this equivalence, the proviso that precludes concurrent benefit of credit and abatement cannot be invoked against an assessee who has reversed the credit. On the facts, the appellant produced proof of reversal of CENVAT credit (including cess) amounting to the specified sum; therefore, the bar in the proviso does not apply. Ratio vs. Obiter: Ratio - Reversal of CENVAT credit after the fact is legally equivalent to non-availment of credit for purposes of determining entitlement to abatement; where reversal is shown, denial of abatement under the proviso is unjustified. Conclusion: Because the appellant reversed the previously availed CENVAT credit and evidenced that reversal, abatement could not be denied on the ground of simultaneous availment of credit; the demand based on that ground must be set aside. Issue 3 - Extended period of limitation (ancillary) Legal framework and relevance: Extended limitation would be relevant if there were sustained findings of suppression or incorrect declaration that justified invoking extended period. However, application of limitation doctrine is subject to the outcome on substantive entitlement. Treatment and reasoning: Having resolved the substantive entitlement issues in favour of the assessee - exclusion of free-of-cost materials from gross amount and equivalence of reversal to non-availment of credit - the Court holds that it is unnecessary to decide the contention about extended period of limitation. The limitation question is therefore not adjudicated on the merits. Ratio vs. Obiter: Obiter (procedural/ancillary) - No authoritative determination on limitation; the point is left undecided as unnecessary for disposal. Conclusion: Extended period of limitation need not be examined in view of the disposition on Issues 1 and 2. Overall Disposition Applying the foregoing: (i) abatement cannot be denied by including free-of-cost materials in gross value; (ii) reversal of CENVAT credit is equivalent to non-availment and therefore does not attract the proviso barring abatement; and (iii) consequently, the demand premised on those grounds is unsustainable and is set aside.