2024 (5) TMI 463 - AT - Service Tax

Free supply costs excluded from service tax calculation for pre-July 2009 contracts

CESTAT Kolkata held that for contracts entered prior to 07.07.2009, the value of cost of free supply should not be included in determining gross amount ... Levy of service tax - gross value of Contract I & Contract II i.e. sale of goods/supply and works contract services - composition scheme - extended period of limitation - penalty - HELD THAT:- The issue involved in the matters have been examined by this Tribunal in appellant’s own case for the earlier period in M/S TRF LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, PATNA, MR. SUDHIR L. DEORAS, C/O - M/S TRF LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, PATNA AND MR. NANDAN KUMAR SARKAR, C/O - M/S TRF LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, PATNA [2024 (3) TMI 231 - CESTAT KOLKATA], wherein this Tribunal observed 'the contract entered prior to 07.07.2009, the value of cost of free supply will not be includible to determine the gross amount for the purposes of payment of service tax.' As the issue has already been decided in favour of the appellant, therefore, following the analogy of the said order, it is held that the demand against the appellant is not sustainable as the appellant has already discharged their Service Tax liability on gross value of works contract i.e. Contract II and value of Contract I is not to be included in the assessable value of taxable service provided by the appellant. The impugned order set aside. Consequently, no penalty is imposable on the appellant. Accordingly, penalty imposed on all the appellants are also set aside. Appeal allowed. Issues Involved:1. Inclusion of value of goods sold under Contract I in the gross amount charged under Contract II for the purposes of payment of service tax under the Composition Scheme.2. Applicability of extended period of limitation for demanding service tax.3. Validity of penalties imposed on the appellants.Summary:Issue 1: Inclusion of Value of Goods Sold under Contract I in Gross Amount Charged under Contract IIThe main appellant, M/s. TRF Limited, executed two separate contracts: Contract I for the sale of goods and Contract II for the provision of services along with the supply of goods, qualifying it as a 'works contract.' The appellant paid service tax on Contract II under Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. Show cause notices demanded service tax on the gross value of both contracts, alleging that the value of goods sold under Contract I should be included in the gross amount charged under Contract II. The Tribunal referred to previous judgments and CBEC Circular No. 150/1/2012-ST dated 08.02.2012, which clarified that for contracts entered prior to 07.07.2009, the value of free-of-cost supplies should not be included in the gross amount for service tax purposes. The Tribunal concluded that the appellant correctly discharged their service tax liability on the gross value of Contract II and that the value of Contract I should not be included.Issue 2: Applicability of Extended Period of LimitationThe show cause notices invoked the extended period of limitation. However, the Tribunal did not specifically address this issue in detail, as the primary issue of including the value of Contract I in the gross amount charged under Contract II was resolved in favor of the appellant.Issue 3: Validity of Penalties Imposed on the AppellantsGiven that the demand for service tax on the gross value of both contracts was set aside, the Tribunal also waived the penalties imposed on the appellants. The penalties were deemed unsustainable as the appellant had already discharged their service tax liability correctly.ConclusionThe Tribunal set aside the impugned order, allowed the appeals, and granted consequential relief to the appellants. The penalties imposed were also set aside.