The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), observed that the value of free supply items cannot be included in assessable value for the purpose of calculation of service tax.
On going through the accounts of the appellants, M/s Ahluwalia Contracts (I) Limited, the Department opined that the appellants have not included service tax in respect of the advance received from M/s Areans and M/s A.K.M (MBD) and that they have not included the value of free supply material while calculating the tax liability and thus have evaded service tax of Rs.4,38,20,680/- in violation of the provisions of Sections 67, 68 and 70 of the Finance Act, 1994 and Rules 6 & 7 of Service Tax Rules, 1994.
The show-cause notice was adjudicated by the Commissioner by which service tax of Rs.3,82,30,870/- was confirmed along with equal penalty under Section 78 of the Finance Act and penalty, of Rs.200 per day or 2% of service tax, under Section 76 and a penalty of Rs.5000/- under Section 77 of the Finance Act. Hence, this appeal.
The Counsel for the appellant submitted that the Supreme Court judgment in the case of L&T, indivisible composite contracts can be subjected to service tax levy only after 01.06.2007; the Department, however, continued to demand duty under “Commercial or Industrial Construction Service”; in view of the decision in the case of Bhayana Builders, the value of freely supplied items cannot be included in the assessable value of the service tax payable.
The Authorized Representative reiterated the findings of the order and submitted that the contention that extended period cannot be invoked as the Department has the knowledge of the affairs of the company.
A Two-Member Bench of the Tribunal comprising SS Garg, Judicial Member and P Anjani Kumar, Technical Member observed that “Merits apart, we find that the show-cause notice and thus, the impugned order are not sustainable on the question of limitation. It is not disputed that repeated show-cause notices have been issued to the appellants on the very same issue and on the basis of very same objections raised by the Audit. It is not permissible in view of the Hon’ble Supreme Court judgment in the case of Nizam Sugars Factory.”
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