REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 1335-1358 OF 2015

COMMISSIONER OF SERVICE TAX ETC. .....APPELLANT(S)

VERSUS

M/S. BHAYANA BUILDERS (P) LTD. ETC. .....RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 15865 OF 2017

CIVIL APPEAL NO. 2888 OF 2015

CIVIL APPEAL NO. 7238 OF 2015

CIVIL APPEAL NOS. 3248-3252 OF 2015

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CIVIL APPEAL NO. 45 OF 2015

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CIVIL APPEAL NO. 7370 OF 2014

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CIVIL APPEAL NO. 10027 OF 2014 CIVIL APPEAL NO. 4209 OF 2015

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CIVIL APPEAL NO. 1647 OF 2015

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CIVIL APPEAL NO. 4970 OF 2016

CIVIL APPEAL NO. 5941 OF 2016

CIVIL APPEAL NO. 8484 OF 2016

CIVIL APPEAL NO. 2338 OF 2018 (ARISING OUT OF DIARY NO. 42349 OF 2016)

CIVIL APPEAL NOS. 5319-5320 OF 2017

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CIVIL APPEAL NO. 15485 OF 2017

CIVIL APPEAL NO. 11085 OF 2017

CIVIL APPEAL NO. 10606 OF 2017

CIVIL APPEAL NO. 15570 OF 2017

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CIVIL APPEAL NO. 1430 OF 2015

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A N D

CIVIL APPEAL NO. 10611 OF 2017

J U D G M E N T

A.K. SIKRI, J.

Delay condoned in Diary No. 42349 of 2016.

2) The  respondents  herein  are  engaged  in  the  business  of

construction and, in the process, providing the services known as

‘Commercial or Industrial Construction Service’.  This service is

exigible to service tax as per the provisions of Section 65(105)

(zzq)  of  the  Finance  Act,  1994  (hereinafter  referred  to  as  the

‘Act’).  The assessees accept that they are covered thereby and,

therefore, are paying service tax as well.  The dispute, however,

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 3 of 26

is  with  regard  to  the  valuation  of  taxable  service  provided  by

them.  Under Section 67 of the Act deals with such a valuation.

3) It  is  a  matter  of  common  knowledge  that  for  undertaking

construction projects, the assessees not only render services, lot

of materials/goods are also used in the construction of building or

civil  structure  etc.   For  valuation  of  taxable  services,  the

material/goods element has to be excluded.  In order to make the

things easier for the assessees as well as the Assessing Officers

(AOs),  the Government issued the Notification No. 15/2004-ST

dated  September  10,  2004  as  per  which  service  tax  is  to  be

calculated on the value which is equivalent to 33% of the gross

amount charged from any person by such commercial concern for

providing the taxable service.  This notification was amended vide

another  Notification  No.  4/2005-ST  dated  March  01,  2005

whereby an explanation was added to  the original  notification.

This explanation mentions that the ‘gross amount charged’ shall

include the value of goods and material supplied and provided or

used by the provider of construction services for providing such

service.  It is made optional for the assessees to take advantage

of the aforesaid notification and get the value calculated as per

the  aforesaid  formula  provided  therein.   The  assessees  have

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 4 of 26

availed the benefit and paid the service tax @33% of the gross

amount  which  they  have  charged  from the  persons  for  whom

construction was carried out,  i.e.,  the service recipients.   It  so

happened that in all these cases where the construction projects

were undertaken by the assessees, some of the goods/materials

(particularly, steel and cement) were supplied or provided by the

service recipients.  As these materials were to be utilised in the

projects meant for  service recipients themselves,  obviously,  no

costs thereof was charged from the assessees.  The Department

wants that value of such goods/materials even when supplied or

provided  free  should  be  included,  while  calculating  the  “gross

value” and 33% thereof be treated as value for the purpose of

levying service tax.   

4) The question, therefore, which has fallen for consideration is as to

whether, the value of goods/material supplied or provided free of

cost  by  a  service recipient  and used for  providing the taxable

service of construction or industrial complex, is to be included in

computation of gross amount (charged by the service provider),

for valuation of the taxable service, under Section 67 of the Act

and for availing the benefits under Notification No. 15/2004-ST

dated  September  10,  2004  as  amended  by  Notification  No.

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 5 of 26

4/2005-ST dated March 01, 2005 (whereby an Explanation was

added to Notification No. 15/2004-ST).

5) We may mention  here  that  different  benches  of  the  Customs,

Excise and Service Tax Appellate Tribunal (for short ‘CESTAT’)

had  given  conflicting  views  on  the  aforesaid  question  and,

therefore, the matter was referred to the Larger Bench which has,

by impugned judgment dated September 6, 2013 rendered in a

batch  of  matters,  has  decided  the  issue  in  favour  of  the

assessees  by  holding  that  the  value  of  the  goods/materials

cannot be added for the purpose of aforesaid notification dated

September 10, 2004, as amended by notification dated March 01,

2005.   It  is  the  said  judgment  of  the  Larger  Bench  dated

September 6, 2013, correctness whereof is the subject matter of

present appeals.   

6) For answering the question, it would be necessary to refer to the

relevant provisions of the  Act and the Notifications, which are as

under:

As mentioned above, ‘commercial or industrial construction

service’ is a taxable service enumerated under Section 65(105)

(zzq) of the Act.  Section 65(25b) of the Act defines construction

or industrial construction service to mean:

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 6 of 26

(a) construction  of  a  new  building  or  a  civil structure or a part thereof; or

(b)  construction of pipeline or conduit; or

(c)completion  and  finishing  services  such  as glazing,  plastering,  painting,  floor  and wall  tiling, wall  covering and wall  papering, wood and meal joinery  and  carpentry,  fencing  and  railing, construction  of  swimming  pools,  acoustic applications or fittings and other similar services, in relation to building or civil structure; or

(d) repair,  alteration, renovation or restoration of, or  similar  services in relation to,  building or  civil structure, pipeline or conduit,

which is-

(i) used, or to be used, primarily for; or

(ii)  occupied, or to be occupied, primarily with; or

(iii)  engaged,  or  to  be  engaged,  primarily  in, commerce  or  industry,  or  work  intended  for commerce or industry, but does not include such services  provided  in  respect  of  roads,  airports, railways, transport terminals, bridges, tunnels and dams;”

7) Section 67 of  the Act  deals with valuation of  taxable services.

This Section was amended w.e.f.  April  18,  2006.  Unamended

provision reads as under:

“67.  Valuation of taxable services for charging service tax.-For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to be provided by him.

Explanation 1.-For the removal of doubts, it is hereby declared that  the value of  a taxable service,  as  the

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 7 of 26

case may be, includes,-

(a)   the  aggregate  of  commission  or  brokerage charged  by  a  broker  on  the  sale  or  purchase  of securities including the commission or brokerage paid by the stock-broker to any sub-broker;

(b)  the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of  application  for  telephone  connection  or  pager  or facsimile or telegraph or telex or for leased circuit;

(c)   the amount  of  premium charged by the insurer from the policy holder;

(d)  the commission received by the air travel agent from the airline;

(e)  the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

(f)   the  reimbursement  received  by  the  authorised service station from manufacturer for carrying out any service of  any motor  car,  light  motor  vehicle or  two wheeled  motor  vehicle  manufactured  by  such manufacturer; and

(g)  the commission or any amount received by the rail travel agent from the Railways or the customer,

but does not include-

(i)  initial deposit made by the subscriber at the time of application  for  telephone  connection  or  pager  or facsimile  (FAX)  or  telegraph  or  telex  or  for  leased circuit;

(ii)   the  cost  of  unexposed  photography  film, unrecorded  magnetic  tape  or  such  other  storage devices, if any, sold to the client during the course of providing the service;

(iii)  the cost  of  parts  or  accessories,  or  consumable such  as  lubricants  and coolants,  if  any,  sold  to  the customer  during  the  course  of  service  or  repair  of motor cars, light motor vehicle or two wheeled motor

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 8 of 26

vehicles;

(iv) the airfare collected by air travel agent in respect of service provided by him;

(v)  the rail fare collected by rail travel agent in respect of service provided by him;

(vi)  the cost of parts or other material, if any, sold to the  customer  during  the  course  of  providing maintenance or repair service;

(vii)  the cost of parts or other material, if any, sold to the customer during the course of providing erection, commissioning or installation service; and

(viii)  interest on loans.

Explanation 2.-Where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the  addition  of  tax  payable,  is  equal  to  the  gross amount charged.

Explanation 3.-For the removal of doubts, it is hereby declared  that  the  gross  amount  charged  for  the taxable  service  shall  include  any  amount  received towards  the  taxable  service  before,  during  or  after provision of such service.”

(i) in  a case where the provision of  service is  for  a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii) in  a case where the provision of  service is  for  a consideration not wholly or partly consisting of money, be  such  amount  in  money  as,  with  the  addition  of service tax charged, is equivalent to the consideration;

(iii) in a case where the provision of service is for a  consideration  which  is  not  ascertainable,  bet  he amount  as  may  be  determined  in  the  prescribed manner.

(2)   Where the gross amount  charged by a service provider, for the service provided or to be provided is

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 9 of 26

inclusive  of  service  tax  payable,  the  value  of  such taxable  service  shall  be  such  amount  as,  with  the addition of tax payable, is equal to the gross amount charged.

(3)  The gross amount charged for the taxable service shall include any amount received towards the taxable service  before,  during  or  after  provision  of  such service.   

(4)  Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.

Explanation.- For the purposes of this section.

(a) “consideration”  includes  any  amount  that  is payable  for  the  taxable  services  provided  or  to  be provided;

(b)“money” includes any currency, cheque, promissory note,  letter  of  credit,  draft,  pay  order,  travellers cheque,  money  order,  postal  remittance  and  other similar instruments but does not include currency that is held for its numismatic value;

(c) “gross  amount  charges”  includes  payment  by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and  [book  adjustment,  and  any  amount  credited  or debited, as the case may be, to any account, whether called ‘suspense account’ or by any other name, in the books of account of a person liable to pay service tax, where the transaction of  taxable service is  with any associated enterprise.]”

 8) After the amendment, Section 67 of the Act is as follows:

Section  67.  Valuation  of  taxable  services  for charging service tax

(1)  Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,-

(i)  in a case where the provision of service is for a

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 10 of 26

consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii)  in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is  equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration  which  is  not  ascertainable,  be  the amount  as  may  be  determined  in  the  prescribed manner.

(2)   Where the gross amount  charged by a service provider, for the service provided or to be provided is inclusive  of  service  tax  payable,  the  value  of  such taxable  service  shall  be  such  amount  as,  with  the addition of tax payable, is equal to the gross amount charged.

(3)  The gross amount charged for the taxable service shall include any amount received towards the taxable service  before,  during  or  after  provision  of  such service.

(4)  Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed

Explanation.-For the purposes of this section,-

[(a) “consideration” includes-

(i)  any amount that is payable for the taxable services provided or to be provided;

(ii)  any reimbursable expenditure or cost incurred by the  service  provider  and  charged,  in  the  course  of providing  or  agreeing  to  provide  a  taxable  service, except  in  such  circumstances,  and  subject  to  such conditions, as may be prescribed;

(iii)  any amount  retained by the lottery distributor  or selling agent from gross sale amount of lottery ticket in addition to the fee or  commission, if  any,  or,  as the case may be, the discount received, that is to say, the

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 11 of 26

difference in the face value of  lottery  ticket  and the price at which the distributor or selling agent gets such ticket.]

(c)   “gross  amount  charged”  includes  payment  by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and 2[book  adjustment,  and  any  amount  credited  or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax,  where the transaction of  taxable service is  with any associated enterprise.]”

  9) Exemption Notifications:

(a) Notification No. 12/2003-ST dated June 26, 2003, issued by

the Central Government, exercising powers under Section 93(1)

of the Act exempted the value of goods and materials sold by a

service provider  to  a  recipient  of  service from the tax  leviable

thereon, subject to documentary proof specifically indicating the

value of such goods and material.  This notification was specified

to come into force w.e.f. July 01, 2013.

(b) By Notification No. 15/2004-ST dated September 10, 2004,

a  further  exemption  was granted in  respect  of  taxable  service

provided by a commercial concern to any person in relation to

construction service.  This Notification reads:

“In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the  Central  Government,  being  satisfied  that  it  is necessary  in  the  public  interest  so  to  do,  hereby exempts the taxable service provided by a commercial concern  to  any  person,  in  relation  to  construction

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 12 of 26

service,  from  so  much  of  the  service  tax  leviable thereon  under  Section  66  of  the  said  Act,  as  is  in excess of the service tax calculated on a value which is  equivalent  to  thirty-three  per  cent  of  the  gross amount charged from any person by such commercial concern for providing the said taxable service”

Provided that this exemption shall not apply in such cases where-

(i)  the credit of duty paid on inputs or capital goods has  been taken under  the provisions of  the  Cenvat Credit Rules, 2004;

or

(ii) the  commercial  concern  has  availed  the  benefit under the notification of the Government of India, in the Ministry of Finance (Department of Revenue) No. 12/2003-Service  Tax,  dated  the  20th June,  2003 [G.S.R. 503(E), dated the 20th June, 2003].”

 (c) Notification No. 4/2005-ST was issued on March 01, 2005,

introducing an Explanation at the end of Notification No. 15/2004-

ST.  This Explanation reads:

“Explanation.  – For the purposes of  this notification, the “gross amount charged” shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.”

 10) We may also note at this stage that the Board has also issued the

Circular dated September 17, 2004 clarifying the scope of these

services.  In para 13.5 thereof, reasons for issuing the exemption

notifications were given.  This para reads as under:

“13.5   The  gross  value  charged  by  the  building contractors include the material cost, namely, the cost of cement, steel, fittings and fixtures, tiles etc.  Under the Cenvat  Credit  Rules,  2004,  the service provider

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 13 of 26

can take  credit  of  excise  duty  paid  on  such inputs. However, it has been pointed out that these materials are normally  procured from the market  and are not covered under the duty paying documents.  Further, a general  exemption is  available to goods sold during the  course  of  providing  service  (Notification  No. 12/2003-S.T.)  but  the  exemption  is  subject  to  the condition of availability of documentary proof specially indicating the value of the goods sold.  In case of a composite contract, bifurcation of value of goods sold is  often  difficult.   Considering  these  facts,  an abatement  of  67%  has  been  provided  in  case  of composite contracts where the gross amount charged includes the value of material cost.  (Refer Notification No.  15/2004-S.T.  dated  10-9-2004).   This  would, however, be optional subject to the condition that no credit  of  input  goods,  capital  goods  and  no  benefit (under  Notification  No.  12/2003-S.T.)  of  exemption towards cost of goods are availed.”

 11) As already pointed out in the beginning, all these assessees are

covered  by  Section  65(25b)  of  the  Act  as  they  are  rendering

‘construction or industrial construction service’, which is a taxable

service as per the provisions of Section 65(105)(zzq) of the Act.

The entire dispute relates to the valuation that has to be arrived at

in respect of taxable services rendered by the assessees.  More

precisely, the issue is as to whether the value of goods/materials

supplied or provided free of cost by a service recipient and used

for  providing  the  taxable  service  of  construction  or  industrial

complex,  is  to  be  included  in  computation  of  gross  amount

charged by the service provider, for valuation of taxable service.

For valuation of taxable service, provision is made in Section 67

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 14 of 26

of the Act which enumerates that it would be ‘the gross amount

charged by the service provider for such service provided or to be

provided by him’.  Whether the value of materials/goods supplied

free  of  cost  by  the  service  recipient  to  the  service

provider/assessee  is  to  be  included  to  arrive  at  the  ‘gross

amount’,  or  not  is  the  poser.   On  this  aspect,  there  is  no

difference in amended Section 67 from unamended Section 67 of

the Act and the parties were at ad idem to this extent.

12) On a reading of the above definition, it is clear that both prior and

after amendment, the value on which service tax is payable has

to satisfy the following ingredients:

a. Service tax is  payable on the gross amount  charged:-

the  words  “gross  amount”  only  refers  to  the  entire

contract  value  between  the  service  provider  and  the

service  recipient.   The  word  “gross”  is  only  meant  to

indicate  that  it  is  the  total  amount  charged  without

deduction of any expenses.  Merely by use of the word

“gross” the Department does not get any jurisdiction to

go beyond the contract  value to arrive at  the value of

taxable  services.   Further,  by  the  use  of  the  word

“charged”, it is clear that the same refers to the amount

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 15 of 26

billed  by  the  service  provider  to  the  service  receiver.

Therefore, in terms of Section 67, unless an amount is

charged by the service provider to the service recipient, it

does not enter into the equation for determining the value

on which service tax is payable.

b. The  amount  charged  should  be  for  “for  such  service

provided”:  Section  67  clearly  indicates  that  the  gross

amount charged by the service provider has to be for the

service  provided.   Therefore,  it  is  not  any  amount

charged which can become the basis of value on which

service tax  becomes payable  but  the amount  charged

has  to  be  necessarily  a  consideration  for  the  service

provided which is taxable under the Act.  By using the

words “for such service provided” the Act has provided

for a nexus between the amount charged and the service

provided.  Therefore, any amount charged which has no

nexus with the taxable service and is not a consideration

for  the  service  provided  does  not  become part  of  the

value which is taxable under Section 67.  The cost of free

supply  goods  provided  by  the  service  recipient  to  the

service provider is neither an amount “charged” by the

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 16 of 26

service  provider  nor  can  it  be  regarded  as  a

consideration  for  the  service  provided  by  the  service

provider.  In fact, it  has no nexus whatsoever with the

taxable  services  for  which  value  is  sought  to  be

determined”  

13) A plain meaning of the expression ‘the gross amount charged by

the service provider for such service provided or to be provided

by him’ would lead to the obvious conclusion that 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’

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

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 17 of 26

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.   

14) We may note at this stage that Explanation (c) to sub-section (4)

was  relied  upon  by  the  learned  counsel  for  the  Revenue  to

buttress the stand taken by the Revenue and we again reproduce

the  said  Explanation  hereinbelow  in  order  to  understand  the

contention:

(c)  “gross  amount  charges”  includes  payment  by cheque, credit card, deduction from account and  any form of payment by issue of credit notes or debit notes and  [book  adjustment,  and  any  amount  credited  or debited, as the case may be, to any account, whether called ‘suspense account’ or by any other name, in the books of account of a person liable to pay service tax, where the transaction of  taxable service is  with any associated enterprise.]”                 [emphasis supplied]

15) It  was  argued  that  payment  received  in  ‘any  form’  and  ‘any

amount  credited  or  debited,  as  the  case  may  be...’  is  to  be

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 18 of 26

included for the purposes of arriving at gross amount charges and

is leviable to pay service tax.  On that basis, it  was sought to

argue that the value of goods/materials supplied free is a form of

payment and, therefore, should be added.  We fail to understand

the  logic  behind  the  aforesaid  argument.   A plain  reading  of

Explanation (c) which makes the ‘gross amount charges’ inclusive

of certain other payments would make it clear that the purpose is

to include other modes of payments, in whatever form received;

be it through cheque, credit card, deduction from account etc.  It

is in that hue, the provisions mentions that any form of payment

by issue of credit  notes or debit notes and book adjustment is

also  to  be  included.   Therefore,  the  words  ‘in  any  form  of

payment’ are by means of issue of credit notes or debit notes and

book adjustment.   With the supply of free goods/materials by the

service recipient,  no case is made out that any credit  notes or

debit  notes were issued or  any book adjustments were made.

Likewise, the words, ‘any amount credited or debited, as the case

may be’, to any account whether called ‘suspense account or by

any other name, in the books of accounts of a person liable to

pay service tax’ would not include the value of the goods supplied

free as no amount was credited or debited in any account.  In

fact, this last portion is related to the debit or credit of the account

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 19 of 26

of  an  associate  enterprise  and,  therefore,  takes  care  of  those

amounts which are received by the associated enterprise for the

services rendered by the service provider.   

16) In  fact,  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 the

value of services provided by the service recipient.  Thus, on first

principle itself, a value which is not part of the contract between

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 20 of 26

the service provider and the service recipient has no relevance in

the determination of the value of taxable services provided by the

service provider.   

17) Faced with the aforesaid situation, the argument of the learned

counsel for the Revenue was that in case the assessees did not

want to include the value of goods/materials supplied free of cost

by the service recipient, they were not entitled to the benefit of

notification dated September 10, 2004 read with notification dated

March 01, 2005.  It was argued that since building construction

contract is a composite contract of providing services as well as

supply  of  goods,  the  said  notifications  were  issued  for  the

convenience of the assessees.  According to the Revenue, the

purpose was to bifurcate the component of goods and services

into  67%:33% and to  provide  a  ready  formula  for  payment  of

service tax on 33% of the gross amount.  It was submitted that

this  percentage  of  33%  attributing  to  service  element  was

prescribed keeping in view that in the entire construction project,

roughly 67% comprises the cost of material and 33% is the value

of services.  However, this figure of 67% was arrived at keeping in

mind  the  totality  of  goods  and  materials  that  are  used  in  a

construction  project.   Therefore,  it  was  incumbent  upon  the

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 21 of 26

assessees to include the value of goods/material supplied free of

cost  by the service recipient  as well  otherwise it  would create

imbalance  and  disturb  the  analogy  that  is  kept  in  mind  while

issuing the said notifications and in such a situation, the AO can

deny the benefit of aforesaid notifications.  This argument may

look to be attractive in the first blush but on the reading of the

notifications as a whole, to our mind, it is not a valid argument.   

18) In the first instance, no material is produced before us to justify

that aforesaid basis of the formula was adopted while issuing the

notification.   In  the absence of  any such material,  it  would be

anybody’s  guess  as  to  what  went  in  the  mind  of  the  Central

Government  in  issuing  these  notifications  and  prescribing  the

service tax to be calculated on a value which is equivalent to 33%

of the gross amount.  Secondly, the language itself demolishes

the argument of the learned counsel for the Revenue as it says

‘33% of the gross amount ‘charged’ from any person by such

commercial  concern  for  providing  the  said  taxable  service’.

According to these notifications, service tax is to be calculated on

a value which is 33% of the gross amount that is charged from

the service recipient.   Obviously,  no amount is charged (and it

could  not  be)  by  the  service  provider  in  respect  of  goods  or

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 22 of 26

materials  which  are  supplied  by  the  service  recipient.   It  also

makes  it  clear  that  valuation  of  gross  amount  has  a  causal

connection  with  the  amount  that  is  charged  by  the  service

provider  as  that  becomes  the  element  of  ‘taxable  service’.

Thirdly, even when the explanation was added vide notification

dated March 01, 2005, it  only explained that the gross amount

charged shall include the value of goods and materials supplied

or provided or used by the provider of construction service.  Thus,

though it took care of the value of goods and materials supplied

by  the  service  provider/assessee  by  including  value  of  such

goods and materials for the purpose of arriving at gross amount

charged,  it  did not  deal  with any eventuality  whereby value of

goods and material supplied or provided by the service recipient

were  also  to  be  included  in  arriving  at  gross  amount  ‘gross

amount charged’.   

19) Matter can be looked into from another angle as well.  In the case

of Commissioner, Central Excise and Customs, Kerala v. M/s.

Larsen  &  Toubro  Ltd.1 This  Court  was  concerned  with

exemption notifications which were issued in respect of ‘taxable

services’ covered by sub-clause (zzq) of clause (105) read with

clause  (25b)  and  sub-clause  (zzzh)  of  clause  (105)  read  with

1  (2016) 1 SCC 170

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 23 of 26

clause (30a) and (91a) of  Section 65 of  Chapter V of  the Act.

This Court in the aforesaid judgment in respect of five ‘taxable

services’ [viz. Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh)]

has held as under:

“23.  A close look at the Finance Act, 1994 would show that  the  fixed  taxable  services  referred  to  in  the charging Section  65(105)  would  refer  only  to  service contracts  simpliciter  and  not  to  composite  works contracts.   This  is  clear  from  the  very  language  of Section 65(105) which defines ‘taxable service’ as ‘any service provided’.    

Further, while referring to exemption notifications, it observed:

“42. …Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise.”  

It is clear from the above that the service tax is to be levied

in respect of ‘taxable services’ and for the purpose of arriving at

33%  of  the  gross  amount  charged,  unless  value  of  some

goods/materials  is  specifically  included by the Legislature,  that

cannot be added.

  20) It  is to be borne in mind that the notifications in questions are

exemption notifications which have been issued under Section 93

of  the  Act.   As  per  Section  93,  the  Central  Government  is

empowered to grant exemption from the levy of service tax either

wholly  or  partially,  which  is  leviable  on  any  ‘taxable  service’

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 24 of 26

defined  in  any  of  sub-clauses  of  clause  (105)  of  Section  65.

Thus, exemption under Section 93 can only be granted in respect

of  those  activities  which  the  Parliament  is  competent  to  levy

service tax and covered by sub-clause (zzq) of clause (105) and

sub-clause (zzzh) of clause (105) of Section 65 of Chapter V of

the Act under which such notifications were issued.

21) For the aforesaid reasons, we find ourselves in agreement with

the view taken by the Full  Bench of CESTAT in the impugned

judgment dated September 6, 2013 and dismiss these appeals of

the Revenue.   

22) Insofar as Civil Appeal No. 3247 of 2015 is concerned, where the

assessee is Gurmehar Construction, it may additionally be noted

(as pointed out by the learned counsel for the respondent) that

the assessee was a sole proprietorship concern of Mr. Narender

Singh Atwal, who died on February 24, 2014.  This is so stated in

the counter affidavit filed by the respondent on May 16, 2017 and

this  position  has  not  been disputed  by  the  Department.   This

appeal, in any case, has abated as well in view of the judgment of

this Court in  Shabina Abraham & Ors.  v.  Collector of Central

Excise & Customs2

2  (2015) 10 SCC 770

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 25 of 26

23) As a result, all appeals stand dismissed.

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; FEBRUARY 19, 2018.

Civil Appeal Nos. 1335-1358 of 2015 with Ors. Page 26 of 26