corporate laws – Service tax – 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). = 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’. – Appeal by revenue dismissed

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