COMMISSIONER OF SERVICE TAX ETC. versus M/S. BHAYANA BUILDERS (P) LTD. ETC.

Citation: [2018] 1 S.C.R. 1128 · Decided: 19-02-2018 · Supreme Court of India · Bench: A.K. SIKRI · Disposal: Dismissed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2018] 1 S.C.R.
COMMISSIONER OF SERVICE TAX ETC.
v.
M/S. BHAYANA BUILDERS (P) LTD. ETC.
(Civil Appeal Nos. 1335-1358 of 2015)
FEBRUARY 19, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Finance Act, 1994 –
s. 65(105)(zzq) and 67 – Service tax – On construction
services – Valuation of taxable service – By Notification dated
10.9.2004, service tax was to be calculated on the value equivalent
to 33% of the ‘gross amount charged’ from any person by such
commercial concern for providing taxable service – This Notification
was further amended by Notification dated 1.3.2005 whereby it was
explained that ‘gross amount charged’ shall include the value of
goods and materials supplied and provided or used by the provider
of construction service for providing such service – In the
construction projects undertaken by the assessees, some of the
materials were provided by the service recipients – Assessee paid
the service tax @33% of the gross amount charged from the service
recipients – Revenue demanded that value of such materials, even
when supplied or provided free, should be included while calculating
the ‘gross value’ and 33% thereof should be treated as value for
the purpose of levying service tax – Held: In respect of goods/
materials supplied by the service recipient, no service is provided
by the assessee/service provider – Therefore, the value of goods/
material that is provided by the service recipient free of charge is
not to be included while arriving at the ‘gross amount’ as no price
has been charged by the service provider from service recipient –
Goods/materials supplied free, cannot also be called ‘form of
payment’ as explained in Explanation (c) to s.67.
Dismissing the appeals, the Court
HELD: 1.1 A plain meaning of the expression ‘the gross
amount charged by the service provider for such service provided
or to be provided by him’ as occurring in s.67(2) of Finance Act,
1994 would lead to the obvious conclusion that the value of goods/
                                      [2018] S.C.R. 1128
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material that is provided by the service recipient free of charge
is not to be included while arriving at the ‘gross amount’ simply,
because of the reason that no price is charged by the assessee/
service provider from the service recipient in respect of such
goods/materials. This further gets strengthened from the words
‘for such service provided or to be provided’ by the service
provider/assessee. Again, obviously, in respect of the goods/
materials supplied by the service recipient, no service is provided
by the assessee/service provider.  Explanation 3 to sub-section
(1) of Section 67 removes any doubt by clarifying that the gross
amount charged for the taxable service shall include the amount
received towards the taxable service before, during or after
provision of such service, implying thereby that where no amount
is charged that has not to be included in respect of such materials/
goods which are supplied by the service recipient, naturally, no
amount is received by the service provider/assessee.  Though,
sub-section (4) of Section 67 states that the value shall be
determined in such manner as may be prescribed, however, it is
subject to the provisions of sub-sections (1), (2) and (3).
Moreover, no such manner is prescribed which includes the value
of free goods/material supplied by the service recipient for
determination of the gross value. [Para 13] [1141-F-H; 1142-A-
B]
1.2 The definition of “gross amount charged” given in
Explanation (c) to Section 67 only provides for the modes of the
payment or book adjustments by which the consideration can be
discharged by the service recipient to the service provider.  It
does not expand the meaning of the term “gross amount charged”
to enable the Department to ignore the contract value or the
amount actually charged by the service provider to the service
recipient for the service rendered.  The fact that it is an inclusive
definition and may not be exhaustive also does not lead to the
conclusion that the contract value can be ignored and the value
of free supply goods can be added over and above the contract
value to arrive at the value of taxable services.  The value of
taxable services cannot be dependent on the value of goods
supplied free of cost by the service recipient.  The service
recipient can use any quality of goods and the value of such goods
can vary significantly.  Such a value, has no bearing on

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