2013 (9) TMI 294 - AT - Service Tax

Valuation of the taxable service - inclusion of value of free supply - construction of commercial or industrial complex - section 67 - benefits under Notification No. 15/2004-ST, dated 10.09.2004 as amended by Notification No. 4/2005-ST dated 01.03.2005. - Held that:- Etymologically the words supplied and provided are closely associated words. Provided also means to supply; furnish. Supply bears a similar connotation. The word used is structurally associated (in the Explanation) with the earlier two words and the three words are employed to define the meaning of the expression gross amount charged, an expression that occurs in the preamble to Notification No. 15/2004-ST. The word use variously means cause to act or serve for a purpose; avail oneself of; exploit for one’s own ends; the right of power of using.

The word use therefore has multiple connotation and bears different meanings depending upon the context. The word used is therefore per se ambiguous or obscure. Since in its preambular context, the expression gross amount charged (as our analysis has concluded) means an amount charged on the service recipient, received by the provider and accruing to the benefit of the later in relation to the taxable service provided and the Explanation seeks to define gross amount charged, an expression occruing in the preamble, by employing three words to contextualise the definition – supplied, provided, used, we are satisfied that application of the noscitur principle could be gainfully employed to identify the legal meaning of the word used from several grammatical/ literal meanings of the said word, by employing the associational context.

It is true, as contended by Revenue, that even if one of the literal meanings of the expression used, namely free supplies used is considered as the legal meaning as well, construction service providers may not be handicapped as they may seek benefits under Notification No. 12/2003-ST. In our view however the fact that the assessee have an alternative recourse to avoiding the rigour cannot be the criterion for interpreting the Explanation. This contention by Revenue proceeds on a fallacious comprehension of Notification No. 12/2003-ST.

The benefits under this Notification are only in respect of the value of goods and materials sold by a service provider to the recipient of a taxable service. In the case of free supplies by the recipient there is no sale or transfer of title in the goods and materials in favour of the service provider, at any point of time. Therefore when free supplied goods and materials are incorporated into the construction would be no sale by the provider to the recipient either. Notification No. 12/2003-ST would therefore be inapplicable.

Board Circular dated 16.02.2006 (a circular issued subsequent to the introduction of the Explanation in Notification No. 15/2004-ST) and in the context of an identical Explanation introduced in Notification No. 18/2005-ST, clarified that gross amount charged shall include the value of goods and materials supplied. This circular constitutes contemporanea expositio of the meaning of the Explanation in Notification No. 18/2005-ST.

The value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service, being neither monetary or non-monetary consideration paid by or flowing from the service recipient, accruing to the benefit of service provider, would be outside the taxable value or the gross amount charged, within the meaning of the later expression in Section 67 of the Finance Act, 1994;

Value of free supplies by service recipient do not comprise the gross amount charged under Notification No. 15/2004-ST, including the Explanation thereto as introduced by Notification No. 4/2005-ST.