In a ruling in favor of the construction industry, a two-judge bench of the Supreme Court, held that service tax cannot be levied on the value of goods/material supplied free of cost by a service recipient during construction.
The assessees in the instant case are covered by Section 65(25b) of the Finance 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 Finance Act.
The sole question before the Court was that 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.
The above Notification 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.
Different benches of the Customs, Excise and Service Tax Appellate Tribunal (for short ‘CESTAT’) had given conflicting views on the aforesaid question.
The Revenue contended that payment received in ‘any form’ and ‘any amount credited or debited, as the case may be…’ is to be included for the purposes of arriving at gross amount charges and is leviable to pay service tax.
A bench comprising Justices A K Sikri and Ashok Bhushan observed that a plain reading of Explanation (c) which makes the ‘gross amount charges’ inclusive of certain other payments would make it clear that the purpose is to include other modes of payments, in whatever form received; be it through cheque, credit card, deduction from account etc. “It is in that hue, the provisions mentions that any form of payment by issue of credit notes or debit notes and book adjustment is also to be included. Therefore, the words ‘in any form of payment’ are by means of the issue of credit notes or debit notes and book adjustment. With the supply of free goods/materials by the 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 associated enterprise and, therefore, takes care of those amounts which are received by the associated enterprise for the services rendered by the service provider.”
“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 the value of some goods/materials is specifically included by the Legislature, that cannot be added,” the bench added.