ST - Value of goods and materials supplied free of cost by service recipient to provider of taxable construction service would be outside taxable value or gross amount charged - matter no longer res integra - Appeal allowed: CESTAT
By TIOL News Service
NEW DELHI, JUNE 05, 2014: THIS case has had an eight year journey but the day of 9th May proved lucky for the appellant. All the below mentioned orders were passed by the Bench on the same day
Vide an order dated 18.07.2013 the appeal filed by the appellant in the year 2008 was dismissed for default.
By an application, they sought recall of this order. The Bench was satisfied with the cause shown and so after recalling the order, the appeal was restored to the file and the matter was taken up for hearing.
Incidentally, the appellant had also filed an application seeking stay of all further proceedings for realization of the adjudicated liability. The Bench observed that since the substantive appeal was being disposed of, the application is infructuous and so dismissed the same.
The facts are that the appellant had entered to an agreement with M/s National Thermal Power Corporation Ltd. (NTPC) for executing offsite civil works for a Super Thermal Power Project Stage II and SG area civil works package for the Super Thermal Power Project Stage I in Bilaspur District. The works executed by the appellant involved components falling within the ambit of taxable services classified as "commercial or industrial construction" service, defined in Section 65 (25b) readwith Section 65 (105) (zzq) of the Act.
Under the agreement between the parties, the service recipient M/s NTPC supplied certain goods such as cement and steel which were incorporated in the execution of the works. The appellant claimed the benefit of abatement of 67% of the tax liability (towards the value of the goods incorporated) under Notification No. 1/2006-ST dated 01/03/06&remitted 33% of the gross tax payable on the consideration received for rendition of the service.
Proceedings were initiated by Revenue on the premise that the appellant was required to disclose the value of the free supplies given by the recipient of the service for availment of benefits under Notification No. 1/2006-ST. It is the value of the free supplies and the service tax on such value that forms the basis of the assessed demand for service tax, interest and penalties.
The CCE, Raipur confirmed a service tax demand of Rs.1,55,14,759/-, appropriated Rs.1,10,98,208/- and directed recovery of interest; and penalties under Section 76 and 77 of the FA, 1994; thereafter a corrigendum was issued modifying the quantum of penalty imposed u/s 76 of the FA, 1994.
Against this order the appellant had filed the subject appeal before the CESTAT.
The Bench observed that the issue as to whether the value of free supplies made by the recipient of commercial or industrial construction service is required to be disclosed as part of the gross consideration received for rendition of taxable construction services, to be entitled to the benefits of Notification No. 1/2006-ST, is no longer res-integra. Inasmuch t his issue stood settled by the LB decision in Bhayana Builders (P) Ltd. vs. CST, Delhi 2013-TIOL-1331-CESTAT-DEL-LB where it is held that value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service, would be outside the taxable value or the gross amount charged.
Holding that the order cannot be sustained, the same was quashed and the appeal was allowed.
In passing : Now, for some consequential relief!
(See 2014-TIOL-946-CESTAT-DEL)
