Finance Act, 1994 –
s. 65(105)(zzq) and 67 – Service tax – On construction services – Valuation of taxable service – By Notification dated 10.9.2004, service tax was to be calculated on the value equivalent to 33% of the ‘gross amount charged’ from any person by such commercial concern for providing taxable service – This Notification was further amended by Notification dated 1.3.2005 whereby it was explained that ‘gross amount charged’ shall include the value of goods and materials supplied and provided or used by the provider of construction service for providing such service – In the construction projects undertaken by the assessees, some of the materials were provided by the service recipients – Assessee paid the service tax @33% of the gross amount charged from the service recipients – Revenue demanded that value of such materials, even when supplied or provided free, should be included while calculating the ‘gross value’ and 33% thereof should be treated as value for the purpose of levying service tax – Held: In respect of goods/materials supplied by the service recipient, no service is provided by the assessee/service provider – Therefore, the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the ‘gross amount’ as no price has been charged by the service provider from service recipient – Goods/materials supplied free, cannot also be called ‘form of payment’ as explained in Explanation (c) to s.67. Dismissing the appeals, the Court
HELD: 1.1 A plain meaning of the expression ‘the gross amount charged by the service provider for such service provided or to be provided by him’ as occurring in s.67(2) of Finance Act, 1994 would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the ‘gross amount’ simply, because of the reason that no price is charged by the assessee/service provider from the service recipient in respect of such goods/materials. This further gets strengthened from the words ‘for such service provided or to be provided’ by the service provider/assessee. Again, obviously, in respect of the goods/materials supplied by the service recipient, no service is provided by the assessee/service provider. Explanation 3 to sub-section
(1) of Section 67 removes any doubt by clarifying that the gross amount charged for the taxable service shall include the amount received towards the taxable service before, during or after provision of such service, implying thereby that where no amount is charged that has not to be included in respect of such materials/goods which are supplied by the service recipient, naturally, no amount is received by the service provider/assessee. Though, sub-section (4) of Section 67 states that the value shall be determined in such manner as may be prescribed, however, it is subject to the provisions of sub-sections (1), (2) and (3). Moreover, no such manner is prescribed which includes the value of free goods/material supplied by the service recipient for determination of the gross value. [Para 13] [1141-F-H; 1142-AB]
1.2 The definition of “gross amount charged” given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term “gross amount charged” to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services. The value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider. Therefore, it is not correct to say that the value of goods/materials supplied free, is a form of payment and, therefore, should be added. [Para 15 and 16] [1142-G-H; 1143A-C-D]
1.3 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 value of some goods/materials is specifically included by the Legislature, that cannot be added. The notifications in questions are exemption notifications which have been issued under Section 93 of the Act. As per Section 93, the Central Government is empowered to grant exemption from the levy of service tax either wholly or partially, which is leviable on any ‘taxable service’ defined in any of sub-clauses of clause
(105) of Section 65. Thus, exemption under Section 93 can only be granted in respect of those activities which the Parliament is competent to levy service tax and covered by sub-clause (zzq) of clause (105) and sub-clause (zzzh) of clause (105) of Section 65 of Chapter V of the Act under which such notifications were issued. [Para 19 and 20] [1145-E-G]
Commissioner, Central Excise and Customs, Kerala v. M/s. Larsen & Tubro Ltd. (2016) 1 SCC 170 : [2015] 8 SCR 1046 – relied on.
2. In Civil Appeal No. 3247 of 2015, the assessee was a sole proprietorship concern of the person who died. This appeal has abated. [Para 22] [1146-A-B]
Shabina abraham & Ors. v. Collector of Central Excise & Customs (2015) 10 SCC 770 : [2015] 8 SCR 151 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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