Commissioner Of Service Tax, New Delhi Service Tax Commissioner vs. A N S Constructions Ltd. Managing Director
AI Summary
In a landmark judgment on service tax valuation for construction services, the Supreme Court of India dismissed appeals by the Commissioner of Service Tax and held that the value of materials supplied free of cost by service recipients cannot be included in the gross amount charged for calculating service tax liability. This decision clarifies the scope of Notification No. 15/2004-ST and impacts construction companies across India.
Case Identifiers
Petitioner's Counsel
Respondent's Counsel
Advocates on Record
eCourtsIndia AITM
Brief Facts Summary
The respondents are construction companies engaged in providing 'Commercial or Industrial Construction Service', which is a taxable service under Section 65(105)(zzq) of the Finance Act, 1994. These companies accept that they are covered by this provision and pay service tax accordingly. The dispute concerns the valuation of the taxable service. In construction projects undertaken by these companies, some materials (particularly steel and cement) were supplied or provided by the service recipients (building owners). These materials were to be utilized in the projects meant for the service recipients themselves, and no costs were charged to the companies for these materials. The Department contended that the value of such free materials should be included in the 'gross amount charged' for calculating service tax under Section 67 of the Act and for availing benefits under Notification No. 15/2004-ST. The companies disagreed, arguing that only amounts actually charged by them to the service recipients should be included in the gross amount.
Timeline of Events
Notification No. 15/2004-ST issued by Central Government exempting taxable service provided by commercial concern for construction service from service tax in excess of tax calculated on 33% of gross amount charged
Notification No. 4/2005-ST issued adding Explanation to Notification No. 15/2004-ST clarifying that 'gross amount charged' includes value of goods and materials supplied or provided or used by the provider of construction service
Various service tax assessments made against construction companies regarding valuation of construction services with free materials supplied by service recipients
Larger Bench of CESTAT decided in favor of assessees holding that value of goods/materials cannot be added for purpose of the notification
Department filed multiple Civil Appeals in Supreme Court challenging the CESTAT Larger Bench decision
Various interim orders and procedural hearings in Supreme Court; multiple related appeals tagged with the main case
Supreme Court pronounced judgment dismissing all appeals and upholding the CESTAT Larger Bench decision
Key Factual Findings
The respondents are engaged in the business of construction and provide 'Commercial or Industrial Construction Service' which is taxable under Section 65(105)(zzq) of the Finance Act, 1994
Source: Current Court Finding
The assessees accept that they are covered by the provision and are paying service tax
Source: Recited from Petitioner Pleading
In construction projects undertaken by the assessees, some materials (particularly steel and cement) were supplied or provided by the service recipients
Source: Recited from Petitioner Pleading
These materials were to be utilized in projects meant for the service recipients themselves
Source: Recited from Petitioner Pleading
No costs were charged to the assessees for these free materials
Source: Recited from Petitioner Pleading
Different benches of CESTAT had given conflicting views on whether free materials should be included in gross amount
Source: Current Court Finding
The Larger Bench of CESTAT decided in favor of the assessees by holding that value of goods/materials cannot be added for purpose of the notification
Source: Current Court Finding
In Civil Appeal No. 3247/2015, the assessee Gurmehar Construction was a sole proprietorship of Mr. Narender Singh Atwal, who died on February 24, 2014
Source: Recited from Respondent Pleading
Primary Legal Issues
Secondary Legal Issues
Questions of Law
Statutes Applied
Petitioner's Arguments
The Department/Revenue argued that: (1) Building construction contracts are composite contracts involving both services and supply of goods; (2) The 33% abatement formula in the notification was based on the assumption that roughly 67% of construction costs comprise material and 33% comprises service value; (3) To maintain the balance and analogy of the notification, companies must include the value of all materials used, including those supplied free by building owners; (4) If companies do not include free materials, they should be denied the benefit of the notification; (5) The words 'in any form' and 'any amount credited or debited' in Explanation (c) to Section 67 should be interpreted broadly to include free materials as a form of consideration.
Respondent's Arguments
The Assessees/Respondents argued that: (1) Section 67 clearly states service tax is payable on 'the gross amount charged by the service provider for such service provided'; (2) The word 'charged' means amounts actually billed by the service provider to the service recipient; (3) No amount is 'charged' by the service provider for materials supplied free by the service recipient; (4) The words 'for such service provided' create a nexus requirement - the amount must be consideration for the service, not for materials; (5) Free materials supplied by the service recipient have no nexus with the taxable service provided by the service provider; (6) Explanation 3 to Section 67 clarifies that only amounts 'received' towards the taxable service are included, and no amount is received for free materials; (7) The notification itself uses the word 'charged' and refers to amounts charged by the commercial concern, which excludes free materials; (8) No material was produced to justify that the 33% formula was based on the assumption that all materials would be supplied by the service provider.
Court's Reasoning
The Court reasoned as follows: (1) A plain reading of Section 67 shows that service tax is payable on 'the gross amount charged by the service provider for such service provided or to be provided by him'. The word 'gross' merely indicates the total amount without deduction of expenses, not that the Department can go beyond the contract value. (2) The word 'charged' clearly refers to the amount billed by the service provider to the service recipient. Unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining taxable value. (3) The phrase 'for such service provided' creates a necessary nexus between the amount charged and the service provided. Any amount charged must be consideration for the service provided, not for materials. (4) The cost of free goods provided by the service recipient is neither an amount 'charged' by the service provider nor consideration for the service provided. It has no nexus whatsoever with the taxable services. (5) Explanation 3 to Section 67 removes doubt by clarifying that the gross amount includes amounts 'received' towards the taxable service. Where no amount is charged or received for materials supplied by the service recipient, naturally, no amount is to be included. (6) Section 67(4) states value shall be determined as prescribed, but this is subject to subsections (1), (2), and (3), and no prescribed manner includes free materials. (7) Explanation (c) to Section 67 only provides modes of payment (cheque, credit card, debit notes, book adjustments) by which consideration can be discharged. It does not expand the meaning of 'gross amount charged' to ignore contract value or add free materials. (8) The value of taxable services cannot depend on the value of goods supplied free by the service recipient, as such value varies and has no bearing on the service value. (9) The notifications themselves use the word 'charged' and refer to amounts charged by the commercial concern, which excludes free materials. (10) No material was produced to justify that the 33% formula was based on the assumption that all materials would be supplied by the service provider. (11) The Larger Bench of CESTAT correctly decided this issue in favor of the assessees.
- Emphasis on Plain Language - The Court relied heavily on the plain meaning of statutory language
- Strict Adherence to Statutory Language - The Court refused to expand the meaning of 'gross amount charged' beyond what the statute explicitly states
- Rejection of Speculative Arguments - The Court rejected the Department's argument about the basis of the 33% formula as unsupported by evidence
- Protection of Taxpayer Rights - The Court favored the interpretation that protects taxpayers from arbitrary expansion of tax base
Impugned Orders
Specific Directions
- 1.All appeals stand dismissed in terms of the signed reportable judgment
- 2.Delay condoned in Diary No. 42349 of 2016
- 3.The value of goods/materials supplied or provided free of cost by a service recipient cannot be included in computation of gross amount charged by the service provider for valuation of taxable service under Section 67 of the Finance Act, 1994
Precedential Assessment
Binding (SC)
This is a Supreme Court judgment on a question of law regarding the interpretation of Section 67 of the Finance Act, 1994 and the scope of Notification No. 15/2004-ST. It is binding on all lower courts and tax authorities in India. The judgment clarifies a significant issue that was causing conflicting decisions in the tax appellate tribunal.
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Order Issued After Hearing
Purpose:
Fixed Date by Court
Before:
Hon'ble A.K. Sikri, Hon'ble Ashok Bhushan
Stage:
FOR JUDGEMENT
Remarks:
Dismissed
Listed On:
19 Feb 2018
In:
Judge
Category:
UNKNOWN
Order Text
REVISED
ITEM NO.1501 COURT NO.6 SECTION XIV S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS Civil Appeal Nos. 1335-1358/2015 COMMISSIONER OF SERVICE TAX ETC. Appellant(s) VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. Respondent(s) WITH C. A. Nos. 2452-2455/2014 C.A. No. 8148-8149/2014 (XIV) C.A. No. 7370/2014 (XIV) C.A. No. 10027/2014 (III) C.A. No. 2474/2015 (XIV) C.A. No. 45/2015 (XIV) C.A. No. 1400/2015 (III) C.A. No. 4209/2015 (XIV) C.A. No. 1326/2015 (XIV) C.A. No. 1647/2015 (XIV) C.A. No. 3060/2015 (XIV) C.A. No. 2437/2015 (XIV) C.A. No. 1888/2015 (XIV) C.A. No. 2888/2015 (XIV) C.A. No. 2081/2015 (XIV) C.A. No. 2082-2083/2015 (XIV) C.A. No. 4208/2015 (XIV) C.A. No. 3247/2015 (XIV) C.A. No. 3248-3252/2015 (III) C.A. No. 5601/2015 (XIV) C.A. No. 7238/2015 (XIV) C.A. No. 7038/2015 (XIV) C.A. No. 7235/2015 (III) C.A. No. 7243/2015 (XIV) C.A. No. 4970/2016 (IV-A) C.A. No. 5941/2016 (III) C.A. No. 6207/2016 (III) C.A. No. 8484/2016 (III) C.A. No. 2338/2018 (D.No. 42349/2016) (III) C.A. No. 5319-5320/2017 (III) C.A. No. 15485/2017 (XIV) C.A. No. 11085/2017 (XIV) C.A. No. 10206/2017 (III) Digitally signed by SUSHIL KUMAR RAKHEJA Date: 2018.08.25 11:23:17 IST Reason: Signature Not Verified
C.A. No. 10606/2017 (XIV) C.A. No. 15570/2017 (XIV) C.A. No. 12451/2017 (III) C.A. No. 11182/2017 (III) C.A. No. 15865/2017 (XIV) C.A. No. 1430/2015 (XIV) C.A. No. 9423/2017 (XIV) C.A. No. 10611/2017 (XIV)
Date : 19-02-2018
These appeals were called on for pronouncement of judgment today.
For Parties
Mr. B. Krishna Prasad, AOR Mr. V. Lakshmikumaran, Adv. Mr. L. Badri Narayanan, Adv. Mr. Aditya Bhattacharya, Adv. Mr. Victor Das, Adv. Ms. Apeksha Mehta, Adv. Mr. M. P. Devanath, AOR Mr. Anil Kumar Tandale, AOR Mr. K. V. Mohan, AOR Ms. Shipra Ghose, AOR Mr. Ashok K. Mahajan, AOR Mr. Rupesh Kumar, AOR Mr. Susmit Pushkar, AOR Mr. Abhijeet Swaroop, Adv. Mr. Ayush Mehrotra, Adv. Mr. R. Chandrachud, AOR Ms. Madhumita Bhattacharjee, AOR Mr. Praveen Swarup, AOR Mr. M. P. Vinod, AOR Mr. Shishir Deshpande, AOR Mr. Tarun Gulati, Adv. Mr. Kishore Kunal, AOR Mr. Sparsh Bhargava, Adv.
Mr. Shashi Mathews, Adv. Ms. Rachana Yadav, Adv. Mr. Abeer Kumar, Adv. Mr. Vinayak Mathur, Adv. Mr. Anupam Mishra, Adv. M/S. Mitter & Mitter Co., AOR Mr. Rajat Joseph, AOR Mr. Punit Dutt Tyagi, AOR Mr. Bhargava V. Desai, AOR Mr. Vinay Garg, AOR Mr. Upendra Mishra, Adv.
Hon'ble Mr. Justice A. K. Sikri pronounced the judgment of the Bench comprising His Lordship and Hon'ble Mr. Justice Ashok Bhushan.
Delay condoned.
The appeals are dismissed in terms of the signed reportable judgment.
(NIDHI AHUJA) (MALA KUMARI SHARMA) (ASHWANI THAKUR) COURT MASTER COURT MASTER COURT MASTER
[Signed reportable judgment is placed on the file.]
| ITEM NO.1501 | COURT NO.6 | SECTION XIV | ||
|---|---|---|---|---|
| S U P R E M E | C O U R T<br>RECORD OF PROCEEDINGS | O F | I N D I A | |
| Civil Appeal Nos. 1335-1358/2015 | ||||
| COMMISSIONER OF SERVICE TAX ETC. | Appellant(s) | |||
| VERSUS | ||||
| M/S. BHAYANA BUILDERS (P) LTD. ETC. | Respondent(s) | |||
| WITH | ||||
| C. A. Nos. 2452-2455/2014<br>C.A. No. 8148-8149/2014 (XIV)<br>C.A. No. 7370/2014 (XIV)<br>C.A. No. 10027/2014 (III)<br>C.A. No. 2474/2015 (XIV)<br>C.A. No. 45/2015 (XIV)<br>C.A. No. 1400/2015 (III)<br>C.A. No. 4209/2015 (XIV)<br>C.A. No. 1326/2015 (XIV)<br>C.A. No. 1647/2015 (XIV)<br>C.A. No. 3060/2015 (XIV)<br>C.A. No. 2437/2015 (XIV)<br>C.A. No. 1888/2015 (XIV)<br>C.A. No. 2888/2015 (XIV)<br>C.A. No. 2081/2015 (XIV)<br>C.A. No. 2082-2083/2015 (XIV)<br>C.A. No. 4208/2015 (XIV)<br>C.A. No. 3247/2015 (XIV)<br>C.A. No. 3248-3252/2015 (III)<br>C.A. No. 5601/2015 (XIV)<br>C.A. No. 7238/2015 (XIV)<br>C.A. No. 7038/2015 (XIV)<br>C.A. No. 7235/2015 (III)<br>C.A. No. 7243/2015 (XIV)<br>C.A. No. 4970/2016 (IV-A)<br>C.A. No. 5941/2016 (III)<br>C.A. No. 6207/2016 (III)<br>C.A. No. 8484/2016 (III) | C.A. No. 2338/2018 (D.No. 42349/2016) (III) |
C.A. No. 5319-5320/2017 (III) C.A. No. 15485/2017 (XIV) C.A. No. 11085/2017 (XIV)
C.A. No. 10206/2017 (III)
C.A. No. 10606/2017 (XIV)
C.A. No. 15570/2017 (XIV)
C.A. No. 12451/2017 (III) C.A. No. 11182/2017 (III) C.A. No. 15865/2017 (XIV) C.A. No. 1430/2015 (XIV) C.A. No. 9423/2017 (XIV) C.A. No. 10611/2017 (XIV) Date : 19-02-2018 These appeals were called on for pronouncement of judgment today. For Parties Mr. B. Krishna Prasad, AOR Mr. V. Lakshmikumaran, Adv. Mr. L. Badri Narayanan, Adv. Mr. Aditya Bhattacharya, Adv. Mr. Victor Das, Adv. Ms. Apeksha Mehta, Adv. Mr. M. P. Devanath, AOR Mr. Anil Kumar Tandale, AOR Mr. K. V. Mohan, AOR Ms. Shipra Ghose, AOR Mr. Ashok K. Mahajan, AOR Mr. Rupesh Kumar, AOR Mr. Susmit Pushkar, AOR Mr. Abhijeet Swaroop, Adv. Mr. Ayush Mehrotra, Adv. Mr. R. Chandrachud, AOR Ms. Madhumita Bhattacharjee, AOR Mr. Praveen Swarup, AOR Mr. M. P. Vinod, AOR Mr. Shishir Deshpande, AOR Mr. Tarun Gulati, Adv. Mr. Kishore Kunal, AOR Mr. Sparsh Bhargava, Adv. Mr. Shashi Mathews, Adv. Ms. Rachana Yadav, Adv. Mr. Abeer Kumar, Adv.
Mr. Vinayak Mathur, Adv. Mr. Anupam Mishra, Adv. M/S. Mitter & Mitter Co., AOR Mr. Rajat Joseph, AOR Mr. Punit Dutt Tyagi, AOR Mr. Bhargava V. Desai, AOR Mr. Vinay Garg, AOR Mr. Upendra Mishra, Adv.
Hon'ble Mr. Justice A. K. Sikri pronounced the judgment of the Bench comprising His Lordship and Hon'ble Mr. Justice Ashok Bhushan.
The appeals are dismissed in terms of the signed reportable judgment.
(NIDHI AHUJA) (MALA KUMARI SHARMA) COURT MASTER COURT MASTER
[Signed reportable judgment is placed on the file.]
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