TaxTMI 
TaxTMI 
2018 (2) TMI 1325
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....IVIL APPEAL NO. 7038 OF 2015, CIVIL APPEAL NO. 7235 OF 2015, CIVIL APPEAL NO. 7243 OF 2015, CIVIL APPEAL NO. 4970 OF 2016, CIVIL APPEAL NO. 5941 OF 2016, CIVIL APPEAL NO. 8484 OF 2016, CIVIL APPEAL NO. 2338 OF 2018, (ARISING OUT OF DIARY NO. 42349 OF 2016), CIVIL APPEAL NOS. 5319-5320 OF 2017, CIVIL APPEAL NO. 15485 OF 2017, CIVIL APPEAL NO. 11085 OF 2017, CIVIL APPEAL NO. 10606 OF 2017, CIVIL APPEAL NO. 15570 OF 2017, CIVIL APPEAL NO. 12451 OF 2017, CIVIL APPEAL NO. 11182 OF 2017, CIVIL APPEAL NO. 1430 OF 2015, CIVIL APPEAL NO. 9423 OF 2017 AND CIVIL APPEAL NO. 10611 OF 2017 For the Parties : Mr. B. Krishna Prasad, AOR, Mr. V. Lakshmikumaran, Adv., Mr. L. Badri Narayanan, Adv., Mr. Aditya Bhattacharya, Adv., Mr. Victor Das, Adv., Ms. Apeksha Mehta, Adv., Mr. M. P. Devanath, AOR, Mr. Anil Kumar Tandale, AOR, Mr. K. V. Mohan, AOR, Ms. Shipra Ghose, AOR, Mr. Ashok K. Mahajan, AOR, Mr. Rupesh Kumar, AOR, Mr. Susmit Pushkar, AOR, Mr. Abhijeet Swaroop, Adv., Mr. Ayush Mehrotra, Adv., Mr. R. Chandrachud, AOR, Ms. Madhumita Bhattacharjee, AOR, Mr. Praveen Swarup, AOR, Mr. M. P. Vinod, AOR, Mr. Shishir Deshpande, AOR, Mr. Tarun Gulati, Adv., Mr. Kishore Kunal, AOR, Mr. Sparsh Bhargava, ....
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....undertaken by the assessees, some of the goods/materials (particularly, steel and cement) were supplied or provided by the service recipients. As these materials were to be utilised in the projects meant for service recipients themselves, obviously, no costs thereof was charged from the assessees. The Department wants that value of such goods/materials even when supplied or provided free should be included, while calculating the "gross value" and 33% thereof be treated as value for the purpose of levying service tax. 4) The question, therefore, which has fallen for consideration is as to whether, the value of goods/material supplied or provided free of cost by a service recipient and used for providing the taxable service of construction or industrial complex, is to be included in computation of gross amount (charged by the service provider), for valuation of the taxable service, under Section 67 of the Act and for availing the benefits under Notification No. 15/2004-ST dated September 10, 2004 as amended by Notification No. 4/2005-ST dated March 01, 2005 (whereby an Explanation was added to Notification No. 15/2004-ST). 5) We may mention here that different benches of the Cu....
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....ervice provided or to be provided by him. Explanation 1.-For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes,- (a) the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker; (b) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; (c) the amount of premium charged by the insurer from the policy holder; (d) the commission received by the air travel agent from the airline; (e) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer; (f) the reimbursement received by the authorised service station from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer; and (g) the commission or any amount received by the rai....
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....e tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation.- For the purposes of this section. (a) "consideration" includes any amount that is payable for the taxable services provided or to be provided; (b)"money" includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value; (c) "gross amount charges" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called 'suspense account' or by any other nam....
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....(c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and ^2[book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.]" 9) Exemption Notifications: (a) Notification No. 12/2003-ST dated June 26, 2003, issued by the Central Government, exercising powers under Section 93(1) of the Act exempted the value of goods and materials sold by a service provider to a recipient of service from the tax leviable thereon, subject to documentary proof specifically indicating the value of such goods and material. This notification was specified to come into force w.e.f. July 01, 2013. (b) By Notification No. 15/2004-ST dated September 10, 2004, a further exemption was granted in respect of taxable service provided by a commercial concern to any person in relation to construction service. This Notification reads: "In exercise of the powers conferred by sub-sect....
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....f a composite contract, bifurcation of value of goods sold is often difficult. Considering these facts, an abatement of 67% has been provided in case of composite contracts where the gross amount charged includes the value of material cost. (Refer Notification No. 15/2004-S.T. dated 10-9-2004). This would, however, be optional subject to the condition that no credit of input goods, capital goods and no benefit (under Notification No. 12/2003-S.T.) of exemption towards cost of goods are availed." 11) As already pointed out in the beginning, all these assessees are covered by Section 65(25b) of the Act as they are rendering 'construction or industrial construction service', which is a taxable service as per the provisions of Section 65(105)(zzq) of the Act. The entire dispute relates to the valuation that has to be arrived at in respect of taxable services rendered by the assessees. More precisely, the issue is as to whether the value of goods/materials supplied or provided free of cost by a service recipient and used for providing the taxable service of construction or industrial complex, is to be included in computation of gross amount charged by the service provider, for val....
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....ervice provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined" 13) A plain meaning of the expression 'the gross amount charged by the service provider for such service provided or to be provided by him' would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the 'gross amount' simply, because of the reason that no price is charged by the assessee/service provider from the service recipient in respect of such goods/materials. This further gets strengthened from the words 'for such service provided or to be provided' by the service provider/assessee. Again, obviously, in respect of the goods/materials supplied by the service recipient, no service is provided by the assessee/service provider. Explanation 3 to subsection (1) of Section 67 removes any doubt by clarifying that the gross amount charged for the taxable service shall include the amount received towards the tax....
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....e service recipient, no case is made out that any credit notes or debit notes were issued or any book adjustments were made. Likewise, the words, 'any amount credited or debited, as the case may be', to any account whether called 'suspense account or by any other name, in the books of accounts of a person liable to pay service tax' would not include the value of the goods supplied free as no amount was credited or debited in any account. In fact, this last portion is related to the debit or credit of the account of an associate enterprise and, therefore, takes care of those amounts which are received by the associated enterprise for the services rendered by the service provider. 16) In fact, the definition of "gross amount charged" given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term "gross amount charged" to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclus....
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.... first instance, no material is produced before us to justify that aforesaid basis of the formula was adopted while issuing the notification. In the absence of any such material, it would be anybody's guess as to what went in the mind of the Central Government in issuing these notifications and prescribing the service tax to be calculated on a value which is equivalent to 33% of the gross amount. Secondly, the language itself demolishes the argument of the learned counsel for the Revenue as it says '33% of the gross amount 'charged' from any person by such commercial concern for providing the said taxable service'. According to these notifications, service tax is to be calculated on a value which is 33% of the gross amount that is charged from the service recipient. Obviously, no amount is charged (and it could not be) by the service provider in respect of goods or materials which are supplied by the service recipient. It also makes it clear that valuation of gross amount has a causal connection with the amount that is charged by the service provider as that becomes the element of 'taxable service'. Thirdly, even when the explanation was added vide notification dated March 01....