2025 (3) TMI 900 - AT - Service Tax

Calculation of service tax - requirement of inclusion of value of free diesel provided to the service provider namely M/s. R.K. Carriers - liability of service tax on the appellants under reverse charge mechanism - eligibility for exemption benefit in terms of N/N. 34/2004- ST dated 03.12.2004. Whether the appellants are required to include the value of free diesel provided by them to the service provider M/s. R.K. Carriers? - HELD THAT - Issue decided by Hon ble Apex Court in the case of Bhayana Builders 2018 (2) TMI 1325 - SUPREME COURT where it was held that the value free supplies by a construction services recipient for incorporation in the constructions would not constitute a non-monetary consideration to the service provider nor form part of the gross amount charged for the services provided. - thus the value of free diesel should not be included in the taxable value. Whether there was any liability of service tax on the appellants under the reverse charge mechanism? - HELD THAT - 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. However the fact that the assessees have an alternative recourse to avoiding the rigor 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. - the value of free diesel should not be included in the gross amount for service tax computation as the notifications do not mandate such inclusion. Whether appellants are eligible for the exemption benefit in terms of N/N. 34/2004-ST dated 03.12.2004? - HELD THAT - Clause (ii) of Notification No. 34/2004 applies to the appellant. However the quantification is not apparent on record. Resultantly we remand the matter back to the Original Adjudicating Authorities to quantify the amount of the differential duty if any to be recovered from the appellant however after arriving at a proper calculation showing as to whether the calculation arrived at by appellant is correct. If not the reasons to be recorded - Commissioner (Appeals) is required to look into the calculation given by the appellant in their written submissions and also to provide two opportunities of personal hearing to the appellant. Order thereafter be passed within two months of the receipt of the present order. Conclusion - i) The value of free diesel provided by the appellant is not includible in the taxable value. ii) The value of free diesel should not be included in the gross amount for service tax computation as the notifications do not mandate such inclusion. iii) There are discrepancies in the calculation of the gross amount charged and remanded the matter for recalculation to determine if the exemption applies. The appeal is allowed by way of remand.

Summary

ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions:

(1) Whether the appellants are required to include the value of free diesel provided by them to the service provider, M/s. R.K. Carriers.

(2) Whether there was any liability of service tax on the appellants under the reverse charge mechanism.

(3) Whether appellants are eligible for the exemption benefit in terms of Notification No.34/2004-ST dated 03.12.2004.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Inclusion of Free Diesel Value

The Tribunal noted that the Original Adjudicating Authority had decided this issue against the appellant, but the Commissioner (Appeals) held that the value of free diesel provided by the appellant is not includible in the gross value/taxable value. The Tribunal referenced the Supreme Court's decision in Bhayana Builders, which clarified that free supplies by a service recipient do not constitute a non-monetary consideration to the service provider nor form part of the gross amount charged for the services provided. Thus, the value of free diesel should not be included in the taxable value.

Issue 2: Liability of Service Tax under Reverse Charge Mechanism

The relevant legal framework includes Notification No. 12/2003-ST and Notification No. 15/2004-ST, which exempt certain values from service tax, subject to conditions. The Tribunal analyzed these notifications and the Supreme Court's interpretation in Bhayana Builders regarding the inclusion of free supplies in the gross amount charged. The Tribunal concluded that the value of free diesel should not be included in the gross amount for service tax computation, as the notifications do not mandate such inclusion.

Issue 3: Eligibility for Exemption under Notification No.34/2004-ST

The Tribunal examined Notification No.34/2004-ST, which exempts service tax for goods transport agencies if the gross amount charged does not exceed specified limits. The Tribunal found that the notification distinguishes between multiple consignments and individual consignments. In this case, since the consignee is a single entity (GMDC), clause (ii) of the notification applies. The Tribunal noted discrepancies in the calculation of the gross amount charged and remanded the matter for recalculation to determine if the exemption applies.

SIGNIFICANT HOLDINGS

The Tribunal held that the value of free diesel provided by the appellant is not includible in the taxable value, aligning with the Supreme Court's interpretation in Bhayana Builders. The Tribunal remanded the case to the Original Adjudicating Authorities for recalculation of the service tax liability, specifically regarding the applicability of the exemption under Notification No.34/2004-ST. The Tribunal instructed that the Commissioner (Appeals) review the appellant's calculations and provide opportunities for personal hearings before making a final determination.