Whether free supplies by recipients includible in taxable value of service before claiming abatement?

PJ/Case Law/2013-14/2091

Case:- G RAMAMOORTHI CONSTRUCTIONS (I) PVT LTDVs COMMISSIONER OF SERVICE TAX, COIMBATORE

Citation:-2014-TIOL-06-CESTAT-MAD

Brief facts:-The applicant is engaged in construction of commercial and residential complexes. While executing such projects, applicant was receiving steel and cement from their customers. The applicant was receiving only the value of services undertaken by them. They claimed abatement under notification 15/04-ST and 1/06-ST and paid service tax on 33% of consideration received. Revenue was of the view that such abatement is available only if value of the entire materials used is included in the gross amount. Based on such argument, two show cause notices were issued for the periods 16/6/05 to 31/3/08 and 1/4/09 to 31/3/10. On adjudication, amounts of Rs.4,56,466/- and Rs.5,59,897/- are confirmed respectively in respect of the said SCNs along with interest and penalties.
Aggrieved by the adjudication order, the applicant filed appeal before Commissioner (Appeals) but the appellant did not get any relief. Aggrieved by the order of Commissioner (Appeals), applicant filed these appeals before Tribunal along with applications for waiver of dues for admission of appeal.

Appellant’s contention:-The counsel for applicant submitted that material given by their customers cannot, form part of the value of consideration received by the applicants. He submits that this issue was before the Hon. Madras High Court in the case of L&T Ltd. Vs UOI - 2007 (7) STR 123 (Mad.) =(2007-TIOL-176-HC-MAD-ST) wherein the Hon'ble Madras High Court prima facie took a view that value of materials supplied by the service recipient cannot be added in the total taxable value and on this count granted waiver of pre-deposit. Further, he submits that the first demand is confirmed by issuing SCN invoking extended period of limitation and hence it is time-barred. He requested that appeal may be admitted without any pre-deposit.

Respondent’s contention:-Opposing the prayer, Ld. AR for Revenue relies on the decision of Calcutta High Court in the case of Simplex Infrastructures Ltd. Vs CST Kolkata: 2011 (263) ELT 195 (Cal.) =(2010-TIOL-899-HC-KOL-ST)wherein the Hon. High Court upheld the order of pre-deposit. He further points out that this issue has been decided finally by the Tribunal in two cases namely Jaihind Projects Ltd. Vs CST Ahmedabad - 2010 (18) STR 650 (Tri.-Ahmd.) = (2010-TIOL-124-CESTAT-AHM)and Paharpur Cooling Towers Ltd. Vs Commissioner of C. Ex., Raipur - 2013 (31) STR 227 (Tri.). He particularly relies on the decision of Jaihind Projects (supra) wherein detailed reason is given at para-28 which is reproduced below:-
"28. We are also unable to accept the view canvassed by the appellant that expression "supplied" "provided" or "used" has to be taken to meaning "supplied and used" by the service provider or "provided and used" by the service provider. As already mentioned earlier, expression "supplied" and "provided" has the same meaning. By using the word "or" between the words "provided" and "used", legislative intent seems to be to ensure that whether it is supplied or provided or used, the value of such goods and materials irrespective of source are to be included. As already observed by us, this is consistent with the definition of the value under Section 67 and the provisions of Valuation Rules, which requires all types of monetary and non-monetary considerations to be taken into account to arrive at the value of service provided.”
It was also submitted that pipes cannot be said to be used for providing the service of construction of pipelines. We do not agree with the appellant that the activity in this case can be compared to painting of air-crafts or installation of computer system. Unlike air craft, computer system, in this case, the pipe is only a part of pipeline and not the final product. Service is laying of the pipelines and not simply providing the pipes. If the service provided happens to be service like sand blasting, painting of the pipes, the contention of the appellant that the pipes cannot be said to have been used, would be perfectly in order, but not in the case of pipeline.”
He submitted that the earlier orders were stay orders and now the Tribunal has taken a final view in this matter. He also pointed out that this Bench has called for pre-deposit in the case of SR Selvaraj & Sons in appeal ST/317/2010 decided on 21.08.2013. He therefore submitted that this applicant also should be asked to make some pre-deposit.

Reasoning of judgment:- Considered the arguments on both sides. Since the matter has been considered by the Tribunal in two appeals and this Tribunal has taken a view that when abatement is claimed, it should be from value inclusive of all the materials used for providing the service. In the case of invoking extended period, we prima facie accept the contention of the counsel of the applicant. Considering the various aspects, we find it proper to call for a reasonable pre-deposit at this stage. Accordingly, the applicant is directed to make a pre-deposit of Rs.1,50,000/- (Rupees One lakh fifty thousand only) within 6 weeks for admission of appeal and to report compliance on 15.10.2013. Subject to such deposit, pre-deposit of balance dues arising from the impugned order is waived and there shall be stay on collection of such dues during pendency of appeal.

Decision:- Part stay granted.

Comment:- This case has ordered some amount as pre-deposit as the value of materials supplied by the service recipient was not included by the assessee in the taxable value of service for the purpose of abatement. However, it appears that the decision of the larger bench in the case of Bhayana Builders was not in the knowledge of the appellant wherein it has been concluded that the value of free supplies by service recipient are not to be included in the taxable value of service.

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PJ/Case Law/2013-14/2091

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