Supply of diesel & explosives for use in Capital equipment-whether input services

PJ/Case Laws/2010-11/1035

Case: M/s Gulf Oil Corporation Ltd v/s Commr of Service Tax, Hyderabad

Citation: 2010 (20) STR 830 (Tri. – Bang)

Issue:- Whether the supply of the diesel and explosives for the use in capital equipments will be considered as input services? Whether the free supply of material will be included in value of taxable services?

Brief Facts:- The demand against the appellants was raised on two heads:

(i) For non-inclusion of value of free supply materials in the transaction value and

(ii) For ineligibility of Cenvat Credit on the motor vehicles used for the purpose of providing certain site formation and clearance, excavation and earthmoving and demolition service.

Against the impugned order, appellant are before the Tribunal. Present stay petition is filed for waiver of pre-deposit.

Appellant’s Contention:- Appellant submit that the cenvat credit taken of approximately Rs. 6.31 crores has been reversed. It is submitted that they are challenging the finding of the Adjudicating Authority regarding the ineligibility to avail the said modvat credit.

As regards the service tax liability on the valuation, it is submitted that the amount of service tax has arisen on the ground that the appellant had not included the cost of the diesel and explosives supplied by the service receiver i.e. M/s. Singareni Colleries Col. Ltd. It is submitted that the said diesel and explosives were given to them for the use of capital equipments and cannot be considered as input services received by them. Attention is drawn to the provision of Section 67 of the Finance Act, 1994 and Rule 5 of the Service Tax (Determination of Value) Rules, 2006.

Appellant also submitted that in an identical issue in the case of Karamjit Singh & Co v/s CCE, Raipur [2009 (15) STR 266 (Tri. Del)], the Tribunal has granted unconditional waiver of pre-deposit of the amounts involved. Reliance was also placed on the case of Larsen & Toubro Ltd. Vs. UOI [2007(7) STR 123 (Mad.)] and on the case of Era Infra Engineering Ltd. Vs. UOI [2008 (110 STR 3 (Delhi)].

Respondent’s Contention:- Revenue submitted that the appellant's reversal of the Cenvat Credit, which was availed on the capital goods is correct because they have been claiming the activity as ‘cargo handling' which is not so. It was submitted that the appellant should have reversed the Cenvat Credit with interest. It is submitted further that the value for the diesel and explosives received by them from M/s. Singareni Colleries Co. Ltd., has to be calculated and included in the gross value of the service charges as the appellant collected less charges in co-relation to the inputs supplied vis-à-vis the services rendered by them. It was also submitted that in the case Northern Coal Fields Ltd (NCL), the amount charged by appellant for the same services rendered by using their own diesel and explosives was more.

Reasoning of Judgment:- As regards the issue of reversal of cenvat credit, the Tribunal found that the appellant had already reversed the entire credit taken by them during the proceedings before the adjudicating authority.

As regards the amount of service tax of Rs. 5.13 crores (approximately), the Tribunal found that it is undisputed that the appellant has not received any consideration or money value from M/s. Singareni Colleries Co. Ltd. What they have received is diesel and explosives for the purpose of use in machinery for removal of over-burden using their own capital equipments.

In the opinion of the Tribunal provisions of Section 67 may not be attracted in this case because there is no consideration as such received by the appellant from M/s. Singareni Colleries Co. Ltd. towards any services.

Tribunal also found that Rule 5 could be invoked only in case the value of services incurred by the service provider in course of providing taxable services is borne by service receiver. In this case, there are no findings that such expenses for services are incurred by the service receiver.

Tribunal found that the decisions of the High Court of Madras in the case of Larsen & Turbo Ltd and of the High Court of Delhi in the case of Era Infra Engineering Ltd prima-facie cover the issue in favour of the appellant.

Accordingly, Tribunal held that the amount of deposit already made is enough to hear and dispose of the appeal. Application for waiver of pre-deposit of balance amounts involved allowed.

Judgment:- Waiver of pre-deposit of balance amount granted and Stay granted.

Comment:- This decision is very important from the point of view that the free supply of material is to be added in the value of taxable service. Earlier the department view was that these were not to be added in works contract service but it was to be added in Commercial construction or Residential construction service. It was major source of attraction for works contract service. Though there were decision that these are not to be added in Construction services also but the department was not agreeing to the same. Thereafter, the amendment was done is works contract service also and said that free supply of material is to be added for computing the value for the purpose of levying service tax.

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PJ/Case Laws/2010-11/1035

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