REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 1335-1358 OF 2015
COMMISSIONER OF SERVICE TAX ETC. .....APPELLANT(S)
VERSUS
M/S. BHAYANA BUILDERS (P) LTD. ETC. .....RESPONDENT(S)
W I T H
CIVIL APPEAL NO. 15865 OF 2017
CIVIL APPEAL NO. 2888 OF 2015
CIVIL APPEAL NO. 7238 OF 2015
CIVIL APPEAL NOS. 3248-3252 OF 2015
CIVIL APPEAL NOS. 2452-2455 OF 2014
CIVIL APPEAL NO. 45 OF 2015
CIVIL APPEAL NO. 1400 OF 2015
CIVIL APPEAL NO. 10206 OF 2017
CIVIL APPEAL NO. 6207 OF 2016
CIVIL APPEAL NOS. 8148-8149 OF 2014
CIVIL APPEAL NO. 7370 OF 2014
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 1 of 26
CIVIL APPEAL NO. 10027 OF 2014
CIVIL APPEAL NO. 4209 OF 2015
CIVIL APPEAL NO. 1326 OF 2015
CIVIL APPEAL NO. 1647 OF 2015
CIVIL APPEAL NO. 3060 OF 2015
CIVIL APPEAL NO. 2437 OF 2015
CIVIL APPEAL NO. 1888 OF 2015
CIVIL APPEAL NO. 2081 OF 2015
CIVIL APPEAL NOS. 2082-2083 OF 2015
CIVIL APPEAL NO. 4208 OF 2015
CIVIL APPEAL NO. 3247 OF 2015
CIVIL APPEAL NO. 2474 OF 2015
CIVIL APPEAL NO. 5601 OF 2015
CIVIL APPEAL NO. 7038 OF 2015
CIVIL APPEAL NO. 7235 OF 2015
CIVIL APPEAL NO. 7243 OF 2015
CIVIL APPEAL NO. 4970 OF 2016
CIVIL APPEAL NO. 5941 OF 2016
CIVIL APPEAL NO. 8484 OF 2016
CIVIL APPEAL NO. 2338 OF 2018
(ARISING OUT OF DIARY NO. 42349 OF 2016)
CIVIL APPEAL NOS. 5319-5320 OF 2017
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 2 of 26
CIVIL APPEAL NO. 15485 OF 2017
CIVIL APPEAL NO. 11085 OF 2017
CIVIL APPEAL NO. 10606 OF 2017
CIVIL APPEAL NO. 15570 OF 2017
CIVIL APPEAL NO. 12451 OF 2017
CIVIL APPEAL NO. 11182 OF 2017
CIVIL APPEAL NO. 1430 OF 2015
CIVIL APPEAL NO. 9423 OF 2017
A N D
CIVIL APPEAL NO. 10611 OF 2017
J U D G M E N T
A.K. SIKRI, J.
Delay condoned in Diary No. 42349 of 2016.
2) The respondents herein are engaged in the business of
construction and, in the process, providing the services known as
‘Commercial or Industrial Construction Service’. This service is
exigible to service tax as per the provisions of Section 65(105)
(zzq) of the Finance Act, 1994 (hereinafter referred to as the
‘Act’). The assessees accept that they are covered thereby and,
therefore, are paying service tax as well. The dispute, however,
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 3 of 26
is with regard to the valuation of taxable service provided by
them. Under Section 67 of the Act deals with such a valuation.
3) It is a matter of common knowledge that for undertaking
construction projects, the assessees not only render services, lot
of materials/goods are also used in the construction of building or
civil structure etc. For valuation of taxable services, the
material/goods element has to be excluded. In order to make the
things easier for the assessees as well as the Assessing Officers
(AOs), the Government issued the Notification No. 15/2004-ST
dated September 10, 2004 as per which service tax is to be
calculated on the value which is equivalent to 33% of the gross
amount charged from any person by such commercial concern for
providing the taxable service. This notification was amended vide
another Notification No. 4/2005-ST dated March 01, 2005
whereby an explanation was added to the original notification.
This explanation mentions that the ‘gross amount charged’ shall
include the value of goods and material supplied and provided or
used by the provider of construction services for providing such
service. It is made optional for the assessees to take advantage
of the aforesaid notification and get the value calculated as per
the aforesaid formula provided therein. The assessees have
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 4 of 26
availed the benefit and paid the service tax @33% of the gross
amount which they have charged from the persons for whom
construction was carried out, i.e., the service recipients. It so
happened that in all these cases where the construction projects
were undertaken by the assessees, some of the goods/materials
(particularly, steel and cement) were supplied or provided by the
service recipients. As these materials were to be utilised in the
projects meant for service recipients themselves, obviously, no
costs thereof was charged from the assessees. The Department
wants that value of such goods/materials even when supplied or
provided free should be included, while calculating the “gross
value” and 33% thereof be treated as value for the purpose of
levying service tax.
4) The question, therefore, which has fallen for consideration is as to
whether, the value of goods/material supplied or provided free of
cost by a service recipient and used for providing the taxable
service of construction or industrial complex, is to be included in
computation of gross amount (charged by the service provider),
for valuation of the taxable service, under Section 67 of the Act
and for availing the benefits under Notification No. 15/2004-ST
dated September 10, 2004 as amended by Notification No.
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 5 of 26
4/2005-ST dated March 01, 2005 (whereby an Explanation was
added to Notification No. 15/2004-ST).
5) We may mention here that different benches of the Customs,
Excise and Service Tax Appellate Tribunal (for short ‘CESTAT’)
had given conflicting views on the aforesaid question and,
therefore, the matter was referred to the Larger Bench which has,
by impugned judgment dated September 6, 2013 rendered in a
batch of matters, has decided the issue in favour of the
assessees by holding that the value of the goods/materials
cannot be added for the purpose of aforesaid notification dated
September 10, 2004, as amended by notification dated March 01,
2005. It is the said judgment of the Larger Bench dated
September 6, 2013, correctness whereof is the subject matter of
present appeals.
6) For answering the question, it would be necessary to refer to the
relevant provisions of the Act and the Notifications, which are as
under:
As mentioned above, ‘commercial or industrial construction
service’ is a taxable service enumerated under Section 65(105)
(zzq) of the Act. Section 65(25b) of the Act defines construction
or industrial construction service to mean:
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 6 of 26
(a) construction of a new building or a civil
structure or a part thereof; or
(b) construction of pipeline or conduit; or
(c)completion and finishing services such as
glazing, plastering, painting, floor and wall tiling,
wall covering and wall papering, wood and meal
joinery and carpentry, fencing and railing,
construction of swimming pools, acoustic
applications or fittings and other similar services,
in relation to building or civil structure; or
(d) repair, alteration, renovation or restoration of,
or similar services in relation to, building or civil
structure, pipeline or conduit,
which is(i)
used, or to be used, primarily for; or
(ii) occupied, or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in,
commerce or industry, or work intended for
commerce or industry, but does not include such
services provided in respect of roads, airports,
railways, transport terminals, bridges, tunnels and
dams;”
7) Section 67 of the Act deals with valuation of taxable services.
This Section was amended w.e.f. April 18, 2006. Unamended
provision reads as under:
“67. Valuation of taxable services for charging service
tax.-For the purposes of this Chapter, the value of any
taxable service shall be the gross amount charged by
the service provider for such service provided or to be
provided by him.
Explanation 1.-For the removal of doubts, it is hereby
declared that the value of a taxable service, as the
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 7 of 26
case may be, includes,-
(a) the aggregate of commission or brokerage
charged by a broker on the sale or purchase of
securities including the commission or brokerage paid
by the stock-broker to any sub-broker;
(b) the adjustments made by the telegraph authority
from any deposits made by the subscriber at the time
of application for telephone connection or pager or
facsimile or telegraph or telex or for leased circuit;
(c) the amount of premium charged by the insurer
from the policy holder;
(d) the commission received by the air travel agent
from the airline;
(e) the commission, fee or any other sum received by
an actuary, or intermediary or insurance intermediary
or insurance agent from the insurer;
(f) the reimbursement received by the authorised
service station from manufacturer for carrying out any
service of any motor car, light motor vehicle or two
wheeled motor vehicle manufactured by such
manufacturer; and
(g) the commission or any amount received by the rail
travel agent from the Railways or the customer,
but does not include(i)
initial deposit made by the subscriber at the time of
application for telephone connection or pager or
facsimile (FAX) or telegraph or telex or for leased
circuit;
(ii) the cost of unexposed photography film,
unrecorded magnetic tape or such other storage
devices, if any, sold to the client during the course of
providing the service;
(iii) the cost of parts or accessories, or consumable
such as lubricants and coolants, if any, sold to the
customer during the course of service or repair of
motor cars, light motor vehicle or two wheeled motor
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 8 of 26
vehicles;
(iv) the airfare collected by air travel agent in respect
of service provided by him;
(v) the rail fare collected by rail travel agent in respect
of service provided by him;
(vi) the cost of parts or other material, if any, sold to
the customer during the course of providing
maintenance or repair service;
(vii) the cost of parts or other material, if any, sold to
the customer during the course of providing erection,
commissioning or installation service; and
(viii) interest on loans.
Explanation 2.-Where the gross amount charged by a
service provider is inclusive of service tax payable, the
value of taxable service shall be such amount as with
the addition of tax payable, is equal to the gross
amount charged.
Explanation 3.-For the removal of doubts, it is hereby
declared that the gross amount charged for the
taxable service shall include any amount received
towards the taxable service before, during or after
provision of such service.”
(i) in a case where the provision of service is for a
consideration in money, be the gross amount charged
by the service provider for such service provided or to
be provided by him;
(ii)in a case where the provision of service is for a
consideration not wholly or partly consisting of money,
be such amount in money as, with the addition of
service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for
a consideration which is not ascertainable, bet he
amount as may be determined in the prescribed
manner.
(2) Where the gross amount charged by a service
provider, for the service provided or to be provided is
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 9 of 26
inclusive of service tax payable, the value of such
taxable service shall be such amount as, with the
addition of tax payable, is equal to the gross amount
charged.
(3) The gross amount charged for the taxable service
shall include any amount received towards the taxable
service before, during or after provision of such
service.
(4) Subject to the provisions of sub-sections (1), (2)
and (3), the value shall be determined in such manner
as may be prescribed.
Explanation.- For the purposes of this section.
(a) “consideration” includes any amount that is
payable for the taxable services provided or to be
provided;
(b)“money” includes any currency, cheque, promissory
note, letter of credit, draft, pay order, travellers
cheque, money order, postal remittance and other
similar instruments but does not include currency that
is held for its numismatic value;
(c) “gross amount charges” includes payment by
cheque, credit card, deduction from account and any
form of payment by issue of credit notes or debit notes
and [book adjustment, and any amount credited or
debited, as the case may be, to any account, whether
called ‘suspense account’ or by any other name, in the
books of account of a person liable to pay service tax,
where the transaction of taxable service is with any
associated enterprise.]”
8) After the amendment, Section 67 of the Act is as follows:
Section 67. Valuation of taxable services for
charging service tax
(1) Subject to the provisions of this Chapter, service
tax chargeable on any taxable service with reference
to its value shall,-
(i) in a case where the provision of service is for a
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 10 of 26
consideration in money, be the gross amount charged
by the service provider for such service provided or to
be provided by him;
(ii) in a case where the provision of service is for a
consideration not wholly or partly consisting of money,
be such amount in money, with the addition of service
tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a
consideration which is not ascertainable, be the
amount as may be determined in the prescribed
manner.
(2) Where the gross amount charged by a service
provider, for the service provided or to be provided is
inclusive of service tax payable, the value of such
taxable service shall be such amount as, with the
addition of tax payable, is equal to the gross amount
charged.
(3) The gross amount charged for the taxable service
shall include any amount received towards the taxable
service before, during or after provision of such
service.
(4) Subject to the provisions of sub-sections (1), (2)
and (3), the value shall be determined in such manner
as may be prescribed
Explanation.-For the purposes of this section,-
[(a) “consideration” includes(i)
any amount that is payable for the taxable services
provided or to be provided;
(ii) any reimbursable expenditure or cost incurred by
the service provider and charged, in the course of
providing or agreeing to provide a taxable service,
except in such circumstances, and subject to such
conditions, as may be prescribed;
(iii) any amount retained by the lottery distributor or
selling agent from gross sale amount of lottery ticket in
addition to the fee or commission, if any, or, as the
case may be, the discount received, that is to say, the
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 11 of 26
difference in the face value of lottery ticket and the
price at which the distributor or selling agent gets such
ticket.]
(c) “gross amount charged” includes payment by
cheque, credit card, deduction from account and any
form of payment by issue of credit notes or debit notes
and 2
[book adjustment, and any amount credited or
debited, as the case may be, to any account, whether
called “Suspense account” or by any other name, in
the books of account of a person liable to pay service
tax, where the transaction of taxable service is with
any associated enterprise.]”
9) Exemption Notifications:
(a) Notification No. 12/2003-ST dated June 26, 2003, issued by
the Central Government, exercising powers under Section 93(1)
of the Act exempted the value of goods and materials sold by a
service provider to a recipient of service from the tax leviable
thereon, subject to documentary proof specifically indicating the
value of such goods and material. This notification was specified
to come into force w.e.f. July 01, 2013.
(b) By Notification No. 15/2004-ST dated September 10, 2004,
a further exemption was granted in respect of taxable service
provided by a commercial concern to any person in relation to
construction service. This Notification reads:
“In exercise of the powers conferred by sub-section (1)
of section 93 of the Finance Act, 1994 (32 of 1994),
the Central Government, being satisfied that it is
necessary in the public interest so to do, hereby
exempts the taxable service provided by a commercial
concern to any person, in relation to construction
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 12 of 26
service, from so much of the service tax leviable
thereon under Section 66 of the said Act, as is in
excess of the service tax calculated on a value which
is equivalent to thirty-three per cent of the gross
amount charged from any person by such commercial
concern for providing the said taxable service”
Provided that this exemption shall not apply in such
cases where(i)
the credit of duty paid on inputs or capital goods
has been taken under the provisions of the Cenvat
Credit Rules, 2004;
or
(ii)the commercial concern has availed the benefit
under the notification of the Government of India, in
the Ministry of Finance (Department of Revenue) No.
12/2003-Service Tax, dated the 20th June, 2003
[G.S.R. 503(E), dated the 20th June, 2003].”
(c) Notification No. 4/2005-ST was issued on March 01, 2005,
introducing an Explanation at the end of Notification No. 15/2004-
ST. This Explanation reads:
“Explanation. – For the purposes of this notification,
the “gross amount charged” shall include the value of
goods and materials supplied or provided or used by
the provider of the construction service for providing
such service.”
10) We may also note at this stage that the Board has also issued the
Circular dated September 17, 2004 clarifying the scope of these
services. In para 13.5 thereof, reasons for issuing the exemption
notifications were given. This para reads as under:
“13.5 The gross value charged by the building
contractors include the material cost, namely, the cost
of cement, steel, fittings and fixtures, tiles etc. Under
the Cenvat Credit Rules, 2004, the service provider
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 13 of 26
can take credit of excise duty paid on such inputs.
However, it has been pointed out that these materials
are normally procured from the market and are not
covered under the duty paying documents. Further, a
general exemption is available to goods sold during
the course of providing service (Notification No.
12/2003-S.T.) but the exemption is subject to the
condition of availability of documentary proof specially
indicating the value of the goods sold. In case of a
composite contract, bifurcation of value of goods sold
is often difficult. Considering these facts, an
abatement of 67% has been provided in case of
composite contracts where the gross amount charged
includes the value of material cost. (Refer Notification
No. 15/2004-S.T. dated 10-9-2004). This would,
however, be optional subject to the condition that no
credit of input goods, capital goods and no benefit
(under Notification No. 12/2003-S.T.) of exemption
towards cost of goods are availed.”
11) As already pointed out in the beginning, all these assessees are
covered by Section 65(25b) of the Act as they are rendering
‘construction or industrial construction service’, which is a taxable
service as per the provisions of Section 65(105)(zzq) of the Act.
The entire dispute relates to the valuation that has to be arrived at
in respect of taxable services rendered by the assessees. More
precisely, the issue is as to whether the value of goods/materials
supplied or provided free of cost by a service recipient and used
for providing the taxable service of construction or industrial
complex, is to be included in computation of gross amount
charged by the service provider, for valuation of taxable service.
For valuation of taxable service, provision is made in Section 67
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 14 of 26
of the Act which enumerates that it would be ‘the gross amount
charged by the service provider for such service provided or to be
provided by him’. Whether the value of materials/goods supplied
free of cost by the service recipient to the service
provider/assessee is to be included to arrive at the ‘gross
amount’, or not is the poser. On this aspect, there is no
difference in amended Section 67 from unamended Section 67 of
the Act and the parties were at ad idem to this extent.
12) On a reading of the above definition, it is clear that both prior and
after amendment, the value on which service tax is payable has
to satisfy the following ingredients:
a. Service tax is payable on the gross amount charged:-
the words “gross amount” only refers to the entire
contract value between the service provider and the
service recipient. The word “gross” is only meant to
indicate that it is the total amount charged without
deduction of any expenses. Merely by use of the word
“gross” the Department does not get any jurisdiction to
go beyond the contract value to arrive at the value of
taxable services. Further, by the use of the word
“charged”, it is clear that the same refers to the amount
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 15 of 26
billed by the service provider to the service receiver.
Therefore, in terms of Section 67, unless an amount is
charged by the service provider to the service recipient, it
does not enter into the equation for determining the value
on which service tax is payable.
b. The amount charged should be for “for such service
provided”: Section 67 clearly indicates that the gross
amount charged by the service provider has to be for the
service provided. Therefore, it is not any amount
charged which can become the basis of value on which
service tax becomes payable but the amount charged
has to be necessarily a consideration for the service
provided which is taxable under the Act. By using the
words “for such service provided” the Act has provided
for a nexus between the amount charged and the service
provided. Therefore, any amount charged which has no
nexus with the taxable service and is not a consideration
for the service provided does not become part of the
value which is taxable under Section 67. The cost of free
supply goods provided by the service recipient to the
service provider is neither an amount “charged” by the
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 16 of 26
service provider nor can it be regarded as a
consideration for the service provided by the service
provider. In fact, it has no nexus whatsoever with the
taxable services for which value is sought to be
determined”
13) A plain meaning of the expression ‘the gross amount charged by
the service provider for such service provided or to be provided
by him’ 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 subsection
(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
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 17 of 26
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.
14) We may note at this stage that Explanation (c) to sub-section (4)
was relied upon by the learned counsel for the Revenue to
buttress the stand taken by the Revenue and we again reproduce
the said Explanation hereinbelow in order to understand the
contention:
(c) “gross amount charges” includes payment by
cheque, credit card, deduction from account and any
form of payment by issue of credit notes or debit notes
and [book adjustment, and any amount credited or
debited, as the case may be, to any account, whether
called ‘suspense account’ or by any other name, in the
books of account of a person liable to pay service tax,
where the transaction of taxable service is with any
associated enterprise.]” [emphasis supplied]
15) It was argued that payment received in ‘any form’ and ‘any
amount credited or debited, as the case may be...’ is to be
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 18 of 26
included for the purposes of arriving at gross amount charges and
is leviable to pay service tax. On that basis, it was sought to
argue that the value of goods/materials supplied free is a form of
payment and, therefore, should be added. We fail to understand
the logic behind the aforesaid argument. A plain reading of
Explanation (c) which makes the ‘gross amount charges’ inclusive
of certain other payments would make it clear that the purpose is
to include other modes of payments, in whatever form received;
be it through cheque, credit card, deduction from account etc. It
is in that hue, the provisions mentions that any form of payment
by issue of credit notes or debit notes and book adjustment is
also to be included. Therefore, the words ‘in any form of
payment’ are by means of issue of credit notes or debit notes and
book adjustment. With the supply of free goods/materials by the
service recipient, no case is made out that any credit notes or
debit notes were issued or any book adjustments were made.
Likewise, the words, ‘any amount credited or debited, as the case
may be’, to any account whether called ‘suspense account or by
any other name, in the books of accounts of a person liable to
pay service tax’ would not include the value of the goods supplied
free as no amount was credited or debited in any account. In
fact, this last portion is related to the debit or credit of the account
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 19 of 26
of an associate enterprise and, therefore, takes care of those
amounts which are received by the associated enterprise for the
services rendered by the service provider.
16) In fact, 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
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 20 of 26
the service provider and the service recipient has no relevance in
the determination of the value of taxable services provided by the
service provider.
17) Faced with the aforesaid situation, the argument of the learned
counsel for the Revenue was that in case the assessees did not
want to include the value of goods/materials supplied free of cost
by the service recipient, they were not entitled to the benefit of
notification dated September 10, 2004 read with notification dated
March 01, 2005. It was argued that since building construction
contract is a composite contract of providing services as well as
supply of goods, the said notifications were issued for the
convenience of the assessees. According to the Revenue, the
purpose was to bifurcate the component of goods and services
into 67%:33% and to provide a ready formula for payment of
service tax on 33% of the gross amount. It was submitted that
this percentage of 33% attributing to service element was
prescribed keeping in view that in the entire construction project,
roughly 67% comprises the cost of material and 33% is the value
of services. However, this figure of 67% was arrived at keeping in
mind the totality of goods and materials that are used in a
construction project. Therefore, it was incumbent upon the
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 21 of 26
assessees to include the value of goods/material supplied free of
cost by the service recipient as well otherwise it would create
imbalance and disturb the analogy that is kept in mind while
issuing the said notifications and in such a situation, the AO can
deny the benefit of aforesaid notifications. This argument may
look to be attractive in the first blush but on the reading of the
notifications as a whole, to our mind, it is not a valid argument.
18) In the first instance, no material is produced before us to justify
that aforesaid basis of the formula was adopted while issuing the
notification. In the absence of any such material, it would be
anybody’s guess as to what went in the mind of the Central
Government in issuing these notifications and prescribing the
service tax to be calculated on a value which is equivalent to 33%
of the gross amount. Secondly, the language itself demolishes
the argument of the learned counsel for the Revenue as it says
‘33% of the gross amount ‘charged’ from any person by such
commercial concern for providing the said taxable service’.
According to these notifications, service tax is to be calculated on
a value which is 33% of the gross amount that is charged from
the service recipient. Obviously, no amount is charged (and it
could not be) by the service provider in respect of goods or
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 22 of 26
materials which are supplied by the service recipient. It also
makes it clear that valuation of gross amount has a causal
connection with the amount that is charged by the service
provider as that becomes the element of ‘taxable service’.
Thirdly, even when the explanation was added vide notification
dated March 01, 2005, it only explained that the gross amount
charged shall include the value of goods and materials supplied
or provided or used by the provider of construction service. Thus,
though it took care of the value of goods and materials supplied
by the service provider/assessee by including value of such
goods and materials for the purpose of arriving at gross amount
charged, it did not deal with any eventuality whereby value of
goods and material supplied or provided by the service recipient
were also to be included in arriving at gross amount ‘gross
amount charged’.
19) Matter can be looked into from another angle as well. In the case
of Commissioner, Central Excise and Customs, Kerala v. M/s.
Larsen & Toubro Ltd.1 This Court was concerned with
exemption notifications which were issued in respect of ‘taxable
services’ covered by sub-clause (zzq) of clause (105) read with
clause (25b) and sub-clause (zzzh) of clause (105) read with
1 (2016) 1 SCC 170
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 23 of 26
clause (30a) and (91a) of Section 65 of Chapter V of the Act.
This Court in the aforesaid judgment in respect of five ‘taxable
services’ [viz. Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh)]
has held as under:
“23. A close look at the Finance Act, 1994 would show
that the fixed taxable services referred to in the
charging Section 65(105) would refer only to service
contracts simpliciter and not to composite works
contracts. This is clear from the very language of
Section 65(105) which defines ‘taxable service’ as ‘any
service provided’.
Further, while referring to exemption notifications, it observed:
“42. …Since the levy itself of service tax has been found
to be non-existent, no question of any exemption would
arise.”
It is clear from the above that 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.
20) It is to be borne in mind that 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’
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 24 of 26
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.
21) For the aforesaid reasons, we find ourselves in agreement with
the view taken by the Full Bench of CESTAT in the impugned
judgment dated September 6, 2013 and dismiss these appeals of
the Revenue.
22) Insofar as Civil Appeal No. 3247 of 2015 is concerned, where the
assessee is Gurmehar Construction, it may additionally be noted
(as pointed out by the learned counsel for the respondent) that
the assessee was a sole proprietorship concern of Mr. Narender
Singh Atwal, who died on February 24, 2014. This is so stated in
the counter affidavit filed by the respondent on May 16, 2017 and
this position has not been disputed by the Department. This
appeal, in any case, has abated as well in view of the judgment of
this Court in Shabina Abraham & Ors. v. Collector of Central
Excise & Customs2
2 (2015) 10 SCC 770
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 25 of 26
23) As a result, all appeals stand dismissed.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ASHOK BHUSHAN)
NEW DELHI;
FEBRUARY 19, 2018.
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 26 of 26
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 1335-1358 OF 2015
COMMISSIONER OF SERVICE TAX ETC. .....APPELLANT(S)
VERSUS
M/S. BHAYANA BUILDERS (P) LTD. ETC. .....RESPONDENT(S)
W I T H
CIVIL APPEAL NO. 15865 OF 2017
CIVIL APPEAL NO. 2888 OF 2015
CIVIL APPEAL NO. 7238 OF 2015
CIVIL APPEAL NOS. 3248-3252 OF 2015
CIVIL APPEAL NOS. 2452-2455 OF 2014
CIVIL APPEAL NO. 45 OF 2015
CIVIL APPEAL NO. 1400 OF 2015
CIVIL APPEAL NO. 10206 OF 2017
CIVIL APPEAL NO. 6207 OF 2016
CIVIL APPEAL NOS. 8148-8149 OF 2014
CIVIL APPEAL NO. 7370 OF 2014
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 1 of 26
CIVIL APPEAL NO. 10027 OF 2014
CIVIL APPEAL NO. 4209 OF 2015
CIVIL APPEAL NO. 1326 OF 2015
CIVIL APPEAL NO. 1647 OF 2015
CIVIL APPEAL NO. 3060 OF 2015
CIVIL APPEAL NO. 2437 OF 2015
CIVIL APPEAL NO. 1888 OF 2015
CIVIL APPEAL NO. 2081 OF 2015
CIVIL APPEAL NOS. 2082-2083 OF 2015
CIVIL APPEAL NO. 4208 OF 2015
CIVIL APPEAL NO. 3247 OF 2015
CIVIL APPEAL NO. 2474 OF 2015
CIVIL APPEAL NO. 5601 OF 2015
CIVIL APPEAL NO. 7038 OF 2015
CIVIL APPEAL NO. 7235 OF 2015
CIVIL APPEAL NO. 7243 OF 2015
CIVIL APPEAL NO. 4970 OF 2016
CIVIL APPEAL NO. 5941 OF 2016
CIVIL APPEAL NO. 8484 OF 2016
CIVIL APPEAL NO. 2338 OF 2018
(ARISING OUT OF DIARY NO. 42349 OF 2016)
CIVIL APPEAL NOS. 5319-5320 OF 2017
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 2 of 26
CIVIL APPEAL NO. 15485 OF 2017
CIVIL APPEAL NO. 11085 OF 2017
CIVIL APPEAL NO. 10606 OF 2017
CIVIL APPEAL NO. 15570 OF 2017
CIVIL APPEAL NO. 12451 OF 2017
CIVIL APPEAL NO. 11182 OF 2017
CIVIL APPEAL NO. 1430 OF 2015
CIVIL APPEAL NO. 9423 OF 2017
A N D
CIVIL APPEAL NO. 10611 OF 2017
J U D G M E N T
A.K. SIKRI, J.
Delay condoned in Diary No. 42349 of 2016.
2) The respondents herein are engaged in the business of
construction and, in the process, providing the services known as
‘Commercial or Industrial Construction Service’. This service is
exigible to service tax as per the provisions of Section 65(105)
(zzq) of the Finance Act, 1994 (hereinafter referred to as the
‘Act’). The assessees accept that they are covered thereby and,
therefore, are paying service tax as well. The dispute, however,
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 3 of 26
is with regard to the valuation of taxable service provided by
them. Under Section 67 of the Act deals with such a valuation.
3) It is a matter of common knowledge that for undertaking
construction projects, the assessees not only render services, lot
of materials/goods are also used in the construction of building or
civil structure etc. For valuation of taxable services, the
material/goods element has to be excluded. In order to make the
things easier for the assessees as well as the Assessing Officers
(AOs), the Government issued the Notification No. 15/2004-ST
dated September 10, 2004 as per which service tax is to be
calculated on the value which is equivalent to 33% of the gross
amount charged from any person by such commercial concern for
providing the taxable service. This notification was amended vide
another Notification No. 4/2005-ST dated March 01, 2005
whereby an explanation was added to the original notification.
This explanation mentions that the ‘gross amount charged’ shall
include the value of goods and material supplied and provided or
used by the provider of construction services for providing such
service. It is made optional for the assessees to take advantage
of the aforesaid notification and get the value calculated as per
the aforesaid formula provided therein. The assessees have
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 4 of 26
availed the benefit and paid the service tax @33% of the gross
amount which they have charged from the persons for whom
construction was carried out, i.e., the service recipients. It so
happened that in all these cases where the construction projects
were undertaken by the assessees, some of the goods/materials
(particularly, steel and cement) were supplied or provided by the
service recipients. As these materials were to be utilised in the
projects meant for service recipients themselves, obviously, no
costs thereof was charged from the assessees. The Department
wants that value of such goods/materials even when supplied or
provided free should be included, while calculating the “gross
value” and 33% thereof be treated as value for the purpose of
levying service tax.
4) The question, therefore, which has fallen for consideration is as to
whether, the value of goods/material supplied or provided free of
cost by a service recipient and used for providing the taxable
service of construction or industrial complex, is to be included in
computation of gross amount (charged by the service provider),
for valuation of the taxable service, under Section 67 of the Act
and for availing the benefits under Notification No. 15/2004-ST
dated September 10, 2004 as amended by Notification No.
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 5 of 26
4/2005-ST dated March 01, 2005 (whereby an Explanation was
added to Notification No. 15/2004-ST).
5) We may mention here that different benches of the Customs,
Excise and Service Tax Appellate Tribunal (for short ‘CESTAT’)
had given conflicting views on the aforesaid question and,
therefore, the matter was referred to the Larger Bench which has,
by impugned judgment dated September 6, 2013 rendered in a
batch of matters, has decided the issue in favour of the
assessees by holding that the value of the goods/materials
cannot be added for the purpose of aforesaid notification dated
September 10, 2004, as amended by notification dated March 01,
2005. It is the said judgment of the Larger Bench dated
September 6, 2013, correctness whereof is the subject matter of
present appeals.
6) For answering the question, it would be necessary to refer to the
relevant provisions of the Act and the Notifications, which are as
under:
As mentioned above, ‘commercial or industrial construction
service’ is a taxable service enumerated under Section 65(105)
(zzq) of the Act. Section 65(25b) of the Act defines construction
or industrial construction service to mean:
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 6 of 26
(a) construction of a new building or a civil
structure or a part thereof; or
(b) construction of pipeline or conduit; or
(c)completion and finishing services such as
glazing, plastering, painting, floor and wall tiling,
wall covering and wall papering, wood and meal
joinery and carpentry, fencing and railing,
construction of swimming pools, acoustic
applications or fittings and other similar services,
in relation to building or civil structure; or
(d) repair, alteration, renovation or restoration of,
or similar services in relation to, building or civil
structure, pipeline or conduit,
which is(i)
used, or to be used, primarily for; or
(ii) occupied, or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in,
commerce or industry, or work intended for
commerce or industry, but does not include such
services provided in respect of roads, airports,
railways, transport terminals, bridges, tunnels and
dams;”
7) Section 67 of the Act deals with valuation of taxable services.
This Section was amended w.e.f. April 18, 2006. Unamended
provision reads as under:
“67. Valuation of taxable services for charging service
tax.-For the purposes of this Chapter, the value of any
taxable service shall be the gross amount charged by
the service provider for such service provided or to be
provided by him.
Explanation 1.-For the removal of doubts, it is hereby
declared that the value of a taxable service, as the
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 7 of 26
case may be, includes,-
(a) the aggregate of commission or brokerage
charged by a broker on the sale or purchase of
securities including the commission or brokerage paid
by the stock-broker to any sub-broker;
(b) the adjustments made by the telegraph authority
from any deposits made by the subscriber at the time
of application for telephone connection or pager or
facsimile or telegraph or telex or for leased circuit;
(c) the amount of premium charged by the insurer
from the policy holder;
(d) the commission received by the air travel agent
from the airline;
(e) the commission, fee or any other sum received by
an actuary, or intermediary or insurance intermediary
or insurance agent from the insurer;
(f) the reimbursement received by the authorised
service station from manufacturer for carrying out any
service of any motor car, light motor vehicle or two
wheeled motor vehicle manufactured by such
manufacturer; and
(g) the commission or any amount received by the rail
travel agent from the Railways or the customer,
but does not include(i)
initial deposit made by the subscriber at the time of
application for telephone connection or pager or
facsimile (FAX) or telegraph or telex or for leased
circuit;
(ii) the cost of unexposed photography film,
unrecorded magnetic tape or such other storage
devices, if any, sold to the client during the course of
providing the service;
(iii) the cost of parts or accessories, or consumable
such as lubricants and coolants, if any, sold to the
customer during the course of service or repair of
motor cars, light motor vehicle or two wheeled motor
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 8 of 26
vehicles;
(iv) the airfare collected by air travel agent in respect
of service provided by him;
(v) the rail fare collected by rail travel agent in respect
of service provided by him;
(vi) the cost of parts or other material, if any, sold to
the customer during the course of providing
maintenance or repair service;
(vii) the cost of parts or other material, if any, sold to
the customer during the course of providing erection,
commissioning or installation service; and
(viii) interest on loans.
Explanation 2.-Where the gross amount charged by a
service provider is inclusive of service tax payable, the
value of taxable service shall be such amount as with
the addition of tax payable, is equal to the gross
amount charged.
Explanation 3.-For the removal of doubts, it is hereby
declared that the gross amount charged for the
taxable service shall include any amount received
towards the taxable service before, during or after
provision of such service.”
(i) in a case where the provision of service is for a
consideration in money, be the gross amount charged
by the service provider for such service provided or to
be provided by him;
(ii)in a case where the provision of service is for a
consideration not wholly or partly consisting of money,
be such amount in money as, with the addition of
service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for
a consideration which is not ascertainable, bet he
amount as may be determined in the prescribed
manner.
(2) Where the gross amount charged by a service
provider, for the service provided or to be provided is
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 9 of 26
inclusive of service tax payable, the value of such
taxable service shall be such amount as, with the
addition of tax payable, is equal to the gross amount
charged.
(3) The gross amount charged for the taxable service
shall include any amount received towards the taxable
service before, during or after provision of such
service.
(4) Subject to the provisions of sub-sections (1), (2)
and (3), the value shall be determined in such manner
as may be prescribed.
Explanation.- For the purposes of this section.
(a) “consideration” includes any amount that is
payable for the taxable services provided or to be
provided;
(b)“money” includes any currency, cheque, promissory
note, letter of credit, draft, pay order, travellers
cheque, money order, postal remittance and other
similar instruments but does not include currency that
is held for its numismatic value;
(c) “gross amount charges” includes payment by
cheque, credit card, deduction from account and any
form of payment by issue of credit notes or debit notes
and [book adjustment, and any amount credited or
debited, as the case may be, to any account, whether
called ‘suspense account’ or by any other name, in the
books of account of a person liable to pay service tax,
where the transaction of taxable service is with any
associated enterprise.]”
8) After the amendment, Section 67 of the Act is as follows:
Section 67. Valuation of taxable services for
charging service tax
(1) Subject to the provisions of this Chapter, service
tax chargeable on any taxable service with reference
to its value shall,-
(i) in a case where the provision of service is for a
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 10 of 26
consideration in money, be the gross amount charged
by the service provider for such service provided or to
be provided by him;
(ii) in a case where the provision of service is for a
consideration not wholly or partly consisting of money,
be such amount in money, with the addition of service
tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a
consideration which is not ascertainable, be the
amount as may be determined in the prescribed
manner.
(2) Where the gross amount charged by a service
provider, for the service provided or to be provided is
inclusive of service tax payable, the value of such
taxable service shall be such amount as, with the
addition of tax payable, is equal to the gross amount
charged.
(3) The gross amount charged for the taxable service
shall include any amount received towards the taxable
service before, during or after provision of such
service.
(4) Subject to the provisions of sub-sections (1), (2)
and (3), the value shall be determined in such manner
as may be prescribed
Explanation.-For the purposes of this section,-
[(a) “consideration” includes(i)
any amount that is payable for the taxable services
provided or to be provided;
(ii) any reimbursable expenditure or cost incurred by
the service provider and charged, in the course of
providing or agreeing to provide a taxable service,
except in such circumstances, and subject to such
conditions, as may be prescribed;
(iii) any amount retained by the lottery distributor or
selling agent from gross sale amount of lottery ticket in
addition to the fee or commission, if any, or, as the
case may be, the discount received, that is to say, the
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 11 of 26
difference in the face value of lottery ticket and the
price at which the distributor or selling agent gets such
ticket.]
(c) “gross amount charged” includes payment by
cheque, credit card, deduction from account and any
form of payment by issue of credit notes or debit notes
and 2
[book adjustment, and any amount credited or
debited, as the case may be, to any account, whether
called “Suspense account” or by any other name, in
the books of account of a person liable to pay service
tax, where the transaction of taxable service is with
any associated enterprise.]”
9) Exemption Notifications:
(a) Notification No. 12/2003-ST dated June 26, 2003, issued by
the Central Government, exercising powers under Section 93(1)
of the Act exempted the value of goods and materials sold by a
service provider to a recipient of service from the tax leviable
thereon, subject to documentary proof specifically indicating the
value of such goods and material. This notification was specified
to come into force w.e.f. July 01, 2013.
(b) By Notification No. 15/2004-ST dated September 10, 2004,
a further exemption was granted in respect of taxable service
provided by a commercial concern to any person in relation to
construction service. This Notification reads:
“In exercise of the powers conferred by sub-section (1)
of section 93 of the Finance Act, 1994 (32 of 1994),
the Central Government, being satisfied that it is
necessary in the public interest so to do, hereby
exempts the taxable service provided by a commercial
concern to any person, in relation to construction
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 12 of 26
service, from so much of the service tax leviable
thereon under Section 66 of the said Act, as is in
excess of the service tax calculated on a value which
is equivalent to thirty-three per cent of the gross
amount charged from any person by such commercial
concern for providing the said taxable service”
Provided that this exemption shall not apply in such
cases where(i)
the credit of duty paid on inputs or capital goods
has been taken under the provisions of the Cenvat
Credit Rules, 2004;
or
(ii)the commercial concern has availed the benefit
under the notification of the Government of India, in
the Ministry of Finance (Department of Revenue) No.
12/2003-Service Tax, dated the 20th June, 2003
[G.S.R. 503(E), dated the 20th June, 2003].”
(c) Notification No. 4/2005-ST was issued on March 01, 2005,
introducing an Explanation at the end of Notification No. 15/2004-
ST. This Explanation reads:
“Explanation. – For the purposes of this notification,
the “gross amount charged” shall include the value of
goods and materials supplied or provided or used by
the provider of the construction service for providing
such service.”
10) We may also note at this stage that the Board has also issued the
Circular dated September 17, 2004 clarifying the scope of these
services. In para 13.5 thereof, reasons for issuing the exemption
notifications were given. This para reads as under:
“13.5 The gross value charged by the building
contractors include the material cost, namely, the cost
of cement, steel, fittings and fixtures, tiles etc. Under
the Cenvat Credit Rules, 2004, the service provider
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 13 of 26
can take credit of excise duty paid on such inputs.
However, it has been pointed out that these materials
are normally procured from the market and are not
covered under the duty paying documents. Further, a
general exemption is available to goods sold during
the course of providing service (Notification No.
12/2003-S.T.) but the exemption is subject to the
condition of availability of documentary proof specially
indicating the value of the goods sold. In case of a
composite contract, bifurcation of value of goods sold
is often difficult. Considering these facts, an
abatement of 67% has been provided in case of
composite contracts where the gross amount charged
includes the value of material cost. (Refer Notification
No. 15/2004-S.T. dated 10-9-2004). This would,
however, be optional subject to the condition that no
credit of input goods, capital goods and no benefit
(under Notification No. 12/2003-S.T.) of exemption
towards cost of goods are availed.”
11) As already pointed out in the beginning, all these assessees are
covered by Section 65(25b) of the Act as they are rendering
‘construction or industrial construction service’, which is a taxable
service as per the provisions of Section 65(105)(zzq) of the Act.
The entire dispute relates to the valuation that has to be arrived at
in respect of taxable services rendered by the assessees. More
precisely, the issue is as to whether the value of goods/materials
supplied or provided free of cost by a service recipient and used
for providing the taxable service of construction or industrial
complex, is to be included in computation of gross amount
charged by the service provider, for valuation of taxable service.
For valuation of taxable service, provision is made in Section 67
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 14 of 26
of the Act which enumerates that it would be ‘the gross amount
charged by the service provider for such service provided or to be
provided by him’. Whether the value of materials/goods supplied
free of cost by the service recipient to the service
provider/assessee is to be included to arrive at the ‘gross
amount’, or not is the poser. On this aspect, there is no
difference in amended Section 67 from unamended Section 67 of
the Act and the parties were at ad idem to this extent.
12) On a reading of the above definition, it is clear that both prior and
after amendment, the value on which service tax is payable has
to satisfy the following ingredients:
a. Service tax is payable on the gross amount charged:-
the words “gross amount” only refers to the entire
contract value between the service provider and the
service recipient. The word “gross” is only meant to
indicate that it is the total amount charged without
deduction of any expenses. Merely by use of the word
“gross” the Department does not get any jurisdiction to
go beyond the contract value to arrive at the value of
taxable services. Further, by the use of the word
“charged”, it is clear that the same refers to the amount
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 15 of 26
billed by the service provider to the service receiver.
Therefore, in terms of Section 67, unless an amount is
charged by the service provider to the service recipient, it
does not enter into the equation for determining the value
on which service tax is payable.
b. The amount charged should be for “for such service
provided”: Section 67 clearly indicates that the gross
amount charged by the service provider has to be for the
service provided. Therefore, it is not any amount
charged which can become the basis of value on which
service tax becomes payable but the amount charged
has to be necessarily a consideration for the service
provided which is taxable under the Act. By using the
words “for such service provided” the Act has provided
for a nexus between the amount charged and the service
provided. Therefore, any amount charged which has no
nexus with the taxable service and is not a consideration
for the service provided does not become part of the
value which is taxable under Section 67. The cost of free
supply goods provided by the service recipient to the
service provider is neither an amount “charged” by the
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 16 of 26
service provider nor can it be regarded as a
consideration for the service provided by the service
provider. In fact, it has no nexus whatsoever with the
taxable services for which value is sought to be
determined”
13) A plain meaning of the expression ‘the gross amount charged by
the service provider for such service provided or to be provided
by him’ 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 subsection
(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
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 17 of 26
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.
14) We may note at this stage that Explanation (c) to sub-section (4)
was relied upon by the learned counsel for the Revenue to
buttress the stand taken by the Revenue and we again reproduce
the said Explanation hereinbelow in order to understand the
contention:
(c) “gross amount charges” includes payment by
cheque, credit card, deduction from account and any
form of payment by issue of credit notes or debit notes
and [book adjustment, and any amount credited or
debited, as the case may be, to any account, whether
called ‘suspense account’ or by any other name, in the
books of account of a person liable to pay service tax,
where the transaction of taxable service is with any
associated enterprise.]” [emphasis supplied]
15) It was argued that payment received in ‘any form’ and ‘any
amount credited or debited, as the case may be...’ is to be
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 18 of 26
included for the purposes of arriving at gross amount charges and
is leviable to pay service tax. On that basis, it was sought to
argue that the value of goods/materials supplied free is a form of
payment and, therefore, should be added. We fail to understand
the logic behind the aforesaid argument. A plain reading of
Explanation (c) which makes the ‘gross amount charges’ inclusive
of certain other payments would make it clear that the purpose is
to include other modes of payments, in whatever form received;
be it through cheque, credit card, deduction from account etc. It
is in that hue, the provisions mentions that any form of payment
by issue of credit notes or debit notes and book adjustment is
also to be included. Therefore, the words ‘in any form of
payment’ are by means of issue of credit notes or debit notes and
book adjustment. With the supply of free goods/materials by the
service recipient, no case is made out that any credit notes or
debit notes were issued or any book adjustments were made.
Likewise, the words, ‘any amount credited or debited, as the case
may be’, to any account whether called ‘suspense account or by
any other name, in the books of accounts of a person liable to
pay service tax’ would not include the value of the goods supplied
free as no amount was credited or debited in any account. In
fact, this last portion is related to the debit or credit of the account
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 19 of 26
of an associate enterprise and, therefore, takes care of those
amounts which are received by the associated enterprise for the
services rendered by the service provider.
16) In fact, 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
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 20 of 26
the service provider and the service recipient has no relevance in
the determination of the value of taxable services provided by the
service provider.
17) Faced with the aforesaid situation, the argument of the learned
counsel for the Revenue was that in case the assessees did not
want to include the value of goods/materials supplied free of cost
by the service recipient, they were not entitled to the benefit of
notification dated September 10, 2004 read with notification dated
March 01, 2005. It was argued that since building construction
contract is a composite contract of providing services as well as
supply of goods, the said notifications were issued for the
convenience of the assessees. According to the Revenue, the
purpose was to bifurcate the component of goods and services
into 67%:33% and to provide a ready formula for payment of
service tax on 33% of the gross amount. It was submitted that
this percentage of 33% attributing to service element was
prescribed keeping in view that in the entire construction project,
roughly 67% comprises the cost of material and 33% is the value
of services. However, this figure of 67% was arrived at keeping in
mind the totality of goods and materials that are used in a
construction project. Therefore, it was incumbent upon the
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 21 of 26
assessees to include the value of goods/material supplied free of
cost by the service recipient as well otherwise it would create
imbalance and disturb the analogy that is kept in mind while
issuing the said notifications and in such a situation, the AO can
deny the benefit of aforesaid notifications. This argument may
look to be attractive in the first blush but on the reading of the
notifications as a whole, to our mind, it is not a valid argument.
18) In the first instance, no material is produced before us to justify
that aforesaid basis of the formula was adopted while issuing the
notification. In the absence of any such material, it would be
anybody’s guess as to what went in the mind of the Central
Government in issuing these notifications and prescribing the
service tax to be calculated on a value which is equivalent to 33%
of the gross amount. Secondly, the language itself demolishes
the argument of the learned counsel for the Revenue as it says
‘33% of the gross amount ‘charged’ from any person by such
commercial concern for providing the said taxable service’.
According to these notifications, service tax is to be calculated on
a value which is 33% of the gross amount that is charged from
the service recipient. Obviously, no amount is charged (and it
could not be) by the service provider in respect of goods or
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 22 of 26
materials which are supplied by the service recipient. It also
makes it clear that valuation of gross amount has a causal
connection with the amount that is charged by the service
provider as that becomes the element of ‘taxable service’.
Thirdly, even when the explanation was added vide notification
dated March 01, 2005, it only explained that the gross amount
charged shall include the value of goods and materials supplied
or provided or used by the provider of construction service. Thus,
though it took care of the value of goods and materials supplied
by the service provider/assessee by including value of such
goods and materials for the purpose of arriving at gross amount
charged, it did not deal with any eventuality whereby value of
goods and material supplied or provided by the service recipient
were also to be included in arriving at gross amount ‘gross
amount charged’.
19) Matter can be looked into from another angle as well. In the case
of Commissioner, Central Excise and Customs, Kerala v. M/s.
Larsen & Toubro Ltd.1 This Court was concerned with
exemption notifications which were issued in respect of ‘taxable
services’ covered by sub-clause (zzq) of clause (105) read with
clause (25b) and sub-clause (zzzh) of clause (105) read with
1 (2016) 1 SCC 170
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 23 of 26
clause (30a) and (91a) of Section 65 of Chapter V of the Act.
This Court in the aforesaid judgment in respect of five ‘taxable
services’ [viz. Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh)]
has held as under:
“23. A close look at the Finance Act, 1994 would show
that the fixed taxable services referred to in the
charging Section 65(105) would refer only to service
contracts simpliciter and not to composite works
contracts. This is clear from the very language of
Section 65(105) which defines ‘taxable service’ as ‘any
service provided’.
Further, while referring to exemption notifications, it observed:
“42. …Since the levy itself of service tax has been found
to be non-existent, no question of any exemption would
arise.”
It is clear from the above that 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.
20) It is to be borne in mind that 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’
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 24 of 26
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.
21) For the aforesaid reasons, we find ourselves in agreement with
the view taken by the Full Bench of CESTAT in the impugned
judgment dated September 6, 2013 and dismiss these appeals of
the Revenue.
22) Insofar as Civil Appeal No. 3247 of 2015 is concerned, where the
assessee is Gurmehar Construction, it may additionally be noted
(as pointed out by the learned counsel for the respondent) that
the assessee was a sole proprietorship concern of Mr. Narender
Singh Atwal, who died on February 24, 2014. This is so stated in
the counter affidavit filed by the respondent on May 16, 2017 and
this position has not been disputed by the Department. This
appeal, in any case, has abated as well in view of the judgment of
this Court in Shabina Abraham & Ors. v. Collector of Central
Excise & Customs2
2 (2015) 10 SCC 770
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 25 of 26
23) As a result, all appeals stand dismissed.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ASHOK BHUSHAN)
NEW DELHI;
FEBRUARY 19, 2018.
Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 26 of 26
