The Allahabad bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the value of material supplied for providing taxable services cannot be included in the value of taxable services. The tribunal set aside the demand of service tax along with the penalties.
M/S Vividh Landscape Consultants (P) Ltd., the appellant provides taxable services under the category of Security Agency, Interior Decorators, Cleaning Service and Outdoor Catering services. On re-conciliation of the figures of gross receipts against the services rendered appearing in balance sheet for the period 2008-09 to 2011-12 with the gross receipts of services shown in ST-3 returns for the concern period audit observed discrepancy.
Appellants were providing Landscaping Services classifiable under the category of Interior Decorator Services under erstwhile Section 65 (59) of the Finance Act, 1994 upto 30 June, 2012. This service qualifies as taxable service. The appellant suppressed the figures of gross receipts of landscape development services and cleaning services during the concerned period by entering into two kind of agreements with their customers, one for developing landscape; and other for the maintenance of the same.
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The Landscape development contract was consolidated contract inclusive of material cost, which were mainly gross, plants, manure, pesticides etc. They excluded value of grass, plant and other material for arriving at the taxable value for payment of service tax. These materials are integral part of landscaping activities and are considered as inputs. The contracts for rendering landscape services do not mention sale and purchase of materials. On this account appellant have short paid service tax to the tune of Rs.27,65,633/-.
They received certain amount under the category of Miscellaneous Income in the balance sheet towards consultancy given in the account of Interior Decoration services. These were also taxable services and appellant had excluded the value of these consultancy services from the gross value indicated in the ST-3 records. Thus, evaded payment of service tax to the tune of Rs.5,91,994/-.
Appellant short-paid service tax amounting to Rs.24,351/- in respect of cleaning services during this period. A Show cause notice dated 24.10.2013 was issued to the appellant,penalty under Section 78 of the Finance Act. 1994 should not be imposed upon them for contravention of the provisions under proviso to Section 73 of the Finance Act, 1944.” The first demand which has been made in respect of the value of material such as grass, plants, manure, pesticides etc. supplied for landscaping activities under the category of Interior Decorator Services has to be included the said value.
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There is no dispute to the proposition that the Notification does not override the statutory provision and hence, it is required to be seen as to whether the conclusion drawn by the Tribunal that term “sold’ appearing in Notification has to be interpreted using the definition of “sale‟ in the Central Excise Act, 1944 and not as per the meaning of “deemed sale” under Article 366(29A)(b) of the Constitution, is correct or not.
It was contended that appellants once paid the VAT under the State Act as works contractor on the material and chemicals consumed in photography service, cannot be charged service tax on the same value. To bolster his submission, he placed reliance upon the judgment in Safety Retreading Company Private Ltd. (supra).
The assessee was engaged in business of tyres on job work basis and had been paying 30% service tax only on the labour component shown in invoices after deducting 70% towards material cost on the gross re-treading charges billed in terms of Notification No. 12/2003-S.T., dated 20-62003. A show cause notice dated 24-1-2008 was issued to the assessee alleging suppression of value of taxable services with intention to evade payment of service tax and proposing recovery of service tax together with interest and penal action under the provisions of Sections 76, 77 and 78 of the Finance Act, 1994.
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The said deduction of 70% was denied by the Commissioner and demand of service tax was confirmed on the assessee along with interest and penalty. The appeal preferred by the assessee was considered and decided by a three-member Special Bench of the Tribunal reported as Safety Retreading Company (P) Ltd. v. Commissioner of Central Excise, Salem, (2012) wherein coupled with the Notification No. 12/2003-S.T., dated 20-62003 a similar issue was considered by the Larger Bench of the Tribunal: “whether in a contract for retreading of tyres, service tax is leviable on the total amount charged for retreading including the value of the materials/goods that have been used and sold in the execution of the contract or exemption to material component therein can be granted”.
A two member bench of P.K. Choudhary, Member (Judicial) and Sanjiv Srivastava, Member (Technical) held that value of photography service has to be determined in isolation of cost of goods such as photography paper, consumables and chemicals with which image is printed, negatives and other material which has “goods” component liable to sales tax.
It was decided that value of the material supplied while providing the taxable services cannot be included in the value of taxable services, even if the material is consumed for providing the taxable service. Hence we do not find any merits in the demand made on this account. The tribunal set aside the demand of service tax along with the penalties.
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