Determining Gross amount of providing service - inclusion of cost of free material supplied for completing contract

PJ/Case Laws/2011-12/1496

Case: ERA INFRA ENGINEERING LTD. Versus U.O.I

Citation: 2008 (11) S.T.R. 3 (Del.)

Issue:- Gross Amount for providing service – computation of – Material supplied free of Cost by service recipient for completing the contract – not includible.

Brief Facts:- A show cause notice has been issued to the Petitioner on 13th June. 2007 proposing to include the free supply of material as a part of the gross amount charged for the purposes of levying Service tax. The Petitioner has filed a reply to the show cause notice an 24th September, 2007 and we are told that the matter has not yet been adjudicated.

Petitioner’s Contention:- For the purposes of levying service tax the Respondents can only include the service element provided for in the contract that the petitioner enters Into with other parties, In this came the other contracting party being NTPC. It Is the case of the Petitioner that materials that are supplied free of cost by NTPC to the Petitioner for the purposes of completing the contract cannot be included in the gross amount charged by the Petitioner for the purposes of denim hung the Service tax payable.

According to the Petitioner, the "gross amount charged" has been defined in Section 67(3) of the Finance Ad. 1994.

It is submitted that any material that is supplied by NTPC free of charge cannot he included in the "gross amount charged" as defined above. Therefore, it cannot be included in the taxable service which is provided for in Section 67 of the Finance Art, 1994.

Reasoning of Judgment:- It was held that prima facie it appears that the respondent cannot include in the gross amount charged any material that is supplied free of charge by NTPC or by any other party in respect of a contract of service.

Attention has been drawn to an order passel by the Madras High Court in M/s Larsen and Turbo Ltd. v. Union of India, wherein the Madras High Court has come to the prima facie view that instances on value of goods supplied and provided free by the client of an assessee cannot be included for the purpose of calculating taxable service.

In view of the facts that the High court narrated above as well as the interim order passed by the Madras High Court, the High Court is of the opinion that while the adjudication proceedings may go on and be concluded by the Respondents, they will not include for the purposes of & determining the taxable service the supply of free material to the Petitioner and to this extent the Explanation appearing against Serial No 7 in the table given in the Notification dated 1st Mirth, 2006 will nut be applied to the detriment of the Petitioner.

Decision:- Appeal is disposed off.

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PJ/Case Laws/2011-12/1496

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