TMI Blog2020 (4) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... rticulars in the invoices. The supply of consumables by the recipient does not constitute consideration to which value was required to be assigned for enhancing the gross amount charged in section 67 of Finance Act, 1994. Neither the circulars of Central Board of Excise Customs, advising the inclusion of all expenditure incurred for rendering services, nor the expansion of consideration to encompass consumables , that does not add to the assets of the provider of service, have sanction of law. The differential tax confirmed in the impugned order cannot be sustained. Appeal allowed - decided in favor of appellant. - SERVICE TAX APPEAL NO: 88574 of 2014 WITH SERVICE TAX APPEAL NO: 87472 of 2015 - A/85595-85596/2020 - Dated:- 13-3-2020 - HON BLE MR C.J. MATHEW, MEMBER (TECHNICAL) AND HON BLE DR SUVENDU KUMAR PATI, MEMBER (JUDICIAL) APPEARANCE: Shri Prakash Shah with Shri Mohit Rawal, Advocates for the appellant Ms P Vinitha Sekhar, Additional Commissioner (AR) for the respondent PER: C J MATHEW In these two appeals of M/s Larsen Toubro Ltd are impugned orders-in-original of Commissioner of Central Excise Customs, Nagpur-one disposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red precludes a separate transaction of sale. Likewise, it was held that the supply of consumables without charge by the recipient of the service constituted additional consideration to be monetised in accordance with rule 3 of Service Tax (Determination of Value) Rules, 2006. 4. Having heard the rival submissions, of Learned Counsel on behalf of the appellant and Learned Authorised Representative on behalf of Revenue, at length, we formulate the issue for determination as (a) whether free supply of goods by recipient of service constitutes additional consideration that is mandated by section 67 of Finance Act, 1994; and (b) whether the gross amount charged by the service provider for such service provided in section 67 of Finance Act, 1994 suffices to overcome the constitutional barrier erected by Article 366 (29A) of Constitution of India read with the two separate, and mutually exclusive, lists in the Seventh Schedule in the Constitution of India. Before proceeding to resolve the issue in the context of the submissions made and facts pertaining to the rendering of service by the appellant a few preliminaries must be addressed. 5. Learned Counsel draws at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g states of the Union was also sanctified by the Forty Sixth Amendment in 1982. 7. The resolution of the controversy over inclusion of transfer of tangibles, inherent in certain commercial transactions, ostensibly of intangibles, and not covered by the law pertaining to sale that, in the absence of specific authority, lay beyond the pale of taxation on sale of goods did not intrude upon the authority conferred upon the Union to levy tax on the very same goods at the point of removal from the factory of manufacture. However, the storm clouds of conflict could not be kept at bay for too long with the untaxed element of the, ostensibly, intangible transaction bound to attract the ambit of tax on, for want of more apt expression, sale of intangibles. 8. Even with the enactment of levy of tax on services, characterised by being intangible and made manifest only by contractual engagement of provider and recipient, an essential element in some of these ostensibly intangible transactions to the extent of preclusion from tax as deemed sale , and, more particularly, upon incorporation of section 65(105)(zzzza) in Finance Act, 1994 for levying tax on works contracts service , there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to Explanation in section 65(105)(zzzza) of Finance Act, 1994 as those which are works contracts and others. The conclusion posited therefrom is that the former are privileged to be amenable for vivisection, attended by liability to tax on the service component, and the latter, if in relation to any other taxable service, to be subject to tax liability on the entire value of contract. The foundational error in this defence of the impugned order is the denial of the existence of Article 366(29A) of the Constitution of India in the scheme of taxation. The enumeration of deemed sale therein, with intent to subject the goods element to tax in List II of the Seventh Schedule in the Constitution of India, excludes taxability of the same component of a composite transaction under the powers vested in List I of the Seventh Schedule. The legacy of commodity taxation under Central Excise Act, 1944 cannot serve to contend that overlap of such jurisdiction is tenable under Finance Act, 1994; the former statute taxes manufacture as an event while the latter taxes rendering of services which, being impervious to the senses, is manifested only with the satisfaction of the recipient b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e eight in number. What is important in particular is the deductions which are to be made under subparas (f), (g) and (h). Under each of these paras, a bifurcation has to be made by the charging Section itself so that the cost of establishment of the contractor is bifurcated into what is relatable to supply of labour and services. Similarly, all other expenses have also to be bifurcated insofar as they are relatable to supply of labour and services, and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractor s accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and service element of it. This judgment, therefore, clearly and unmistakably holds that unless the splitting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s followed the second Gannon Dunkerley case in segregating the service component of a works contract from the goods component. It begins by working downwards from the gross amount charged for the entire works contract and minusing from it the value of the property in goods transferred in the execution of such works contract. This is done by adopting the value that is adopted for the purpose of payment of VAT. The rule goes on to say that the service component of the works contract is to include the eight elements laid down in the second Gannon Dunkerley case including apportionment of the cost of establishment, other expenses and profit earned by the service provider as is relatable only to supply of labour and services. And, where value is not determined having regard to the aforesaid parameters, (namely, in those cases where the books of account of the contractor are not looked into for any reason) by determining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble the appellants to fulfil their contractual obligation. In re Bhayana Builders (P) Ltd, the Hon ble Supreme Court has held that 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 sub-section (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 amount is charged that has not to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 1, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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