By TIOL News Service

MUMBAI, NOV 08, 2017: THE appellant is engaged in providing Works Contract service.

They paid service tax on the value which did not include the material supplied free of cost by the service provider during the period January 2011 to March 2012.

Revenue issued a SCN alleging that the free supply material should be included in the gross value under the composition scheme of Works contract and accordingly there is a short payment of service tax. The adjudicating authority confirmed the demand and imposed penalty under Section 78 of the Finance Act, 1994,therefore, the appellant filed the present appeal before CESTAT.

The appellant submitted that free supply material is not required to be included in the gross value of service of works contract in the light of the Larger Bench judgement in the case of Bhayana Builders Pvt. Ltd. - 2013-TIOL-1331-CESTAT-DEL-LB followed in Jaiswal Builders & Contractors - 2016-TIOL-831-CESTAT-MUM, Era Infra Engineering Ltd. - 2008-TIOL-386-HC-DEL-ST, Chemex Engineers - 2009-TIOl-2208-CESTAT-BANG, Kunnel Engineers & Contractors Pvt. Ltd. - 2011-TIOL-866-CESTAT-BANG, Intercontinental Consultants & Technocrats Pvt. Ltd. - 2012-TIOL-966-HC-DEL-ST, Compuserve Systems Pvt Ltd. - 2012-TIOL-460-CESTAT-AHM, Gupta Coal Field & Washeries Ltd. - 2012-TIOL-908-CESTAT-MUM, Midco Ltd. - 2011-TIOL-990-CESTAT-AHM.

It is further submitted that service tax is chargeable only on the consideration received in money Intercontinental Consultants & Technocrats Pvt. Ltd. - 2012-TIOL-966-HC-DEL-ST refers.]; that there is no malafide intention of the appellant to evade service tax and, therefore, the extended period was not invocable.

The AR while reiterating the findings of the impugned order also adverted to the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 and emphasized that the free supply material is to be included in the value of Works contract service; that since the fact of supply of material was not disclosed in the ST-3 return filed, the extended period of limitation is applicable.

The Bench noted that the judgment of Larger Bench relied upon by the assessee-appellant pertained to the eligibility of the abatement Notification No.15/04-ST in the matter of Construction service whereas in the present case the service undisputedly is of ‘Works contract'.

Adverting to rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 the CESTAT observed -

Merits:

++ From the above Explanation clause (a)(1) which can be seen that for the purpose of goods used in or in relation to the execution of the works contract value of all the supplies which for a consideration or otherwise should be added. Therefore it is clear that whether the goods used by the service provider or otherwise supplied by the service recipient free of cost, value of all the goods should be included to arrive at the gross value of works contract. Therefore in our considered view the value of free supply material is also to be added in the gross value of works contract, therefore the demand is sustainable on merit.

Limitation:

Observing that in the contract dt. 21.3.2011 between the service recipient and the appellant the following condition was provided -

"The Contract Price is inclusive of any applicable statutory payments like Vat, Provident Fund, Labour Welfare Cess, taxes and duties, insurance etc. Contractor's All Risk Policy, Third Party Insurance. Only Service Tax will be paid extra @ 4.12%. Service Tax will also be applicable on value of free issue materials ."

, the CESTAT further held -

"…From the above terms of the contract, it can be seen that there was a clear condition that for the purpose of service tax @ 4.12% the value of free supply of material also to be included. Therefore, there was no reason for not including the value of free supply material, this facts also reveal that the appellant having knowledge about the inclusion of free supply material did not include the same and also suppressed the said fact from the department. It is also observed that they did not disclose the value of the free supply material in their ST-3 returns. This is not the case where the issue was under litigation or there is any interpretation of law involved for the reason that all the judgments relied upon by the appellant are on different facts and as per the Works Contract Rules, the provision is clear that the material used whether supplied for consideration or otherwise, should be included, therefore there is no ambiguity in the legal provision. Accordingly, the demand of extended period is sustainable, for the same reason the penalty imposed under Section 78 was also imposed legally by the lower authority…."

The impugned order was sustained and the appeal was dismissed.

(See 2017-TIOL-3931-CESTAT-MUM)