Pradeep Jain - Chartered Accountant

Dear Pradeep Sir, Greetings. sir, we engaged a private limited company as contractor for civil construction, where we are providing sand and gitty to him. he is charging service tax under composition scheme under rule 2A(ii), without considering the fair value of the sand and gitty which we supplied. as being the company himself, reverse charge would not be applicable, but my quarry is, is there any liability on our company towards service tax, on the value of such sand and gitty? please clear my doubt. thanks in advance. (P Rathi)

According to rule 2A(ii) of service tax determination rules 2006 under composition scheme it is stated that service tax would be payable at the specified percentage of the total amount i.e including the value of material supplied under the contract. It is not clear whether free supplies would be included in the taxable value or not but till now free supplies were being added in the taxable value of service. However, on account of the recent decision made in the case of Bhayana Builders [2013-TIOL-1331-CESTAT-DEL-LB] it was held that the value of free materials supplied by service recipient do not form part of the taxable value for the purpose of service tax. In view of the said decision, there is no liability of your company on the supplies made to the service provider. However, as the matter involves interpretation of law, it is prone to litigation in future.

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