Materials supplied but not charged by Service Provider cannot be included in Gross value of Service: CESTAT directs to re-quantify Service Tax [Read Order]

Value of the material supplied by the service recipient, since not charged by the service provider, cannot be included in the gross value of the service, ruled the two-member-bench of Customs Excise and Services Tax Appellate Tribunal (CESTAT).

The appellant, M/s Murthy Engineering Works, engaged in providing service of fabrication, erection, commissioning and installation services, maintenance service etc. and for some time rented their Hydra Crane.

According to the nature of their employment, they had to construct the aforementioned goods after receiving the necessary raw materials from their clients, such as steel plates, angles, pipes, etc. Usually, they didn’t supply any form of raw materials themselves.

The appellant generated bills containing only the labour charges as per verbal/written agreement/contract between them and their customers.

They paid service tax after claiming abatement from the gross amount charged under Notification Nos. 19/2003- ST dated 21.08.2003, 15/2004-ST dated 10.09.2004 and Notification No. 1/2006-ST dated 01.03.2006.

However, the department alleged that the appellant has not included the value of material supplied by their clients in the gross value of the service for payment of service tax thus, they have violated the condition of notifications.

Accordingly, show cause notice was issued to the appellant wherein total service tax demand was raised on the gross value without allowing the exemption.

After taking careful note of the submissions made by both sides, the bench noted that the major accusation lodged against the appellant is for the denial of exemption notices that offer a reduction from the gross value is that the appellant failed to account for the worth of the materials supplied by the service recipient.

The CESTAT panel of Ramesh Nair and C L Mahar directed the adjudicating authority to re-quantity the service tax if any arises after allowing the abatement in respect of services of Erection, Commissioning or Installation.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates