Chlorine Supplied Free by Service Recipients not Part of Gross Amount Charged for Service Tax Calculation: CESTAT [Read Order]
CESTAT held that chlorine supplied free of cost by service recipients cannot be added to the gross amount charged for service tax purposes.
Chlorine Supplied - Gross Amount - Service Tax - CESTAT - taxscan
Chlorine Supplied - Gross Amount - Service Tax - CESTAT - taxscan
The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that chlorine supplied free of cost by service recipients cannot be included in the gross amount charged under Section 67 of the Finance Act, 1994, for calculating service tax liability.
Sicagen India Ltd., the appellant, was engaged in providing water treatment services to clients such as ONGC and NTPC. In the course of rendering these services, chlorine was supplied free of cost by the service recipients.
The department issued show cause notices demanding service tax on the value of chlorine supplied free, and the adjudicating authority confirmed the demands. On appeal, the Commissioner (Appeals) upheld these orders. Aggrieved by the decision, the appellant approached the CESTAT.
The appellant’s counsel argued that the issue was already settled by the Supreme Court in Union of India v. Bhayana Builders Pvt. Ltd. (2018), where it was held that goods supplied free of cost by service recipients cannot be added to the taxable value of services.
The counsel explained that service tax is chargeable only on the gross amount actually billed or charged by the service provider. Since the appellant had not charged its clients for chlorine, the value of chlorine cannot be included in the gross amount charged.
The revenue counsel supported the order of the Commissioner (Appeals) and argued that the value of free supplies should form part of the taxable value.
The two-member bench comprising Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that chlorine was supplied free of cost by the clients and not charged by the appellant. It pointed out that the Supreme Court had already ruled in Bhayana Builders that unless an amount is billed or charged by the service provider, it cannot be included in the gross amount charged.
The tribunal explained that since the appellant had not billed its clients for chlorine, its value cannot be brought into the taxable value of services. The tribunal set aside the orders of the lower authorities and allowed the appeals with consequential relief.
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