COMMISSIONER OF SERVICE TAX ETC. versus M/S. BHAYANA BUILDERS (P) LTD. ETC. on 19 February 2018

[2018] S.C.R. 1128SUPREME COURT REPORTS

SUPREME COURT REPORTS

[2018] 1 S.C.R.

ACOMMISSIONER OF SERVICE TAX ETC.

v.

M/S. BHAYANA BUILDERS (P) LTD. ETC.

(Civil Appeal Nos. 1335-1358 of 2015)

BFEBRUARY 19, 2018

[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]

Finance Act, 1994 –

s. 65(105)(zzq) and 67 – Service tax – On constructionCservices – Valuation of taxable service – By Notification dated10.9.2004, service tax was to be calculated on the value equivalentto 33% of the ‘gross amount charged’ from any person by suchcommercial concern for providing taxable service – This Notificationwas further amended by Notification dated 1.3.2005 whereby it wasexplained that ‘gross amount charged’ shall include the value ofDgoods and materials supplied and provided or used by the providerof construction service for providing such service – In theconstruction projects undertaken by the assessees, some of thematerials were provided by the service recipients – Assessee paidthe service tax @33% of the gross amount charged from the serviceErecipients – Revenue demanded that value of such materials, evenwhen supplied or provided free, should be included while calculatingthe ‘gross value’ and 33% thereof should be treated as value forthe purpose of levying service tax – Held: In respect of goods/materials supplied by the service recipient, no service is providedby the assessee/service provider – Therefore, the value of goods/Fmaterial that is provided by the service recipient free of charge isnot to be included while arriving at the ‘gross amount’ as no pricehas been charged by the service provider from service recipient –Goods/materials supplied free, cannot also be called ‘form ofpayment’ as explained in Explanation (c) to s.67.GDismissing the appeals, the Court HELD: 1.1 A plain meaning of the expression ‘the grossamount charged by the service provider for such service providedor 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/H

material that is provided by the service recipient free of chargeis 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 suchgoods/materials. This further gets strengthened from the words‘for such service provided or to be provided’ by the serviceprovider/assessee. Again, obviously, in respect of the goods/materials supplied by the service recipient, no service is providedby the assessee/service provider. Explanation 3 to sub-section(1) of Section 67 removes any doubt by clarifying that the grossamount charged for the taxable service shall include the amountreceived towards the taxable service before, during or afterprovision of such service, implying thereby that where no amountis charged that has not to be included in respect of such materials/goods which are supplied by the service recipient, naturally, noamount is received by the service provider/assessee. Though,sub-section (4) of Section 67 states that the value shall bedetermined in such manner as may be prescribed, however, it issubject to the provisions of sub-sections (1), (2) and (3).Moreover, no such manner is prescribed which includes the valueof free goods/material supplied by the service recipient fordetermination of the gross value. [Para 13] [1141-F-H; 1142-A-B]

1.2 The definition of “gross amount charged” given inExplanation (c) to Section 67 only provides for the modes of thepayment or book adjustments by which the consideration can bedischarged by the service recipient to the service provider. Itdoes not expand the meaning of the term “gross amount charged”to enable the Department to ignore the contract value or theamount actually charged by the service provider to the servicerecipient for the service rendered. The fact that it is an inclusivedefinition and may not be exhaustive also does not lead to theconclusion that the contract value can be ignored and the valueof free supply goods can be added over and above the contractvalue to arrive at the value of taxable services. The value oftaxable services cannot be dependent on the value of goodssupplied free of cost by the service recipient. The servicerecipient can use any quality of goods and the value of such goodscan vary significantly. Such a value, has no bearing on the value AB

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Aof services provided by the service recipient. Thus, on firstprinciple itself, a value which is not part of the contract betweenthe service provider and the service recipient has no relevancein the determination of the value of taxable services provided bythe service provider. Therefore, it is not correct to say that thevalue of goods/materials supplied free, is a form of payment and,Btherefore, should be added. [Para 15 and 16] [1142-G-H; 1143-A-C-D]

1.3 The service tax is to be levied in respect of ‘taxableservices’ and for the purpose of arriving at 33% of the grossamount charged, unless value of some goods/materials isCspecifically included by the Legislature, that cannot be added.The notifications in questions are exemption notifications whichhave been issued under Section 93 of the Act. As per Section 93,the Central Government is empowered to grant exemption fromthe levy of service tax either wholly or partially, which is leviable Don any ‘taxable service’ defined in any of sub-clauses of clause(105) of Section 65. Thus, exemption under Section 93 can onlybe granted in respect of those activities which the Parliament iscompetent to levy service tax and covered by sub-clause (zzq) ofclause (105) and sub-clause (zzzh) of clause (105) of Section 65 ofChapter V of the Act under which such notifications were issued.E[Para 19 and 20] [1145-E-G]

Commissioner, Central Excise and Customs, Kerala v.M/s. Larsen & Tubro Ltd. (2016) 1 SCC 170 : [2015] 8SCR 1046 – relied on.

F2. In Civil Appeal No. 3247 of 2015, the assessee was asole proprietorship concern of the person who died. This appealhas 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.G

Case Law Reference

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COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANABUILDERS (P) LTD. ETC.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1335-1358 of 2018.

From the Order of the assailing Interim Order No. 394-417 of2013dated 06.09.2013 of the Customs, Excise and Service Tax AppellateTribunal, New Delhi in Appeal Nos. ST/247, 52, 53, 65, 97, 119, 158, 236,503, 601, 621,629 and 746 of 2008; ST/334, 422, 436, 469, 482, 490 and510 of 2009; ST/935, 936 and 1075 of 2010; ST/55615 of 2013

WITH

C.A. No. 15865 of 2017, C.A. No.2888 of 2015, C.A. No. 7238of 2015, C.A. Nos. 3248-3252 of 2015, C.A. Nos. 2452-2455 of 2014,C.A. No. 45 of 2015, C.A. No. 1400 of 2015, C.A. No. 10206 of 2017,C.A. No. 6207 of 2016, C.A. Nos. 8148-8149 of 2014, C.A. No. 7370of 2014, C.A. No. 10027 of 2014, C.A. No. 4209 of 2015,C.A. No. 1326 of 2015, C.A. No. 1647 of 2015, C.A. No. 3060 of 2015,C.A. No. 2437 of 2015, C.A. No. 1888 of 2015, C.A. No. 2081 of 2015,C.A. Nos. 2082-2083 of 2015, C.A. No. 4208 of 2015, C.A. No. 3247of 2015, C.A. No. 2474 of 2015, C.A. No. 5601 of 2015, C.A. No. 7038of 2015, C.A. No. 7235 of 2015, C.A. No. 7243 of 2015, C.A. No. 4970of 2016, C.A. No. 5941 of 2016, C.A. No. 8484 of 2016, C.A. No. 2338of 2018, C.A. Nos. 5319-5320 of 2017, C.A. No. 15485 of 2017, C.A.No. 11085 of 2017, C.A. No. 10606 of 2017, C.A. No. 15570 of 2017,C.A. No. 12451 of 2017, C.A. No. 11182 of 2017, C.A. No. 1430 of2015, C.A. No. 9423 of 2017 and C.A. No. 10611 of 2017.

Ms. Shirin Khajuria, Ms. Nisha Bagchi, Ms. B. Sunita Rao, RajivNanda, Ms. Pooja Sharma, Anurag, Shashank Kumar, Rupesh Kumar,B. Krishna Prasad, V. Lakshmikumaran, Ms. L. Charanya, AdityaBhattacharya, Victor Das, L. Badri Narayanan, Ms. Apeksha Mehta,M. P Devanath, Anil Kumar Tandale, K. V. Mohan, Rakesh Sinha,Ms. Shipra Ghose, Ashok K. Mahajan, Rupesh Kumar, Susmit Pushkar,Abhijeet Swaroop, Ayush Mehrotra, Praveen Swaroop, Ms. MadhumitaBhattacharjee, Pramod B. Agarwala, M. P. Vinod, R. Parthasarathy,Praveen Satale, Rajiv Shankar Dvivedi, S. Sunil, Sudarshan Singh Rawat,Amit Yadav, J. K. Mishra, Nilakanta Nayak, Kaushal Narayan Mishra,Shishir Deshpande, Tarun Gulati, Sparsh Bhargava, Ms. Ishita Farsaiya,Nikhil Gupta, Anupam Mishra, Vipin Upadhyay, Kishore Kunal, R.Chandrachud, M/s Mitter & Mitter Co., Rajat Joseph, Punit Dutt Tyagi,Aravindh S., A. Lakshmi Narayanan, Mohinder Jit Singh, Ruchir Bhatia, A

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ABhargava V. Desai, Akshat Malpani, Vinay Garg, Uday Singh,Ms. Deepam Garg, Aayush Agarwala, Rupesh Gupta and Ms. TanyaTiwari, Advs for the appearing parties.

The Judgment of the Court was delivered by

A. K. SIKRI, J. 1. Delay condoned in Diary No. 42349 of 2016.B

2. The respondents herein are engaged in the business ofconstruction and, in the process, providing the services known as‘Commercial or Industrial Construction Service’. This service is exigibleto service tax as per the provisions of Section 65(105)(zzq) of the FinanceAct, 1994 (hereinafter referred to as the ‘Act’). The assessees acceptCthat they are covered thereby and, therefore, are paying service tax aswell. The dispute, however, is with regard to the valuation of taxableservice provided by them. Under Section 67 of the Act deals with sucha valuation.

3. It is a matter of common knowledge that for undertakingDconstruction projects, the assessees not only render services, lot ofmaterials/goods are also used in the construction of building or civilstructure etc. For valuation of taxable services, the material/goodselement has to be excluded. In order to make the things easier for theassessees as well as the Assessing Officers (AOs), the GovernmentEissued the Notification No. 15/2004-ST dated September 10, 2004 asper which service tax is to be calculated on the value which is equivalentto 33% of the gross amount charged from any person by such commercialconcern for providing the taxable service. This notification was amendedvide another Notification No. 4/2005-ST dated March 01, 2005 wherebyan explanation was added to the original notification. This explanationFmentions that the ‘gross amount charged’ shall include the value of goodsand material supplied and provided or used by the provider of constructionservices for providing such service. It is made optional for the assesseesto take advantage of the aforesaid notification and get the valuecalculated as per the aforesaid formula provided therein. The assesseesGhave availed the benefit and paid the service tax @33% of the grossamount which they have charged from the persons for whomconstruction was carried out, i.e., the service recipients. It so happenedthat in all these cases where the construction projects were undertakenby the assessees, some of the goods/materials (particularly, steel andcement) were supplied or provided by the service recipients. As theseH

materials were to be utilised in the projects meant for service recipientsthemselves, obviously, no costs thereof was charged from the assessees.The Department wants that value of such goods/materials even whensupplied or provided free should be included, while calculating the “grossvalue” and 33% thereof be treated as value for the purpose of levyingservice tax.

4. The question, therefore, which has fallen for consideration isas to whether, the value of goods/material supplied or provided free ofcost by a service recipient and used for providing the taxable service ofconstruction or industrial complex, is to be included in computation ofgross amount (charged by the service provider), for valuation of thetaxable service, under Section 67 of the Act and for availing the benefitsunder Notification No. 15/2004-ST dated September 10, 2004 as amendedby Notification No. 4/2005-ST dated March 01, 2005 (whereby anExplanation 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’) hadgiven conflicting views on the aforesaid question and, therefore, the matterwas referred to the Larger Bench which has, by impugned judgmentdated September 6, 2013 rendered in a batch of matters, has decided theissue in favour of the assessees by holding that the value of the goods/materials cannot be added for the purpose of aforesaid notification datedSeptember 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 tothe relevant provisions of the Act and the Notifications, which are asunder:

As mentioned above, ‘commercial or industrial constructionservice’ is a taxable service enumerated under Section 65(105)(zzq) ofthe Act. Section 65(25b) of the Act defines construction or industrialconstruction service to mean:

(a) construction of a new building or a civil structure or a partthereof; or (b) construction of pipeline or conduit; or A

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1134SUPREME COURT REPORTS

A(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 fittingsand other similar services, in relation to building or civil structure;or B

(d) repair, alteration, renovation or restoration of, or similarservices in relation to, building or civil structure, pipeline orconduit, which is-C(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 orindustry, or work intended for commerce or industry, but does notDinclude 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 provisionreads as under:

E“67. Valuation of taxable services for charging service tax.-For the purposes of this Chapter, the value of any taxable serviceshall be the gross amount charged by the service provider forsuch service provided or to be provided by him.

Explanation 1.-For the removal of doubts, it is hereby declaredFthat the value of a taxable service, as the case may be, includes,-(a) the aggregate of commission or brokerage charged by abroker on the sale or purchase of securities including thecommission or brokerage paid by the stock-broker to any sub-broker; G(b) the adjustments made by the telegraph authority from anydeposits made by the subscriber at the time of application fortelephone connection or pager or facsimile or telegraph or telexor for leased circuit;

(c) the amount of premium charged by the insurer from the policyHholder; (d) the commission received by the air travel agent from theairline; (e) the commission, fee or any other sum received by an actuary,or intermediary or insurance intermediary or insurance agent fromthe insurer; (f) the reimbursement received by the authorised service stationfrom manufacturer for carrying out any service of any motor car,light motor vehicle or two wheeled motor vehicle manufacturedby such manufacturer; and (g) the commission or any amount received by the rail travelagent from the Railways or the customer, but does not include-

(i) initial deposit made by the subscriber at the time of applicationfor telephone connection or pager or facsimile (FAX) ortelegraph or telex or for leased circuit;

(ii) the cost of unexposed photography film, unrecordedmagnetic tape or such other storage devices, if any, sold to theclient during the course of providing the service;

(iii) the cost of parts or accessories, or consumable such aslubricants and coolants, if any, sold to the customer during thecourse of service or repair of motor cars, light motor vehicle ortwo wheeled motor vehicles;

(iv) the airfare collected by air travel agent in respect of serviceprovided by him;

(v) the rail fare collected by rail travel agent in respect of serviceprovided by him;

(vi) the cost of parts or other material, if any, sold to the customerduring the course of providing maintenance or repair service;

(vii) the cost of parts or other material, if any, sold to thecustomer during the course of providing erection, commissioningor installation service; and

(viii) interest on loans.

Explanation 2.-Where the gross amount charged by a serviceprovider is inclusive of service tax payable, the value of taxable

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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 declaredthat the gross amount charged for the taxable service shall includeany amount received towards the taxable service before, duringBor after provision of such service.”

(i) in a case where the provision of service is for a considerationin money, be the gross amount charged by the service providerfor such service provided or to be provided by him;

(ii) in a case where the provision of service is for a considerationnot wholly or partly consisting of money, be such amount in moneyas, with the addition of service tax charged, is equivalent to theconsideration; C

(iii) in a case where the provision of service is for a considerationwhich is not ascertainable, bet he amount as may be determinedDin the prescribed manner.

(2) Where the gross amount charged by a service provider, forthe service provided or to be provided is inclusive of service taxpayable, the value of such taxable service shall be such amountas, with the addition of tax payable, is equal to the gross amountEcharged.

(3) The gross amount charged for the taxable service shallinclude 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), theFvalue 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 thetaxable services provided or to be provided; G

(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 notinclude currency that is held for its numismatic value; H

COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANABUILDERS (P) LTD. ETC. [A.K. SIKRI, J.]

(c) “gross amount charges” includes payment by cheque, creditcard, deduction from account and any form of payment by issueof credit notes or debit notes and [book adjustment, and any amountcredited or debited, as the case may be, to any account, whethercalled ‘suspense account’ or by any other name, in the books ofaccount of a person liable to pay service tax, where the transac-tion 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 ser-vice tax

(1) Subject to the provisions of this Chapter, service tax charge-able on any taxable service with reference to its value shall,-

(i) in a case where the provision of service is for a considerationin money, be the gross amount charged by the service providerfor such service provided or to be provided by him;

(ii) in a case where the provision of service is for a considerationnot wholly or partly consisting of money, be such amount in money,with the addition of service tax charged, is equivalent to theconsideration;

(iii) in a case where the provision of service is for a considerationwhich is not ascertainable, be the amount as may be determinedin the prescribed manner.

(2) Where the gross amount charged by a service provider, forthe service provided or to be provided is inclusive of service taxpayable, the value of such taxable service shall be such amountas, with the addition of tax payable, is equal to the gross amountcharged.

(3) The gross amount charged for the taxable service shallinclude 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), thevalue shall be determined in such manner as may be prescribed Explanation.-For the purposes of this section,- [(a) “consideration” includes- AB

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A(i) any amount that is payable for the taxable services providedor to be provided;

(ii) any reimbursable expenditure or cost incurred by the serviceprovider and charged, in the course of providing or agreeing toprovide a taxable service, except in such circumstances, andBsubject to such conditions, as may be prescribed;

(iii) any amount retained by the lottery distributor or selling agentfrom gross sale amount of lottery ticket in addition to the fee orcommission, if any, or, as the case may be, the discount received,that is to say, the difference in the face value of lottery ticket andCthe price at which the distributor or selling agent gets such ticket.]

(c) “gross amount charged” includes payment by cheque, creditcard, deduction from account and any form of payment by issueof credit notes or debit notes and [2][book adjustment, and anyamount credited or debited, as the case may be, to any account,Dwhether called “Suspense account” or by any other name, in thebooks of account of a person liable to pay service tax, where thetransaction of taxable service is with any associated enterprise.]”

9. Exemption Notifications:

(a) Notification No. 12/2003-ST dated June 26, 2003, issued byEthe Central Government, exercising powers under Section 93(1) of theAct exempted the value of goods and materials sold by a serviceprovider to a recipient of service from the tax leviable thereon, subjectto documentary proof specifically indicating the value of such goods andmaterial. This notification was specified to come into force w.e.f. July01, 2013.F

(b) By Notification No. 15/2004-ST dated September 10, 2004, afurther exemption was granted in respect of taxable service provided bya commercial concern to any person in relation to construction service.This Notification reads:

G“In exercise of the powers conferred by sub-section (1) of section93 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 commercialconcern to any person, in relation to construction service, from somuch of the service tax leviable thereon under Section 66 of theH

said Act, as is in excess of the service tax calculated on a valuewhich is equivalent to thirty-three per cent of the gross amountcharged from any person by such commercial concern forproviding 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 beentaken under the provisions of the Cenvat Credit Rules, 2004; or

(ii) the commercial concern has availed the benefit under thenotification of the Government of India, in the Ministry of Finance(Department of Revenue) No. 12/2003-Service Tax, dated the20[th] June, 2003 [G.S.R. 503(E), dated the 20[th] 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 “grossamount charged” shall include the value of goods and materialssupplied or provided or used by the provider of the constructionservice for providing such service.”

10. We may also note at this stage that the Board has also issuedthe Circular dated September 17, 2004 clarifying the scope of theseservices. In para 13.5 thereof, reasons for issuing the exemptionnotifications were given. This para reads as under:

“13.5 The gross value charged by the building contractors includethe material cost, namely, the cost of cement, steel, fittings andfixtures, tiles etc. Under the Cenvat Credit Rules, 2004, theservice provider can take credit of excise duty paid on suchinputs. However, it has been pointed out that these materials arenormally procured from the market and are not covered underthe duty paying documents. Further, a general exemption isavailable to goods sold during the course of providing service(Notification No. 12/2003-S.T.) but the exemption is subject tothe condition of availability of documentary proof speciallyindicating the value of the goods sold. In case of a compositecontract, bifurcation of value of goods sold is often difficult.

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AConsidering these facts, an abatement of 67% has been providedin case of composite contracts where the gross amount chargedincludes the value of material cost. (Refer Notification No. 15/2004-S.T. dated 10-9-2004). This would, however, be optionalsubject to the condition that no credit of input goods, capital goodsand no benefit (under Notification No. 12/2003-S.T.) of exemp-Btion towards cost of goods are availed.”11. As already pointed out in the beginning, all these assesseesare covered by Section 65(25b) of the Act as they are rendering‘construction or industrial construction service’, which is a taxable serviceas per the provisions of Section 65(105)(zzq) of the Act. The entireCdispute relates to the valuation that has to be arrived at in respect oftaxable services rendered by the assessees. More precisely, the issue isas to whether the value of goods/materials supplied or provided free ofcost by a service recipient and used for providing the taxable service ofconstruction or industrial complex, is to be included in computation ofDgross amount charged by the service provider, for valuation of taxableservice. For valuation of taxable service, provision is made in Section67 of the Act which enumerates that it would be ‘the gross amountcharged by the service provider for such service provided or to beprovided by him’. Whether the value of materials/goods supplied freeof cost by the service recipient to the service provider/assessee is to beEincluded to arrive at the ‘gross amount’, or not is the poser. On thisaspect, there is no difference in amended Section 67 from unamendedSection 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 priorand after amendment, the value on which service tax is payable has toFsatisfy the following ingredients:

a. Service tax is payable on the gross amount charged:- thewords “gross amount” only refers to the entire contract valuebetween the service provider and the service recipient. Theword “gross” is only meant to indicate that it is the totalGamount charged without deduction of any expenses. Merelyby use of the word “gross” the Department does not get anyjurisdiction to go beyond the contract value to arrive at thevalue of taxable services. Further, by the use of the word“charged”, it is clear that the same refers to the amountHbilled by the service provider to the service receiver.

COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANABUILDERS (P) LTD. ETC. [A.K. SIKRI, J.]

Therefore, in terms of Section 67, unless an amount is chargedby the service provider to the service recipient, it does notenter into the equation for determining the value on whichservice tax is payable.

b. The amount charged should be for “for such service provided”:Section 67 clearly indicates that the gross amount chargedby the service provider has to be for the service provided.Therefore, it is not any amount charged which can becomethe basis of value on which service tax becomes payable butthe amount charged has to be necessarily a considerationfor the service provided which is taxable under the Act. Byusing the words “for such service provided” the Act hasprovided for a nexus between the amount charged and theservice provided. Therefore, any amount charged whichhas no nexus with the taxable service and is not aconsideration for the service provided does not become partof the value which is taxable under Section 67. The cost offree supply goods provided by the service recipient to theservice provider is neither an amount “charged” by theservice provider nor can it be regarded as a considerationfor the service provided by the service provider. In fact, ithas no nexus whatsoever with the taxable services for whichvalue is sought to be determined”

13. A plain meaning of the expression ‘the gross amount chargedby the service provider for such service provided or to be provided byhim’ would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not tobe included while arriving at the ‘gross amount’ simply, because of thereason that no price is charged by the assessee/service provider fromthe service recipient in respect of such goods/materials. This furthergets strengthened from the words ‘for such service provided or to beprovided’ by the service provider/assessee. Again, obviously, in respectof the goods/materials supplied by the service recipient, no service isprovided by the assessee/service provider. Explanation 3 to sub-section(1) of Section 67 removes any doubt by clarifying that the gross amountcharged for the taxable service shall include the amount received towardsthe taxable service before, during or after provision of such service,implying thereby that where no amount is charged that has not to be A

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Aincluded in respect of such materials/goods which are supplied by theservice recipient, naturally, no amount is received by the serviceprovider/assessee. Though, sub-section (4) of Section 67 states that thevalue 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/Bmaterial supplied by the service recipient for determination of the grossvalue.

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 buttressthe stand taken by the Revenue and we again reproduce the saidCExplanation hereinbelow in order to understand the contention:

(c) “gross amount charges” includes payment by cheque, creditcard, deduction from account and any form of paymentby issueof credit notes or debit notes and [book adjustment, and any amountcredited or debited, as the case may be, to any account, whetherDcalled ‘suspense account’ or by any other name, in the books ofaccount of a person liable to pay service tax, where the transac-tion of taxable service is with any associated enterprise.]”

[emphasis supplied]

15. It was argued that payment received in ‘any form’ and ‘anyEamount credited or debited, as the case may be...’ is to be included forthe purposes of arriving at gross amount charges and is leviable to payservice tax. On that basis, it was sought to argue that the value ofgoods/materials supplied free is a form of payment and, therefore, shouldbe added. We fail to understand the logic behind the aforesaidFargument. A plain reading of Explanation (c) which makes the ‘grossamount charges’ inclusive of certain other payments would make it clearthat the purpose is to include other modes of payments, in whateverform received; be it through cheque, credit card, deduction fromaccount etc. It is in that hue, the provisions mentions that any form ofpayment by issue of credit notes or debit notes and book adjustment isGalso to be included. Therefore, the words ‘in any form of payment’ areby means of issue of credit notes or debit notes and book adjustment.With the supply of free goods/materials by the service recipient, no caseis made out that any credit notes or debit notes were issued or any bookadjustments were made. Likewise, the words, ‘any amount credited orHdebited, as the case may be’, to any account whether called ‘suspense account or by any other name, in the books of accounts of a personliable to pay service tax’ would not include the value of the goodssupplied free as no amount was credited or debited in any account. Infact, this last portion is related to the debit or credit of the account of anassociate enterprise and, therefore, takes care of those amounts whichare received by the associated enterprise for the services rendered bythe service provider.

16. In fact, the definition of “gross amount charged” given inExplanation (c) to Section 67 only provides for the modes of thepayment or book adjustments by which the consideration can be dis-charged by the service recipient to the service provider. It does notexpand the meaning of the term “gross amount charged” to enable theDepartment to ignore the contract value or the amount actually chargedby the service provider to the service recipient for the service rendered.The fact that it is an inclusive definition and may not be exhaustive alsodoes not lead to the conclusion that the contract value can be ignoredand the value of free supply goods can be added over and above thecontract value to arrive at the value of taxable services. The value oftaxable services cannot be dependent on the value of goods suppliedfree of cost by the service recipient. The service recipient can use anyquality of goods and the value of such goods can vary significantly. Sucha value, has no bearing on the value of services provided by the servicerecipient. Thus, on first principle itself, a value which is not part of thecontract between the service provider and the service recipient has norelevance in the determination of the value of taxable services providedby the service provider.

17. Faced with the aforesaid situation, the argument of the learnedcounsel for the Revenue was that in case the assessees did not want toinclude the value of goods/materials supplied free of cost by the servicerecipient, they were not entitled to the benefit of notification datedSeptember 10, 2004 read with notification dated March 01, 2005. It wasargued that since building construction contract is a composite contractof providing services as well as supply of goods, the said notificationswere issued for the convenience of the assessees. According to theRevenue, the purpose was to bifurcate the component of goods andservices into 67%:33% and to provide a ready formula for payment ofservice tax on 33% of the gross amount. It was submitted that thispercentage of 33% attributing to service element was prescribed A

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Akeeping 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 totalityof goods and materials that are used in a construction project.Therefore, it was incumbent upon the assessees to include the value ofgoods/material supplied free of cost by the service recipient as wellBotherwise it would create imbalance and disturb the analogy that is keptin mind while issuing the said notifications and in such a situation, theAO can deny the benefit of aforesaid notifications. This argument maylook to be attractive in the first blush but on the reading of thenotifications as a whole, to our mind, it is not a valid argument.

C18. In the first instance, no material is produced before us tojustify that aforesaid basis of the formula was adopted while issuing thenotification. In the absence of any such material, it would be anybody’sguess as to what went in the mind of the Central Government in issuingthese notifications and prescribing the service tax to be calculated on aDvalue which is equivalent to 33% of the gross amount. Secondly, thelanguage itself demolishes the argument of the learned counsel for theRevenue as it says ‘33% of the gross amount ‘charged’ from anyperson by such commercial concern for providing the said taxableservice’. According to these notifications, service tax is to be calculatedon a value which is 33% of the gross amount that is charged from theEservice recipient. Obviously, no amount is charged (and it could not be)by the service provider in respect of goods or materials which aresupplied by the service recipient. It also makes it clear that valuation ofgross amount has a causal connection with the amount that is chargedby the service provider as that becomes the element of ‘taxableFservice’. Thirdly, even when the explanation was added videnotification dated March 01, 2005, it only explained that the gross amountcharged shall include the value of goods and materials supplied orprovided or used by the provider of construction service. Thus, thoughit took care of the value of goods and materials supplied by the serviceprovider/assessee by including value of such goods and materials for theGpurpose of arriving at gross amount charged, it did not deal with anyeventuality whereby value of goods and material supplied or provided bythe service recipient were also to be included in arriving at gross amount‘gross amount charged’.

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19. Matter can be looked into from another angle as well. In thecase of Commissioner, Central Excise and Customs, Kerala v. M/s.Larsen & Toubro Ltd.[1]This Court was concerned with exemptionnotifications which were issued in respect of ‘taxable services’ coveredby sub-clause (zzq) of clause (105) read with clause (25b) and sub-clause (zzzh) of clause (105) read with clause (30a) and (91a) ofSection 65 of Chapter V of the Act. This Court in the aforesaidjudgment 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 thefixed taxable services referred to in the charging Section 65(105)would refer only to service contracts simpliciter and not tocomposite works contracts. This is clear from the very languageof Section 65(105) which defines ‘taxable service’ as ‘any serviceprovided’.

Further, while referring to exemption notifications, it observed:

“42. …Since the levy itself of service tax has been found to benon-existent, no question of any exemption would arise.”

It is clear from the above that the service tax is to be levied inrespect of ‘taxable services’ and for the purpose of arriving at 33% ofthe gross amount charged, unless value of some goods/materials isspecifically included by the Legislature, that cannot be added.

20. It is to be borne in mind that the notifications in questions areexemption notifications which have been issued under Section 93 of theAct. As per Section 93, the Central Government is empowered to grantexemption from the levy of service tax either wholly or partially, whichis leviable on any ‘taxable service’ defined in any of sub-clauses ofclause (105) of Section 65. Thus, exemption under Section 93 can onlybe granted in respect of those activities which the Parliament is compe-tent 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 theAct under which such notifications were issued.

21. For the aforesaid reasons, we find ourselves in agreementwith the view taken by the Full Bench of CESTAT in the impugnedjudgment dated September 6, 2013 and dismiss these appeals of theRevenue.

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A22. Insofar as Civil Appeal No. 3247 of 2015 is concerned, wherethe assessee is Gurmehar Construction, it may additionally be noted (aspointed out by the learned counsel for the respondent) that the assesseewas a sole proprietorship concern of Mr. Narender Singh Atwal, whodied on February 24, 2014. This is so stated in the counter affidavit filedby the respondent on May 16, 2017 and this position has not been disputedBby the Department. This appeal, in any case, has abated as well in viewof the judgment of this Court in Shabina Abraham & Ors. v. Collectorof Central Excise & Customs[2.]

23. As a result, all appeals stand dismissed.

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Kalpana K. Tripathy

Appeals dismissed.

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2(2015) 10 SCC 770

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