Case Law Details
Aneri Construction Pvt. Limited Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)
The Central Excise and Service Tax Appellate Tribunal (CESTAT) Ahmedabad recently addressed a significant issue regarding the applicability of service tax on materials supplied free of cost by the service recipient during construction. Aneri Construction Pvt. Limited, a registered service provider, had opted for the composition scheme for taxation of service tax under Works Contract service but had not included the value of materials such as steel pipes and valves provided free of cost by the service recipient, M/s. GSPC Gas Company Limited.
1. Background and Allegations:
Aneri Construction Pvt. Limited offered services in various categories, including Erection, Commissioning and Installation Service, Commercial and Industrial Construction Services, Maintenance and Repair Services, and more. During a financial audit, the tax department observed that Aneri Construction had not included the value of materials supplied by M/s. GSPC Gas Company Limited in their assessable value for service tax calculation. A show-cause notice was issued, demanding Rs. 61,06,366 in service tax under Section 73(1) of the Finance Act, 1994.
2. Appellant’s Argument:
The appellant’s advocate argued that the term “gross amount charged” mentioned in Notification No. 23/2009-ST should be interpreted in line with Section 67 of the Finance Act, 1994. They contended that only the value of services and goods supplied by the service provider should be included in the taxable value for service tax calculation.
3. Precedents and Legal Framework:
The advocate cited the Supreme Court’s decision in the case of CCE vs. Bhayana Builders (P) Limited, where the Court ruled that the value of materials/goods supplied free of cost by the service recipient cannot be included in the “gross amount charged” for services. The advocate also referenced several cases where this precedent was followed by various courts and tribunals.
4. Department’s Response:
The learned AR representing the tax department reiterated the findings of the impugned order-in-original.
5. CESTAT’s Decision:
CESTAT Ahmedabad analyzed the provisions of Section 67 of the Finance Act, 1994, and concluded that only consideration received by the service provider from the service recipient, whether monetary or otherwise, should be included in the gross amount charged for service tax calculation. The Tribunal emphasized that any consideration not received by the service provider should not be part of the taxable value under the term “gross amount charged.” They noted that this interpretation was consistent with the Supreme Court’s decision in the Bhayana Builders case.
6. Conclusion:
In light of the Supreme Court’s precedent and the interpretation of relevant provisions, CESTAT Ahmedabad set aside the impugned order-in-original and allowed the appeal, ruling that service tax should not be applicable to materials supplied free of cost by the service recipient during construction.
This case clarifies a crucial aspect of service tax calculation, ensuring that service providers are not taxed on materials supplied by the service recipient free of charge. It aligns with the Supreme Court’s position, providing clarity to service providers and recipients alike.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the matter are that appellant are a service provider under the category of services such as Erection, Commissioning and Installation Service, Commercial and Industrial Construction Services and Maintenance and Repair Services, Supply of Tangible goods, Manpower Recruitment Agency Service, Works Contract services etc. and they are duly registered with Service Tax registration under Section 69 of the Finance Act, 1994. During the audit of financial record of the appellant, it was observed by the department that the appellant has opted for composition scheme for taxation of service tax under Works Contract service but they have not included the value of free supply materials such as steel pipes, valves etc. It has been the contention of the department that during the Financial Year 2010-11 and 2011-12, the appellant has provided Works Contract service to M/s. GSPC Gas Company Limited wherein steel pipes and valves were provided by the service recipient and as per the provisions of Notification No. 23/2009-ST dated 07.07.2009, the value of the free supplied materials should have been included in the assessable value for discharging service tax liability under the composition service tax rate of 4%. A show cause notice dated 26.08.2013 came to be issued to the appellant where under the service tax demand of Rs. 61,06,366/- has been demanded under Section 73(1) of the Finance Act, 1994, interest and penal provisions as per Finance Act, 1994 has also been invoked. The matter has been adjudicated by the impugned order-in-original where under all the charges as leveled in the show cause notice have been confirmed.
2. Learned advocate appearing for the appellant has stated that appellant has entered into various contracts with M/s. GSPC Gas Company Limited for laying, testing and commissioning of steel pipeline network and station piping for upcoming CNG stations. As per the scope of the work detailed in the aforesaid contracts the appellant was required to undertake the activities such as project management, detailed engineering, procurement, manufacturing, inspection, testing, storage, erection, installation and pipe laying work including site-preparation and site restoration etc. It has been the contention of the learned advocate that the word “gross amount charged” as mentioned in the Notification No. 23/2009-ST dated 07.07.2009 should be interpreted in accordance with the provisions of Section 67 of Finance Act, 1994. Learned advocate has argued that only the value of services and the goods supplied by the service provider need to be included in the taxable value for the purpose of discharging service tax as per the provision of Section 67 of the Finance Act, 1994.
3. The learned Advocate has also argued that the issue involved in the present case whether the value of free supply of material like steel pipes and valves supplied by M/s. GSPC Gas Company Limited to the appellants need to be included in the gross amount charged for the purpose of discharging service tax liability under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 as amended by Notification No. 23/2009-ST dated 07.07.2009, it was pointed out that the issue is no more res-integra in view of the decision of the Hon’ble Supreme Court in the case of CCE vs. Bhayana Builders (P) Limited – 2018 (2) TMI 1325 wherein the Hon’ble Apex Court categorically held that for the purpose of valuation of taxable service, under the provisions of Section 67 of Finance Act, 1994 the mention of “the gross amount charged” by the service provider for such service provided or to be provided by him on which tax should be discharged include the amount charged by the service provider from the service recipient and the value of materials/ goods supplied free of cost by the service recipient to the service provider cannot be included to arrive at the „gross amount charged for such services‟. The learned advocate further stated that the ratio of above mentioned decision in case of M/s. Bhayana Builders (P) Limited (supra) has been followed by various Courts and by this Tribunal in the following cases:-
(a) Murthy Engineering Works v. CCE & ST, Rajkot – 2023 (4) TMI 323 (Tri. Ahmd.)
(b) Indiana Minerals v. CCE (Appeals) – 2023 (3) TMI 738 (Tri. Chennai)
(c) HSIL Limited v. CCE, Jaipur – 2022 (6) TMI 1262 (Tri. Delhi)
(d) National Building Construction Corp. Limited v. CCE & ST – 2021 (7) TMI 1350 (Tri. Kolkata)
(e) Navsarjan Engineering v. CCE & ST, Ahmedabad – 2018 (11) TMI 1390 (Tri. Ahmedabad)
(f) CCE & CGST, Delhi v. GD Builders – 2018 (8) TMI 1107 (Tri. Ahmedabad)
(g) Jay Engineers v. CST, Ahmedabad – 2019 (5) TMI 156 (Tri. Ahmedabad)
(h) M/s Bhaveen Construction Pvt. Limited v. CCE & ST – 2019 (2) TMI 1306 (Tri. Ahmedabad)
It has also been submitted that department has wrongly interpreted the explanation inserted vide Notification No. 23/2009-ST dated 07.07.2009 that since pipeline and valve provided by M/s. GSPC Gas Company Limited should have been included in the gross amount charged is a gross violation of provisions of Section 67 of the Finance Act, 1994. As Section 67 of Finance Act, 1994 provided that “the value of taxable services shall be gross amount charged by service provider for such service provided or to be provided by him”. Thus, when something is not charged by the service provider for the service provided by them it should not form part of the value of the service for the purpose of discharging service tax liability.
4. We have heard the learned AR who has reiterated the findings given in the impugned order-in-original.
5. Having heard both the sides we are of the opinion that as per the provisions of Section 67 of Finance Act, 1994 for the valuation of service on which service tax is to be charged, any consideration flown from the service recipient to the service provider either in the monetary form or in any other form which is not ascertainable such benefit which flow back to the service provider need to be included in the gross amount charged for levy of service tax. We are of the view that the consideration which is not received by the service provider shall not form part of taxable value under the term gross amount charged under Section 67 for levy of service tax.
6. As pointed out in the preceding paragraphs, the issue is no longer res-integra as the matter has already been decided by Hon‟ble Apex Court in the case of Commissioner of Service Tax etc. vs. Bhayana Builders (P) Limited etc. reported in 2018 (2) TMI 1325 – SUPREME COURT. The ratio of the decision is extracted below:-
“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 inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services. The value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider.
17) Faced with the aforesaid situation, the argument of the learned counsel for the Revenue was that in case the assessees did not want to include the value of goods/materials supplied free of cost by the service recipient, they were not entitled to the benefit of notification dated September 10, 2004 read with notification dated March 01, 2005. It was argued that since building construction contract is a composite contract of providing services as well as supply of goods, the said notifications were issued for the convenience of the assessees. According to the Revenue, the purpose was to bifurcate the component of goods and services into 67%:33% and to provide a ready formula for payment of service tax on 33% of the gross amount. It was submitted that this percentage of 33% attributing to service element was prescribed keeping in view that in the entire construction project, roughly 67% comprises the cost of material and 33% is the value of services. However, this figure of 67% was arrived at keeping in mind the totality of goods and materials that are used in a construction project. Therefore, it was incumbent upon the assessees to include the value of goods/material supplied free of cost by the service recipient as well otherwise it would create imbalance and disturb the analogy that is kept in mind while issuing the said notifications and in such a situation, the AO can deny the benefit of aforesaid notifications. This argument may look to be attractive in the first blush but on the reading of the notifications as a whole, to our mind, it is not a valid argument.
18) In the 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, 2005, it only explained that the gross amount charged shall include the value of goods and materials supplied or provided or used by the provider of construction service. Thus, though it took care of the value of goods and materials supplied by the service provider/assessee by including value of such goods and materials for the purpose of arriving at gross amount charged, it did not deal with any eventuality whereby value of goods and material supplied or provided by the service recipient were also to be included in arriving at gross amount ‘gross amount charged’.
19) Matter can be looked into from another angle as well. In the case of Commissioner, Central Excise and Customs, Kerala M/s. Larsen & Toubro Ltd. (2016) 1 SCC 170. This Court was concerned with exemption notifications which were issued in respect of ‘taxable services’ covered by sub-clause (zzq) of clause (105) read with clause (25b) and sub-clause (zzzh) of clause (105) read with clause (30a) and (91a) of Section 65 of Chapter V of the Act. This Court in the aforesaid judgment in respect of five ‘taxable services’ *viz. Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh)+ has held as under:
“23. A close look at the Finance Act, 1994 would show that the fixed taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines ‘taxable service’ as ‘any service provided’.
Further, while referring to exemption notifications, it observed:
“42. …Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise.”
It is clear from the above that the service tax is to be levied in respect of ‘taxable services’ and for the purpose of arriving at 33% of the gross amount charged, unless value of some goods/materials is specifically included by the Legislature, that cannot be added.
20) It is to be borne in mind that the notifications in questions are exemption notifications which have been issued under Section 93 of the Act. As per Section 93, the Central Government is empowered to grant exemption from the levy of service tax either wholly or partially, which is leviable on any ‘taxable service’ defined in any of sub-clauses of clause (105) of Section 65. Thus, exemption under Section 93 can only be granted in respect of those activities which the Parliament is competent to levy service tax and covered by sub-clause (zzq) of clause (105) and sub-clause (zzzh) of clause (105) of Section 65 of Chapter V of the Act under which such notifications were issued.
21) For the aforesaid reasons, we find ourselves in agreement with the view taken by the Full Bench of CESTAT in the impugned judgment dated September 6, 2013 and dismiss these appeals of the Revenue.
22) Insofar as Civil Appeal No. 3247 of 2015 is concerned, where the assessee is Gurmehar Construction, it may additionally be noted (as pointed out by the learned counsel for the respondent) that the assessee was a sole proprietorship concern of Mr. Narender Singh Atwal, who died on February 24, 2014. This is so stated in the counter affidavit filed by the respondent on May 16, 2017 and this position has not been disputed by the Department. This appeal, in any case, has abated as well in view of the judgment of this Court in Shabina Abraham & Ors. Collector of Central Excise & Customs (2015) 10 SCC 770
23) As a result, all appeals stand dismissed.”
7. In view of the above observations and following the decision of the Hon’ble Apex Court (supra), we set-aside the impugned order-in-original and allow the appeal.
(Pronounced in the open court on 11.09.2023)
