Summary
Under the service-tax provisions and abatement notifications at issue, the Supreme Court held that goods supplied free by the service recipient did not form part of the construction service provider’s gross amount charged. They were neither an amount billed by the provider nor consideration for the taxable service. The notifications permitting valuation at 33% of the gross amount charged did not require adding those free supplies. All Revenue appeals were dismissed, with one appeal also abating following the sole proprietor’s death.
Issues
- Whether free supplies by the service recipient entered the gross amount charged under Section 67.
- Whether the 33% valuation benefit required inclusion of those supplies.
- Whether the inclusive payment definition supported the Revenue’s case.
Provisions considered
- Section 67, Finance Act, 1994For the issue considered, both versions required an amount charged for the taxable service; free supplies by the recipient were outside that value. (¶¶ 7, 8, 11, 12, 13, 14, 15, 16)
- 33% valuation and Explanation, Notification No.15/2004-ST as amended by Notification No.4/2005-STThe wording concerned the provider’s gross amount charged and did not add goods supplied free by the recipient. (¶¶ 9, 17, 18)
Held
- “Gross” referred to the full amount charged without expense deductions, rather than authority to exceed the contract value. The amount had to be charged by the provider and be consideration for the taxable service. Free recipient-supplied goods satisfied neither requirement on these facts. (¶¶ 11, 12, 13)
- Explanation (c) addressed modes of discharging consideration, including credit/debit notes and book adjustments. No such entries or adjustments were shown for the free supplies, and the inclusive wording did not itself convert their value into an amount charged. (¶¶ 14, 15, 16)
- The abatement notifications calculated tax on 33% of the gross amount actually charged. The Revenue’s asserted economic rationale did not overcome that language; the added Explanation referred to goods supplied, provided or used by the construction service provider, without bringing free recipient supplies into the base. (¶¶ 17, 18)
- An exemption notification could operate only on a taxable service within the statutory charge; it could not enlarge the taxable value by adding goods without legislative inclusion. The Court affirmed the CESTAT Larger Bench view. (¶¶ 19, 20, 21)
- The Gurmehar Construction appeal additionally abated because the assessee was a sole proprietorship whose proprietor had died, the fact being undisputed. (¶ 22)
Result
All Revenue appeals dismissed; CESTAT Larger Bench’s exclusion of free recipient supplies upheld. Civil Appeal No.3247 of 2015 also held to have abated.