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Valuation of Non-monetary consideration in case of service tax

Service Tax - By: - Ravi Kumar Somani - Dated:- 24-9-2015 - The term service is defined under service tax law to mean any activity for consideration by one person for another. In this regard, it is important to note that section 67 of the finance act, 1994 determines consideration to include both monetary as well as non-monetary consideration. Monetary consideration is the consideration in the form of money and there are no any disputes on determination of the value for the same, However, liabil .....

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ervice; Tolerating an act or a situation in return for provision of service; Doing or agreeing to do an act in return for provision of service. Statutory provision under section 67 of the finance act states that 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 . In simple terms the above statutory provision states that, in case considerat .....

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tainable as the value of gold can be easily available) and therefore the said ascertained value shall be taken as consideration. However, the real practical valuation challenges arise in cases where consideration is paid in the non-monetary form and the value of the consideration is not ascertainable. For example: A provides land to B for construction of residential apartments, in return of which B provides 40% of the constructed flats to A; (commonly known as Joint Development agreements) A agr .....

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ss amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration; where the value cannot be determined in accordance with clause (a), the service provider shall determine the equivalent money value of such consideration which shall, in no case be less than the cost of provision of such taxable service. In simple terms, the above rule states the value shall be determined as follows: Valu .....

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ession similar goods , for instance, the supreme court in case of NAT steel Equipment pvt ltd v/s CCE, [1988 (1) TMI 38 - SUPREME COURT OF INDIA] has stated that … The expression similar is a significant expression. It does not mean identical but it means corresponding to or resembling to in many respects; somewhat like; or having a general likeness. The statute does not contemplate that goods classed under the words of similar description shall be in all respects the same. If it did, the .....

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e in case of similar service. The stipulation of similar service being provided in ordinary course of business brings in the concept of independent persons and arm s length price, which in substance refers to the transaction between two unrelated parties. However, practical challenges do exists in determining whether or not a particular service can be considered as a similar service for the purpose of valuation of any other service especially when the law does not envisages the nature or the deg .....

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cially when they differ in the following aspects: Flats of land owners and other customers differ in terms of area, location, time of booking, quality of construction, special services provided if any; Consideration charged/received from the customer also includes value of undivided portion of land, whereas the transaction with land owners does not cover any consideration towards undivided portion of land; Further value of flat sold to others customer also includes the finance cost unlike in cas .....

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alue of similar service, it provided alternate criteria to value the service on the basis of its cost. However, there is no commonly agreed formula for determining this aspect as well as to whether it would be on the basis of full costs comprising both direct and indirect costs or whether it would only extend to direct costs incurred for providing the services. This is particularly true in relation to determination to the cost of services, as opposed to determining the cost of supply of goods. H .....

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