1
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
West Block No.2, R. K. Puram, New Delhi
COURT-I
Date of hearing: 11 – 14.06.2013
Date of decision: 06/09/2013
Sl. Service Tax
No Appeal No.
Appellant
Respondent
1
247/2008
M/s Bhayana CST, Delhi
Builders
(P)
Ltd.
2.
52/2008
M/s
Krishna CST, Delhi
Construction
Co. Pvt. Ltd.
3
53/2008
4
65/2008
M/s
Unibild CST, Delhi
Engg.
&
Construction
Co. Pvt. Ltd.
CST, Delhi
M/s Unibild
97/2008
Engg. &
Construction
Co. Pvt. Ltd.
M/s M.L. Gupta CCE, Jaipur-I
5
& Co.
6
119/2008
M/s Millennium CST, Delhi
Constructions
Pvt. Ltd.
7
158/2008
8
236/2008
M/s
Wig CST, Delhi
Brothers
Construction
Pvt. Ltd.
M/s B.L. Gupta CST, Delhi
Construction
Pvt. Ltd.
9
503/ 2008
R.K. Agrawal
CCE, Jaipur-I
Arising out of Order in
original / Order in appeal
No. & date passed by
O-I-O
No.09/VKG/CST/
2008 dt. 17.01.2008 passed
by the Commissioner of
Service Tax, New Delhi.
O-I-O
No.43/VKG/CST/
2007 dt. 25.10.2007 passed
by the Commissioner of
Service Tax, New Delhi.
O-I-O. No.47/VKG/ CST/
2007 dt.30.10.2007 passed
by the Commissioner of
Service Tax, New Delhi.
O-I-O. No.47/VKG/ CST/
2007 dt.02.11.2007 passed
by the Commissioner of
Service Tax, New Delhi.
O-I-O
No.202(RKS)ST/
JPR-I/2007 dt. 22.11.2007
passed
by
the
Commissioner (Appeals-I)
Customs & Central Excise,
Jaipur.
O-I-O
No.51/VKG/CST/
2007 dt. 28.11.2007 passed
by the Commissioner of
Service Tax, New Delhi.
O-I-O
No.62/VKG/CST/
2007 dt. 17.12.2007 passed
by the Commissioner of
Service Tax, New Delhi.
O-I-O
No.01/VKG/CST/
2008 dt. 08.01.2008 passed
by the Commissioner of
Service Tax, New Delhi.
O-I-A
No.50(RKS)
/ST
/JPR-I/ 2008 dt. 17.04.2008
passed
by
the
Commissioner (Appeals-I)
Customs & Central Excise,
Jaipur.
2
10 601/2008
M/s Gurmehar CCE, Raipur
Construction
11 621/2008
M/s BSBK Pvt. CCE, Raipur
Ltd.
12 629/2008
M/s
Vascon CCE,
Engineers Pvt. Chandigarh
Ltd.
M/s Ahluwalia CST, Delhi
Contracts
(I)
Ltd.
13 746/2008
14 334/2009
M/s
Vadehra CST, Delhi
Builders
Pvt.
Ltd.
15 422/2009
M/s
Kalpik CST, Delhi
Interiors
16 436/2009
M/s
AGV CST, Delhi
Alfab Ltd.
17 469/2009
M/s
Tirath CCE, Delhi
Ram
Ahuja
Pvt. Ltd.
18 482/2009
M/s
Artech CST, Delhi
Interiors
19 490/2009
Nitin
Ahuja, CST, Delhi
Director
of
M/s
Ahuja
Furnishers
Pvt. Ltd.
M/s
CE&ST,
Venkatesh
Bhopal
Mercantiles
Pvt. Ltd.,
20 510/2009
21 935-
936 M/s
ANS CST, Delhi
/2010
with Construction
ST/stay No. Ltd.
1846- 1847/
2010
O-I-O No. Commissioner
/RPR/50/2008
dt.
11.06.2008 passed by the
Commissioner of CCE &
Service Tax, Raipur.
O-I-O No. Commissioner
/58/2008 dt. 25.07.2008
passed
by
the
Commissioner of CCE &
Service Tax, Raipur.
O-I-O No.64/VKG/2008 dt.
31.07.2008 passed by the
Commissioner of Service
Tax, New Delhi.
O-I-O No.05/VKG/2009 dt.
09.02.2009 passed by the
Commissioner of Service
Tax, New Delhi.
O-I-O No.13/VKG/2009 dt.
04.03.2009 passed by the
Commissioner of Service
Tax, New Delhi.
O-I-O No.14/VKG/2009 dt.
05.03.2009 passed by the
Commissioner of Service
Tax, New Delhi.
O-I-O
No.CCE/ADJ/PKJ/
07/09
dt.
23.03.2009
passed
by
the
Commissioner of Central
Excise (Adjn), New Delhi.
O-I-O No.20/VKG/2009 dt.
18.03.2009 passed by the
Commissioner of Service
Tax, New Delhi.
O-I-O No.30/VKG/2009 dt.
01.04.2009 passed by the
Commissioner of Service
Tax, New Delhi.
O-I-A No.166/BPL/2009 dt.
25.03.2009 passed by the
Commissioner
(Appeals)
Central Excise & Service
Tax, New Bhopal.
O-I-O No.46-47 /RDN/ 2009
dt. 23.10.2009 passed by
the
Commissioner
of
Service Tax, New Delhi.
3
22 1075/2010
M/s
Skyline CST, Delhi
Contractors
Pvt. Ltd.
23 55615/2013
M/s
Capital CCE, Delhi-II
Builders
Appearance:
O-I-O No.12-ST /PKJ/ CCE/
ADJ/10
dt.
29.04.2010
passed
by
the
Commissioner
(Adj.)
Service Tax, New Delhi.
O-I-A No.205/ST/DII/ 2012
dt. 25.10.2012 passed by
the
Commissioner,
Customs & Central Excise,
New Delhi.
Shri V. Laxmikumaran, Ms. Swati Gupta, P.K. Sahu, Prashant
Shukla, J.K. Mittal, Jeetu Gupta, Advocates, Nitesh Garg, CA
Prakash Shah, Dr. G.K. Sarkar, Prashant Srivastava,
Advocates, A.K. Batra, C.A. S.K. Gupta, S.K. Sarwal, Mukul
Chandra, Ayush Mehrotra, Advocates, A.K. Mishra, Consultant
Mayank Garg, Harpreet Singh & Sanjay Grover, Advocates for
the assessees.
Shri S. K. Sinha, CDR with Sh. Govind Dixit & Sh. Amresh
Jain, DRs for the Revenue
Coram:
Hon’ble Mr. Justice G. Raghuram, President
Hon’ble Mr. Sahab Singh, Technical Member
Hon’ble Mr. Manmohan Singh, Technical Member
I. O. No.
Per Justice G. Raghuram:
By the order dated 05.04.2013 in ST/629/2008, a Division Bench of this
Tribunal, noticing a conflict between decisions of two Division Benches; (a) in
Cemex Engineers vs. CST, Cochin (Tri. Bang.)1 and (b) in Jaihind Projects
Ltd. vs. CST, Ahmedabad (Tri. Ahmd.)
2
referred, for the consideration of a
Larger Bench the issue:
(i) Whether the value of goods/ material supplied or provided free by a service
recipient and used for providing the taxable service of construction of
commercial or industrial complex, must be included in computation of
1
2
2010 (17) STR 0534
2010 (18) STR- 650
4
the gross amount (charged by the service provider), for valuation of the
taxable service, under Section 67 of the Finance Act, 1994 (the Act).
We notice at the hearing of these appeals however, that the issue
specifically is: whether the value of the material supplied by the recipient
of the taxable service free of cost (hereinafter, for convenience referred
to as “free supplies”) should also be included, for availing the benefits
under Notification No. 15/2004-ST, dated 10.09.2004 as amended by
Notification No. 4/2005-ST dated 01.03.2005.
The later Notification
added an “Ëxplanation” to Notification No. 15/2004-ST.
2.
For the purposes of the issues referred to the Larger Bench, the several
assessees/ appellants; had provided commercial or industrial construction
service, a taxable service enumerated in Section 65(105)(zzq). Commercial or
Industrial Construction service means any service provided or to be provided to
any person, by any other person, in relation to commercial or industrial
construction service.
3.
Relevant Provisions
(a)
Section 65(25b) defines construction or industrial construction service to
mean:
“(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
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(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;”
(b).
Valuation of taxable services:
Since the amendment w.e.f. 18.04.2006, Section 67 reads:
“SECTION 67. Valuation of taxable services for charging service tax. — (1)
Subject to the provisions of this Chapter, where service tax is chargeable on any
taxable service with reference to its value, then such value shall, —
(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, 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 any amount that is payable for the taxable
services provided or to be provided;
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[(b)
*
*
*]
(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 [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].]”
(c).
Prior to substitution w.e.f. 18.04.2006 by the Finance Act, 2006, Section 67
read as follows:
“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 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 circuits;
(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 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.
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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, 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 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 charged” 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.].]”
4.
Exemption Notifications:
A.
Notification No. 12/2003-ST dated 26.06.2003, 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. 01.07.2013.
8
B.
By Notification No. 15/2004-ST dated 10.09.2004, 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
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 01.03.2005, 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.”.
At this stage it may be noticed that the expression “gross amount charged”
occurs in the preamble to Notification No. 15/2004-ST and the percentage of
abatement specified in the Notification is clearly in relation to the taxable value
computable under Section 67.
D.
Notification No. 19/2005-ST dated 07.06.2005 introduced amendments,
inter alia to Notification No. 15/2004-ST.
According to this amendment, in
Notification No. 15/2004-ST:
(i)
for the words “construction service”, occurring at two places, the words
“commercial or industrial construction service” shall be substituted;
9
in the proviso, for clause (ii), the following shall be substituted, namely :-
(ii)
(iii)
E.
“(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]; or
the taxable services provided are only completion and finishing services in
relation to building or civil structure, referred to in sub-clause (c) of clause
(25b) of section 65 of the Finance Act, 1994.”.
Further amendments were made by Notification No. 1/2006-ST dated
01.03.2006, including in respect of commercial or industrial construction service.
Accordingly, in respect of commercial or industrial construction service,
abatement of 67% of the tax was reiterated subject to the conditions specified in
column (4) of the table to this Notification. The stipulated conditions provided that
the exemption (abatement) would not apply where the taxable services provided
are only completion and finishing services in relation to building or civil structure,
referred to in Section 65(25b)(c) of the Act. The explanation to this condition
stated that 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. The Notification also incorporated a proviso
(applicable to all taxable services covered by the Notification) which specified that
the exemption notification would not apply where:
(a) cenvat credit of duty on inputs and capital goods or cenvat credit of service tax on
input services, used for providing such taxable service, has been taken under the
provisions of the Cenvat Credit Rules, 2004; or
(b) the service provider had availed benefits of Notification No. 12/2003-ST dated
20.06.2003.
F.
By Notification No. 18/2005-ST dated 07.06.2005, exemption of 67% of the
service tax leviable in respect of construction of complex service was granted
10
subject to the conditions specified. Under the proviso to this Notification apart
from excluding benefits of exemption where cenvat credit is availed or where the
service provider has availed benefits under Notification No. 12/2003-ST, benefit
of the exemption was also excluded where the taxable services provided is only
completion and finishing services in relation to residential complex, specified in
Section 65(30a) (b) of the Act. An explanation to the Notification clarified that the
gross amount charged shall include the value of goods and material supplied or
provided or used for providing the taxable service by the service provider.
6.
Board Circulars:
(i)
Consequent on introduction of new taxable services by the Finance
Act 2004, including construction services, the Board issued a circular dated
17.09.2004 clarifying the scope of these services. Paragraph 13 of this circular
deals with construction services. Paragraph 13.1 clarifies:
“13.1
Services provided by a commercial concern in relation to
`construction, repairs, alteration or restoration of such buildings, civil
structures or parts thereof which are used, occupied or engaged for the
purposes of commerce and industry are covered under this new levy. In this
case the service is essentially provided to a person who gets such
constructions etc. done, by a building or civil contractor. Estate builders who
construct buildings/civil structures for themselves (for their own use, renting it
out or for selling it subsequently) are not taxable service providers. However,
if such real estate owners hire contractor/contractors, the payment made to
such contractor would be subjected to service tax under this head. The tax is
limited only in case the service is provided by a commercial concern. Thus
service provided by a labourer engaged directly by the property owner or a
contractor who does not have a business establishment would not be subject
to service tax”.
Paragraph 13.5 of this circular explains the reasons for issue of exemption
Notification No. 15/2004-ST dated 10.09.2004.
“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 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
11
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 10-92004). 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”.
(ii)
Our attention is also invited to a Board circular dated 16-02-2006. This
circular purports to clarify the scope of construction of complexes - a taxable
service specified in Section 65(30a) read with Section 65 (105) (zzzh) of the Act.
To the extent relevant and material for the purposes of this reference, para 8 of
this circular clarifies that in the construction business, different practices and
financial arrangements concerning promoters, developers and builders, land
owners, contractors and buyers exist; these practices influence the “taxable
value” under the construction of complex services; and therefore in all such
situations, the taxable value under section 67 shall be the gross amount charged
by the service provider (builder in this case) for such services provided or to be
provided by him. The circular further states that this circumstance read with
Notification No.18/2005-ST dated 07-06-2005 entitles a builder/contractor,
abatement of 67% on the gross amount charged, which shall include the value of
goods and materials supplied; and further that no deductions/exemptions are
provided for computation of such taxable value in the composite contract.
(iii)
It requires to be noticed that Notification No.18/2005-ST also contains an
‘Explanation’, identical to the ‘Explanation’ to Notification No.15/2004-ST (as
amended by notification No.04/2005-ST), namely that for the purposes of the
Notification, the “gross amount charged” shall include the value of goods and
materials supplied or provided or used for providing the said taxable service
provided by the said service provider.
12
6.
Conflict of opinion, leading to the present reference:
(i)
In Cemex Engineers (supra) the appellant was engaged in providing both
commercial and industrial construction and construction of complex – taxable
services and paid service tax availing abatement of 67%, in terms of Notification
Nos. 15/2004-ST; 18/2005-ST and 1/2006-ST, for the period 01.10.2005 to
31.03.2006. Proceedings were initiated contending that the value of materials
supplied free of cost by the recipient for incorporation in the taxable services was
not offered to tax and could not be excluded if benefit was claimed under the
Notifications.
Challenging the adjudication order, confirming demand of service
tax, interest and penalties, the appellant approach the Tribunal. Allowing the
appeal and relying on an observation of the High Court of Madras in an interim
order in Larsen & Toubro Ltd., Chennai vs. Union of India3, we held that the
value of goods supplied and provided by the client cannot be included for
calculating service tax; that insisting on including cost of materials supplied by
the service receiver would be contrary to Section 67 of the Act, (which specifies
that the value of taxable service shall be gross amount charged by the service
provider for such service); and therefore cost of materials supplied by the service
receiver would not therefore be covered, in terms of Section 67.
(ii)
In a subsequent judgment, in Jaihand Projects Ltd. (supra), a contrary
view is expressed.
The appellants were engaged for laying pipelines and
providing (commercial or industrial construction) service to State instrumentalities
like ONGC, GAIL, IOCL etc. apart from providing services of sand blasting,
coating and painting of pipelines to another recipient Essar Projects Limited.
Under the agreements with recipients, the appellant was required to supply
3
2007 (7) STR 123 (Mad)
13
various materials such as cement, steel, cables valves, etc. The pipes were
however, provided by the service recipient. The appellant availed the benefit of
Notification No. 15/2004-ST and remitted service tax on 33% of the gross amount
charged from the service recipient. Revenue, on the basis of the explanation to
Notification No. 15/2004-ST (introduced by Notification No. 4/2005-ST) alleged
that the appellant must have included the value of the free supply of material
(pipes) provided by the service recipient, to avail the benefits of Notification No.
15/2004-ST.
Having suffered an adverse adjudication order the appeal was
preferred to this Tribunal. The Tribunal held that even under Section 67 of the
Act read with Rule 3 of the Service Tax (Determination of Value) Rules, 2006, the
pipes being an essential component and essentially required for providing the
pipeline service (though supplied free of cost by the service recipient), must be
treated as consideration other than in the form of money; and the value of such
pipes must be included in the gross value to be offered for taxation. Dealing with
the “Explanation” to Notification No. 15/2004-ST, the Tribunal held that the
‘Explanation’ has explained that the meaning of “gross amount charged” and
once an assessee opts for the benefits of abatement under the said Notification
he must include the value of the goods for the purpose of the contract used for
the service provided; without availing cenvat credit on inputs of capital goods;
without availing the benefit of exclusion if the goods were sold; and even though
some goods are supplied or provided by the service provider (free of cost),
including the value of such free supplies as well. Another reason recorded by the
Tribunal for holding in favour of Revenue and against the appellant is that
discriminatory results would ensue between two pipeline service providers;
where one such provider uses pipes provided by himself and the other uses pipes
14
provided by the service recipient. According to the Tribunal, where goods or
material are supplied free of cost by a third party or the recipient, the expression
“used” comes into play and the objective of the explanation and the proviso is to
ensure that in different situations the liability to service tax would remain the
same. This decision negatived the contention by the appellant based on Board
Circular No. 80/10/2004-ST dated 17.09.2004, by holding that the ‘Explanation’
(to Notification No. 15/2004-ST) was not in existence when this Board circular
was issued; and was inserted later, on 01.03.2005.
7.
Before we deal with the issue referred to us namely, whether the
‘Explanation’ to Notification No.15/2004-ST enjoins inclusion of the value of “free
supplies” used by the service provider, in the ‘gross amount charged’ for the
service provided and such inclusion is mandatory for availment of benefits under
Notification No.15/2004-ST, the scope of section 67 requires to be considered.
8.
Scope of Section 67 of the Act:
(i)
We have earlier extracted the pre and post amended provisions of Section
67. This provision, both prior and subsequent to the amendment enacts that the
value of any taxable service shall be the gross amount charged by the service
provider for such service. Explanation 1. of the pre-amended provision specified
various components that are included in the value of a taxable service; such as
the aggregate commission or brokerage charged by a broker on the
sale/purchase of securities; the commission received by the travel agent from the
airline; the reimbursement received by the authorized service station from the
manufacturer for carrying out any service of any motor car, light motor vehicle or
two
wheeled
motor
vehicle
manufactured
by such
manufacturer;
etc.
15
Explanation 1. also enumerated components which are to be excluded from the
value of taxable service, such as an initial deposit made by the subscriber while
applying for telephone a connection; or pager or facsimile;
the cost of
unexposed photography film or unrecorded magnetic tape; the cost of parts or
accessories or consumables such as lubricants and coolants, if any sold to the
customer during the course of service or repair of motor cars; air fare or rail fare
collected by an air/ rail the travel agent in respect of service provided; the cost of
parts or other materials, if any sold to the customer during the course of providing
maintenance or repair services, etc.
(ii)
After the amendment, which substitutes Section 67 with effect from 18-04-
2006, where service tax is chargeable on any taxable service with reference to its
value then such value shall, in a case when the provision of service is for
consideration in money, be the gross amount charged by the service provider for
such service [sub-clause (i)]. Where provision of service is for a consideration
not wholly or partly consisting of money, the value shall be such amount in
money as, with the addition of service tax charged, is equivalent to the
consideration [sub-clause(ii)]; and where the provision of service is for a
consideration which is not ascertainable, be the amount as may be determined
in the prescribed manner. The Explanation to the amended Section 67 purports
to define the expressions “consideration”, “money” and “gross amount charged”.
(iii)
Though Revenue has contended that the value of “free supplies” to a
construction service provider ought to be included in the value of taxable services
for determination of the liability to tax under Section 67 of the Act in view of subclause (ii) of section 67(1), we are not persuaded that this is the appropriate
16
construction of the provision. Sub-clause (ii) applies where a taxable service is
provided for a consideration which is not either wholly or partly, for money.
Therefore the non-monetary consideration must still be a consideration accruing
to the benefit of the service provider, from the service recipient and for the
service provided.
(iv)
The expression “consideration” occurring in the U.P. Imposition of Ceiling
on Land Holdings Act, 1961 fell for consideration in Ku. Sonia Bhatia vs. State
of U.P. and Others
4
the Court explained that since the expression
“consideration” was not defined in the U.P. Act, its meaning as derived from the
definition of the expression in Section 2(d) of the Contract Act, 1872 could be
considered. After considering the definition of the expression in the Contract Act
and referring to Black’s Law Dictionary; other dictionaries, English judgments and
Corpus Juris Secundum, the Supreme Court held that: the in escapable
conclusion that follows is that consideration means a reasonable equivalent for
other valuable benefit passed on by the promisor to the promisee or by the
transfer of to the transferee.
(v)
Clearly, Section 67 of the Act deals with valuation of taxable services and
intends to define what constitutes the value received by the service provider as
“consideration” from the service recipient for the service provided. Implicit in this
legislative architecture is the concept that any consideration whether monetary or
otherwise should have flown or should flow from the service recipient to the
service provider and should accrue to the benefit of the later. “Free supplies”,
incorporated into construction (cement or steel for instance), even on an
4
AIR 1981 SC 1274
17
extravagant inference, would not constitute a non-monetary consideration
remitted by the service recipient to the service provider for providing a service,
particularly since no part of the goods and materials so supplied accrues to or is
retained by the service provider. Wherever a monetary consideration is charged
for providing the taxable service and no non-monetary consideration forms part
of the agreement between the parties, it is clause (i) that applies and the value of
the taxable service would in such case be the gross amount charged by the
service provider and paid by the service recipient.
(vi)
In Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. Union
of India5, the Delhi High Court was essentially considering a challenge of the
validity of Rule 5 of the Service Tax (determination of value) Rules, 2006. This
provision was challenged to the extent it includes reimbursement of expenses in
the value of taxable services for the purpose of levy of service tax. Apart from
the challenge to its constitutionality, the provision was challenged on the ground
that it is ultra vires the provisions of Sections 66 and 67 of the Act. The High
Court held that section 66 of the Act levies tax only on the taxable services; that
this is an inbuilt mechanism to ensure that only the taxable service shall be
evaluated under the provisions of Section 67; that on construing the provisions of
Sections 66 and 67 (1)(i) together and harmoniously, it is clear that the value of
taxable service shall be the gross amount charged by the service provider; and
nothing more and nothing less than the consideration paid as a quid pro quo for
the service can be brought to charge.
The High Court further held that the
common thread that runs through Sections 66 and 67 and 94 (the Rule making
power), manifests that only the service actually provided by the service provider
5
2013 (29 STR) DEL
18
can be valued and assessed to tax.
The High Court concluded that the
provisions of Rule 5(i) of the valuation Rules are repugnant to Sections 66 and
67 of the Act since the provision purport to tax not, what is due from the service
provider under the charging section, but seeks to extract something more from
him by including in the valuation of the taxable service other expenditure and
costs which are incurred by the service provider in the course of providing
taxable service.
(vii)
In the light of the clear Legislative text, the unambiguous provisions of
sections 66 and 67 of the Act and in the light of the judgment in Intercontinental
Consultants and Technocrats Pvt Ltd. (supra), the conclusion is compelling
and inviolable that the value “free supplies” by a construction services recipient,
for incorporation in the constructions would not constitute a non-monetary
consideration to the service provider nor form part of the gross amount charged
for the services provided. Whether the legislature may enact that the value of
“free supplies” should be included in the value of the service provided for levy of
tax; and within its legislative competence, is an aspect that is speculative for the
nonce and outside the purview of either the substantive appeals or the issue
referred to us. In this view of the matter it is not necessary to consider the
contention on behalf of the assessees that an interpretation that Section 67 of the
Act
enables or mandates inclusion of the value of goods and materials
incorporated into construction services (whether provided by the service provider
or as a free supplies by the service recipient) would render the legislative
provision unconstitutional, since value of the goods incorporated being sale of
goods would be liable to sales tax, an area within the legislative competence of
State, the value of goods sold would thus be beyond the legislative competence
19
of Parliament for levy of tax on such sale; consequently could not also constitute
the value of taxable services. Ld. Counsel placed reliance on the judgment in
M/s Gannon Dunkerley and Co. and Others vs. State of Rajasthan and
Others6; and State of Andhra Pradesh and Others vs. Larsen & Toubro
Limited and Others7, to buttress this contention.
(viii) Since Section 67 of the Act, as currently structured does not, in our view
require inclusion of free supplies in the gross value charged, for computation of
the value of taxable services; and as this is the only issue presented (on Section
67 of the Act); we find no justification for a wider analysis of a speculative
theatre, of potential conflict.
(ix)
On the above analysis, we hold that the conclusion in Jaihind Projects
Ltd. that section 67 itself mandates inclusion of the value of “free supplies” by
service recipients for incorporation into the service, for valuation of the taxable
service, is with respect, incorrect. Similarly, the analysis in para 24 of Jaihind
Projects Ltd., that since
goods supplied by service recipients are essential
components for providing the agreed service, these must be treated as nonmonetary consideration and included in the value of the taxable service,
proceeds on a flawed interpretation of the provisions of Section 67. In para 27
another reason offered is that the explanation is intended to bring parity among
all service providers providing such services. In the words of the judgment:
“Basically, the objective of the explanation is to bring parity among all the
service providers providing such services. Let us take a case of two pipe laying
service providers. In one case, the pipes are provided by the service receiver
free of cost and in such case, the service receiver leaves it to the provider to
supply the pipes or sell the pipes to him. In latter case, the value of the services
would include the value of the pipes. In the former case, the value of the pipes
6
7
(1993) 1 SCC 364
(2008) 9 SCC 191
20
gets excluded just because of the service receiver has provided the same
free”.................The objective of the explanation and the proviso is to ensure that
in different situations, the liability of Service tax would remain the same and it is
very difficult to find fault with this objective”.
It would appear that this part of the Jaihind Projects Ltd. analyses was
endeavouring to identify equities in a fiscal legislation (the Act) or in an
exemption Notification issued thereunder. In Union of India and others vs.
Bombay Tyre International Ltd. & others
8
the Court negated the assessee’s,
contention that uniformity of incidence is a basic character of excise (tax/ duty).
The contention was that the principle of uniformity of taxation requires exclusion
of post – manufacturing expanses and profits, a factor which would vary from one
manufacturer to another. Rejecting this contention the Court held that levy in this
country has the status of a constitutional concept and the point of collection is
located where the statute declares it will be and the legislature is free to adopt
any standard for determining the value. Further, in Union of India vs. Nitdip
Textile Processors Pvt. Ltd.9 the Court ruled that advantages or disadvantages
to individual assessees are accidental, inevitable and inherent in every taxing
Statute. The relevant observations are:
“Advantages or disadvantages to individual assessees are accidental and
inevitable and are inherent in every taxing Statute as it has to draw a line
somewhere and some cases necessarily fall on the other side of the line. The
point is illustrated by two decisions of this Court. In Khandige Sham Bhat vs.
Agricultural Income tax Officer, Kasaragod and Anr. (AIR 1963 SC 591).
Tranvancore Cochin Agricultural Income Tax Act was extended to Malabar area
on November 01, 1956 after formation of the State of Kerala. Prior to that date,
there was no agricultural income tax in that area. The challenge under Article 14
was that the income of the petitioner was from areca nut and pepper crops,
which were harvested after November in every year while persons who grew
certain other crops could harvest before November and thus escape the liability
to pay tax. It was held that, that was only accidental and did not amount to
violation of Article 14. In Jain Bros. V. Union of India (supra), Section 297 (2)(g)
of Income Tax Act, 1961 was challenged because under that Section
proceedings completed prior to April, 1962 was to be dealt under the old Act and
proceedings completed after the said date had to be dealt with under the Income
8
9
1983 (14) ELT 1986 (SC)
2011 (273) ELT 321(SC)
21
Tax Act, 1961 for the purpose of imposition of penalty. April 01, 1962 was the
date of commencement of Income Tax Act, 1961. It was held that the crucial
date for imposition of penalty was the date of completion of assessment or the
formation of satisfaction of authority that such act had been committed. It was
also held that for the application and implementation of the new Act, it was
necessary to fix a date and provide for continuation of penalty proceedings. It
was also held that the mere possibility that some officer might intentionally delay
the disposal of a case could hardly be a ground for striking down the provision as
discriminatory”.
(x).
In Moriroku UT India (P) Ltd. Vs. State of U.P.,10 the issue for
consideration was whether Revenue could impose sales tax on the value of
moulds (toolings) supplied by appellant’s customer i.e. Honda Siel Cars India
Ltd., free of cost, under Section 3. of the UP Trade Tax Act 1948. In particular,
the question considered was whether the amortization cost of toolings was
includable in the sale price of auto components as in the case of excise duty
under Central Excise Act, 1944; and whether Revenue was right in equating
sales tax to excise duty. After considering the provisions of Sections 2(h), 2(i)
and 3 of the 1948 Act, the Supreme Court explained the principle and the
concepts, under excise duty and sales tax, as follows:“19.
U.P. Trade Tax Act, 1948 is a self-contained code for levy of tax on sale or
purchase of goods in Uttar Pradesh. Clause (bb) of Section 2 defines the
expression “trade tax” to mean a tax payable under the Act. Clause (h) of Section
2 defines the expression “sale” to include transfer of the right to use any goods for
any purpose for cash or deferred payment or other valuable consideration. In this
case we are concerned only with Section 3 and not with Section 3-F of the 1948
Act. Section 3 inter alia provides that every dealer shall for each assessment year
pay a tax at the rates provided under Section 3-A, Section 3-D or Section 3-H on
his turnover of sales or purchases or both, as the case may be. which shall be
determined in such manner as may be prescribed. Section 3-F provides for tax on
transfer of right to use any goods or goods involved in execution of works contract.
The definition of “sale” in Section 2(h) is in two parts. The first part covers the
normal sale and the second part covers deemed sales. In the present case, we are
concerned with sale of auto components to the buyer. It is a normal sale. The
aggregate amount for which these auto parts/components are sold constitutes the
turnover relating to such sales within the meaning of turnover in Section 2(i).
Therefore, it is on such turnover that liability of tax under Section 3 of the 1948 Act
has to be determined. Therefore, sales-tax or trade-tax under the 1948 Act is
leviable on sale, whether actual or deemed, and for every sale there has to be a
consideration. On the other hand, excise duty is a levy on a taxable event of
10
2008 (224) E.L.T.365 (SC)
22
“manufacture” and it is calculated on the “value” of manufactured goods. Excise
duty is not concerned with ownership or sale. The liability under the excise law is
event-based and irrespective of whether the goods are sold or captively
consumed. Under the excise law, the liability is there even when the manufacturer
is not the owner of raw material or finished goods (as in the case of job workers).
Excise duty, therefore, is independent of ownership (see: Ujagar Prints & Ors. v.
Union of India & Ors. also reported in [(1989) 3 SCC 488]. Therefore, for sales-tax
purposes, what has to be taken into account is the consideration for transfer of
property in goods from the seller to the buyer. For this purpose, tax is to be levied
on the agreed consideration for transfer of property in the goods and in such a
case cost of manufacture is irrelevant. As compared to the sales-tax law, the
scheme of levy of excise duty is totally different. For excise duty purposes, transfer
of property in goods or ownership is irrelevant. As stated, excise duty is a duty on
manufacture. The provisions relating to measure (Section 4 of 1944 Act read with
Excise Valuation Rules, 2000) aim at taking into consideration all items of costs of
manufacture and all expenses which lead to value addition to be taken into
account and for that purpose Rule 6 makes a deeming provision by providing for
notional additions. Such deeming fictions and notional additions in excise law are
totally irrelevant for sales-tax purposes”.
From the above decision, the principle is clear that for the purposes of levy
of sales tax it is the consideration for the transfer of the property in goods from
the seller to the buyer, that has to be taken into consideration and tax must be
levied on the consideration for the transfer of property, unlike in the case of
excise duty where the levy is event based and irrespective of whether goods are
sold or captively consumed, the liability inheres even where the manufacturer is
not the owner of the raw material or finished goods. This principle is equally
applicable to the levy of service tax under the provisions of the Act and in
particular in the context of the specific language in Section 67 of the Act.
(ix)
Shri Lakshmi Kumaran for the assessees referred to the concept of
“consideration” expounded in Goods and Service Tax Rulings 2001/6, in the
context of Australian GST Legislation, as providing generic guidance for
identifying consideration which is liable to be taxed. This GSTR also explains the
concept, of when non-monetary consideration would be taxable for levy of tax. In
the area of non-monetary consideration, GSTR emphasises that the definition of
23
a taxable supply requires, among other things that a supply is made for
consideration. Thus, there must be a supply; a payment; and the necessary
nexus between the supply and the payment.
Thus, where one party makes
monetary payment to another, something of economic value is provided to the
other. Para 90 GSTR sets out illustrations, of circumstances where the recipient
of a supply may provide or make a thing available to the supplier for use in
making the supply and states that the thing (made available for use) does not
necessarily forms the consideration. Thus, where ‘A’ agrees to supply services
to ‘B’ at a specified rate per hour at ‘B’s’ premises and ‘B’ agrees to allow ‘A’
use of its computer facilities, stationery and safety equipment to perform the
services and also agrees to transport ‘A’ to ‘B’s’
location and to
provide
accommodation and boarding during the period of ‘A’s’ performance of the
service, the provision of the use of such facilities or meals is not part of the price
paid by ‘B’ to ‘A’, as it is not payment to or of any value to ‘A’ in return for his
supply. Rather these are conditions of the contract that define the supply made
by ‘A’ and are used in providing the services rather than constituting supplies to
‘A’ in return for the services; and accordingly form no part of the taxable value of
the services provided, is the exposition. If however the contact required ‘A’ to
himself make provision for all these facilities / arrangements and the
consideration to ‘A’ was a composite consideration including the value of such
facilities/ arrangements, then the entire consideration could legitimately form the
value liable to tax.
(xii)
We avoid further reference to the several illustrations set out in GSTR nor
attempt to integrate the GSTR expositions into the context of Section 67, since
on a true and fair construction of the provisions of Section 67 we find no
24
necessity for reliance on guidance derived from overseas fiscal legislation or
clarifications on provisions of such legislation.
8.
Summary of Revenue Contentions:
A (i) The scheme for valuation of construction service provides several
alternatives to the service provider. Under the Act and the Rules, the
service provider can avail cenvat credit, of materials used including
goods such as cement and TMT bars needed for providing construction
service while remitting service tax on the full value of the service
provided. Apart from such set off by way of cenvat credit of excise duty
paid on goods and material, other options are provided;
(ii) Under Notification No. 12/2003-ST exemption is provided to the extent of
the value of the goods sold during the course of providing the service
but subject to the condition of producing documentary proof specifically
indicating the value of goods sold;
(iii) Under Notification No. 15/2004-ST, a generic abatement of 67% of the
“gross amount charged” is provided in case of a composite contract,
where the “gross amount charged” includes the value of material used,
for the reason that in cases of works contract, bifurcation of the value of
goods sold/ used is difficult and subject also to the conditions therein,
of non availment of credit of input goods, capital goods and the benefits
under Notification No. 12/203-ST, towards cost of goods;
(iv)
In case of works contract under a scheme there under the option of
discharging the service liability at a very low rate on the gross amount
of the works contract is provided, without deduction of the value of
goods or any abatement;
25
(v) The Explanation to Notification No. 15/2004-ST (added by Notification No.
4/2005-ST) enjoins that where an assessee opts for benefits of
abatement of 67%, he must include the value of all the goods
incorporated for the purpose of the contract, without availing cenvat
credit of inputs or capital goods or the benefits of exclusion of the
goods sold;
(vi)
The word “used” in the Explanation clearly means that irrespective of
the source of supplies, if some material or goods were used in the
construction service, the value of such goods must also be included, for
availing abatement benefits under Notification No. 15/2004-ST;
(vii)
Even under Section 67 of the Act the value of goods whether supplied
or provided by the provider or used for providing the taxable service
though as free supplies by the recipient, constitute the “gross amount
charged” for providing the taxable service;
(viii) In terms of the contract between the parties (referred to in the written
submissions by Revenue), free supplies constitute the consideration by
the promisor/the service recipient to the promisee/ the service provider
for providing the taxable, construction service.
In any event, since
goods and materials like cement/ steel are integral components of
construction services these would be the value of the service and this
value is accordingly taxable under Section 67 and must be disclosed
and offerred for tax, if availing exemption benefits under Notification No.
15/2004-ST.
26
B.
Revenue relies on the decision in M/s N.M. Goel and Co. vs. Sales Tax
Officer, Rajnandgaon and Another11.
The assessee was the building
contractor and a registered dealer under the Madhya Pradesh General Sales Tax
Act. In the contract with the PWD and the assessee, the prices of the materials
to be used for construction included cost of iron, steel and cement. PWD agreed
to supply these materials from its store for the construction work and the
agreement further provided for deduction of the prices of materials so supplied
and consumed in the construction, from the final bill of the assessee. The Sales
Tax Authority assessed liability for payment of entry tax for iron, steel and
cement since the entry of these goods were the instance of the assessee and
were eventually used for the construction.
The assessee contested this
assessment on the ground that there was no sale of these materials, as these
were used for construction and therefore levy of entry tax was unsustainable.
The issue therefore was whether there was sale of the material by the PWD (an
unregistered dealer) in the supply of these materials for the construction work
undertaken by the assessee; and whether there was sale of goods in view of the
contract between the parties’, whereunder the custody and control of the goods
remain with PWD and these were only used in the construction under the
contract. Rejecting the assessee’’s appeal, the Court held that in the instant
case, by the use or consumption of materials in the work of construction, there a
was passing of the property in the goods to the assessee from the PWD and by
appropriation; and under the agreement between the parties, there was a sale as
envisaged in the relevant provision of the applicable act, which was liable to tax.
It must be noticed that in N. M. Goel & Co. (supra) the facts were that though
11
(1989) 1 SCC 335
27
iron, steel and cement were supplied by PWD to the assessee these supplies
were not free of cost but were to be deducted from the bills payable by PWD to
the assessee. There was thus a sale of these materials by PWD to the assessee
and the ownership of these materials passed to the assessee, though these
materials were later incorporated in the construction for the benefit of PWD. In
case of free supplies, which is the issue before us, the agreements between the
parties do not provide for recovering the cost of the free supplies by the service
recipient from the service providers i.e. recoveries from the consideration agreed
between the parties, to be paid to the service provider.
C.
Revenue places reliance on the judgment of the Supreme Court in Bharat
Sanchar Nigam Limited vs. Union of India12 and the decision of this Tribunal in
Naresh Kumar & Co. Pvt. Ltd. vs. Commr. of Service Tax, Kolkata 13 to
contend that where there is a nexus between the expenses incurred and the
service provided, the value of such expenditure should also be included in the
value of the service. These judgments, in our considered view do not assist
resolution of the issue referred. There could be no dispute that free supplies by
the recipient for use in construction services have a nexus; and an integral nexus
for that matter with the construction activity. The essential question is however
whether such free supplies by the recipient would constitute consideration
accruing to the economic benefit of the service provider so as to be includible in
the “gross amount charged” for the service provided, for the purpose of
computation of the taxable value under Section 67; or as a case may be ought to
be included in the “gross amount charged” for availing the benefits under
12
13
2006 (2) STR 161 (SC)
2008 (11) STR 578 (Tri. Kolkata)
28
Notification No. 15/2004-ST, as comprehended within the meaning of the
expression “used” in the Explanation thereto.
9.
We integrate the contentions presented on behalf of the assessee’s, with
respect to and interpretation of the ‘Explanation’ to Notification No.15/2004-ST,
as part of our analyses, to follow.
10.
Core analysis of the Explanation to Notification No.15/2004-ST:
(i)
The core issue that remains to be considered, is whether Notification
No.15/2004-ST as amended by notification No.4/2004-ST and in particular, the
‘Explanation’ thereby appended to Notification No.15/2004-ST requires the value
of “free supplies” by the service recipient to be added to the gross value of the
service (as the gross amount charged), for availment of abatement benefits
under Notification No.15/2004-ST. While Notification No.12/2003-ST grants
exemption of the value of goods and materials sold by the service provider to the
service recipient from the service tax leviable thereon (subject to furnishing
documentary proof specifically indicating the value of goods and materials sold),
Notification No.15/2004-ST provides a generic abatement to the extent of 67% of
the service tax leviable, but subject to the exceptions specified.
These
exceptions disentitle availment of the abatement benefit, where CENVAT credit
is availed or benefits under Notification No.12/2003-ST are availed. This was
the position
upto 01-03-2005. On this date, Notification No.04/2005-ST was
issued engrafting the ‘Explanation’ to Notification No.15/2004-ST.
This
Explanation purports to explain the meaning of expression “gross amount
charged”, to include the value of goods and materials supplied or provided or
used by the provider of construction service for providing such service. The
29
expression “gross amount charged” (defined in the Explanation) occurs in the
preamble to Notification No.15/2004-ST, whereby exemption is provided (in
respect of the taxable service provided by a commercial concern to any person in
relation to construction service), to the extent of 67% of the service tax leviable
under section 66 of the Act, as is in excess of the service tax calculated on the
gross amount charged by the service provider from the service recipient for
providing the taxable service.
(ii)
On a literal construction of the expression used in the ‘Explanation’,
considered in isolation, it is perhaps legitimate to infer that “gross amount
charged”
include the value of goods and materials supplied or the value of
goods and materials provided or the value of goods and materials used by the
provider of construction service, for providing the said service. On the literal
construction of the expression “used”, in the case goods and materials used (in
the construction) for providing the service, the “gross amount charged” would
include value of goods and materials used, irrespective of whether goods and
materials belong to or are procured by the service provider at his own cost or are
issued by the service recipient free of cost.
(iii)
The ‘Explanation’ purports (as earlier noticed), to define the expression
“gross amount charged” occurring in the preamble to Notification No.15/2004-ST.
In the context of the preamble, it is clear that abatement of 67% of tax (subject to
exceptions enumerated therein) is in respect of the “gross amount charged” by
the service provider and remitted to such provider by the recipient, an intention
that resonates the identical expression employed in section 67(1)(i) of the Act.
30
(iv)
As earlier noticed, circular No.80/10/2004-ST dated 17-09-2004, in para
13.5 explained the reason for issuance of Notification No.15/2004-ST.
This
circular clarified that the earlier Notification No.12/2003-ST was issued to provide
benefit to a service provider to take credit of the excise duty paid on inputs by
building contractors which include material costs as are that incurred for cement,
steel, fittings and fixtures, tiles, etc., which are normally procured from the
market. However, it was observed that these materials, normally procured from
the market and are not covered by any duty paid documents; and since
Notification No.12/2003-ST requires furnishing of documentary proof specifically
indicating the value of goods sold, such proof is difficult to obtain in the context of
market realities and since in a composite contract, bifurcation of goods sold is
difficult, the generic abatement of 67% is provided in the case of composite
contracts, where the gross amount charged includes the value of material costs,
vide Notification No.15/2004-ST. This clarification accords with the true and fair
construction of the unamended Notification No.15/2004-ST.
(v)
The question therefore is whether Notification No.04/2005-ST expands the
scope of the expression “gross amount charged”, since this expression in the
preamble to Notification No.15/2004-ST does not and cannot comprehend value
of “free supplies” by a construction service recipient.
(vi)
Some of the Ld. Counsel for assesses contended that if the value of “free
supplies” by service recipients are enjoined to be included in the gross value
charged for the taxable service and the ‘Explanation’ were to be so construed,
Notification No.04/2004-ST would run foul of Section 67 of the Act.
In our
considered view, this contention does not commend acceptance. The several
31
exemption
Notifications
including
12/2003-ST;
15/2004-ST,
04/2005-ST,
18/2005-ST, 19/2005-ST and 01/2006-ST, are exemptions provided in exercise
of powers under section 93 (1) of the Act, a provision which authorizes grant of
exemption, generally or subject to conditions as may be specified, from the whole
or any part of service tax leviable on a taxable service.
In incorporating
conditions for grant of exemption, the Government is therefore at liberty to define,
for example, what components should comprise the gross value charged for
providing a taxable service. Mere enlargement of the contours of “gross amount
charged” in a condition incorporated in an exemption Notification would not
amount to bringing to the tax net a value which is not taxable under Section 67 of
the Act. Such a condition would normally indicate that the specified exemption is
granted subject to a condition which requires a wider incorporation into the value
of the taxable service, for the limited purpose of computing the extent of
exemption. A condition expanding the scope of “gross taxable value” for the
limited purpose of granting exemption would therefore only mean that the
exemption provided is not so generous as facially appears. Any such condition
in an exemption Notification would not therefore and per - se violate the
provisions of Section 67 of the Act and for that singular reason. The interpretive
problematic however is that the ‘Explanation’ has not by itself introduced the
expression “gross amount charged” into the Notification and proceeded to define
it. The Explanation, on the other hand seeks to define “gross amount charged”,
an expression already employed in the preamble to Notification No. 15/2004-ST;
and in the preamble the expression is used in the context of Section 67, a
provision dealing with valuation of taxable services.
32
(vii)
The alternative and the substantive contention on behalf of assessees is
however that the expression “goods and materials used by the provider of the
construction service for providing such service”, in the Explanation to Notification
No. 15/2004-ST must be considered as use of materials belonging to the service
provider and used in the provision of service; but excluding goods and materials
belonging to /owned by the service recipient and provided to the service provider
free of cost, for incorporation in construction service. A nuance of this contention
is that the goods and materials used must connote those goods and materials as
are charged on the service recipient. It is argued that only a benefit, monetary or
non-monetary accruing to the service provider from the taxable service provided
constitutes the value of the taxable service and that value alone is legitimately
susceptible to the levy of service tax. Revenue contends that the literal meaning
of expression “used” in the explanation must be given its full and plenitudinous
effect and ought not to be restricted by reference to the other two expressions
“supply” and “provided nor by reference to the meaning of the expression “gross
amount charged”, in the preamble to Notification No.15/2004-ST.
Assessees
would argue that the interpretive principle of “Noscitur A Sociis” or the analogy of
the “Ejusdem generis” principle should be employed, to hold that goods and
materials “used” would mean goods and materials supplied or provided by the
provider and ‘used’ for providing the construction service, i.e. goods and
materials, the value whereof is charged to the service recipient.
(viii) The expression “used” in the ‘Explanation’ to Notification No.15/2004-ST is
the problematic. It is preceded by two other expressions “supply” and “provided”,
the three expressions interspersed
by the disjunctive “or”.
The expression
“used” would bear a particular meaning on its literal construction but becomes
33
plurilisignative in the society of the two other expressions. This potential for
multiple meanings of the expression ‘used’, has triggered the forensic effort of
assessees’ counsel, inviting us to apply the noscitur principle. This principle is
part of linguistic cannons of construction which govern elaboration of the
meaning of individual words and phrases by drawing certain inferences. Noscitur
is the genius of a family of principles embedded in well-known latin maxims. The
general principle of construction is that an Act or other legislative instrument is to
be read as a whole, so that the enactment within it is not treated as standing
alone but is interpreted in its context, as part of the instrument. The noscitur
principle posits that a statutory term is recognised by its associated words i.e. in
an associational context, whereby the word or phrase is not construed as if stood
alone but in the light of its surroundings. An associated principle states: Noscitur
ex socio, qui non cognoscitur ex se (what cannot be known in itself may be
known from its associate). Lord Diplock cautioned that the maxim noscitur sociis
is always a treacherous one unless you know the societas to which the socii
belong - Liteteng vs. Cooper
. The latin word societas means ‘society’ and
14
the nature of the intended society (if any) can only be gathered from the words
used. There may not be any precise intention, but the colour of the members of
the society (socii) is nevertheless an approximate indication of meaning.”15
As Bennion (supra) points out, Maxwell explained that the principle means that
when two or more words which are susceptible of analogous meaning are
coupled together, they are understood to be used in their cognate sense. They
take, as it were their colour from each other, that is, the more general is restricted
14
15
(1965) 1 QB 232
Bennion on Statutory Interpretation Fifth Edition
34
to a sense analogous on to a less general. This exposition of the principle was
quoted with approval by Gajendragadkar J in State vs. Hospital Mazdoor
Sabha16.
(ix)
The Noscitur principle was applied in a number of cases in the Indian
context though always accompanied with the caveat that it is a principle with
some treacherous implications - vide State of Bombay v. Hospital Mazdoor
Sabha(supra)17; Bank of India vs. Vijay Transport18; Rohit Pulp and Paper
Mills Ltd. V. Collector of Central Excise
19
; Kerala State Housing Board vs.
Rampriya Hotels (P) Ltd. , JT20; Samatha vs. State of Andhra Pradesh
23
;
Commrs. V. Savoy Hotel
24
;
; Godfrey Phillips vs. State
Bageshwari Charan Singh v.
Jagannath25; M.K. Ranganathan v. Government of Madras
Assam v. Ranga Muhammad
Punjab
16
17
31
; State of
; Acqueous Victuals Pvt. Ltd. vs. State of
29
; Rainbow Steels Ltd. vs.
30
; Pardeep Aggarbatti, Ludhiana v. State of
; G. Radhakrishna Murthy & Co. V. Commercial Tax Officer, JT32;
AIR 1960 SC 610.
AIR 1960 SC 610.
AIR 1988 SC 151
19
AIR 1991 SC 754.
20
1994 (5) SC 113.
21
AIR 1997 SC 3297.
22
1999 (2) SC 563.
23
(2005) 2 SCC 515.
24
(1966) 2 ALL ER 299
25
AIR 1932 PC 55.
26
AIR 1955 SC 604.
27
AIR 1967 SC 903.
28
AIR 1998 SC 2278.
29
AIR 1978 SC 68.
30
AIR 1981 SC 2101
31
AIR 1998 SC 171, p. 173
32
1998 (4) SC 426
18
26
27
U.P.28; State of Karnataka vs. Union of India
Commissioner of Sales Tax
; K.
22
Bhigirathi G. Shenoy vs. K.B. Ballakuraya, JT
of U.P.
21
35
Stonecraft Enterprises v. Commissioner of Income – Tax, JT
33
; Leelabai
Gajanan Pansare v. Oriental Insurance Company Ltd 34.
(x)
In Rohit Pulp and Paper Mills Ltd., the issue before the Court was
whether “coated” paper even where employed as printing and writing paper and
not used for industrial purposes would be entitled to concessional rate of excise
duty under Notification No.25/84-CE. A proviso to the said Notification excluded
the benefit of concessional rate of duty under the said Notification to enumerated
categories of paper. These were: cigarette tissue, glassine paper, grease proof
paper, coated paper (including waxed paper). The assessee was manufacturing
art paper and chromo paper. These two types of papers admittedly fall under the
category of “printing and writing paper” as also under the description of “coated
paper”. Since these two types were “coated papers”, Revenue concluded that
they were not entitled to the concessional rate of duty under the Notification.
Allowing the appeal of the assessee, the Supreme Court applied the noscitur
principle to conclude that the expression “coated paper” must be considered as
analogous to other types of papers which are excluded the benefit of
concessional rate of duty and so construed, the exclusion would be applicable
only to coated paper used for industrial purposes and not to coated varieties of
printing and writing paper. Analyses and application by the Supreme Court of the
noscitur principle provides guidance on the application of the principle.
We
quote:
“................ In other words, it is submitted that the word `coated paper’
should be interpreted by applying the principle of “Noscitur A Sociis” or on the
analogy of the “Ejusdem generis” principle. This contention, it is submitted, is reinforced by two considerations. The first is that the Government must have had
some idea or principle in putting together the exceptions and there is no
33
34
1999 (2) SC 332, p. 34
(2008) 9 SCC 720
36
conceivable principle other than the one enunciated. The second consideration is
the addition of the words used in parenthesis along with `coated paper’ viz.
“(including waxed paper)”. It is pointed out that waxed paper obviously means
coated paper because waxed paper is nothing but paper coated with wax and
would have anyhow been covered by the exception. Nevertheless, it was
considered necessary, it is said, to specifically include it in order to make it clear
by this illustration that only industrial paper like waxed paper is taken out from the
concession. The words in parenthesis are, in other words, the words illustrative
of the limitation to be read into the expression `coated paper’. It is finally argued
that, even if the words of the proviso are capable of being construed in a wider
manner so as to deny exemption to all kinds of coated paper, the Court should
apply the well established principle of construction of taxing statutes that an
ambiguous provision should be interpreted in favour of the subject.
We have considered the contentions urged on both sides and we have
come to the conclusion that there is force in the appellant’s contentions. All the
three notifications we have extracted above draw a distinction between printing
and writing paper on the one hand and other types of paper on the other. They
also show that the duty on printing and writing paper is generally less than that
on the other varieties of paper. Though paper can be classified into various
varieties, it does appear that one such classification is between industrial paper
and cultural paper. .........
“ It is true that no meticulous reasons can always be made available or
discovered for variations in rates of duty as between various types of goods and
the absence of some common thread in relation to a set of goods treated alike
may not necessarily render the classification irrational or arbitrary. But, at the
same time, one can legitimately postulate that the denial of a concession to a
group proceeds on the basis of some aspect or feature common to all items in
the group. If such a principle can be conceived of which would rationalise the
inclusion of all the items, it would be quite reasonable and proper to give effect to
a construction of the notification as will accord with that principle. It is this which
the appellant has attempted to do and we are inclined to think that the
ratiocination of the exceptions suggested, far from being artificial or far-fetched,
is a plausible and likely one that the Government could have had in mind and
that it should be accepted.
The maxim of noscitur a sociis has been described by Diplock, J. as a
“treacherous one unless one knows the societas to which the socii belong” (vide :
Letang v. Coopex, 1965-1 Q.B. 232). The learned Solicitor General also warns
that one should not be carried away by labels and Latin maxims when the word
to be interpreted is clear and has a wide meaning. We entirely agree that these
maxims and precedents are not to be mechanically applied; they are of
assistance only in so far as they furnish guidance by compendiously summing up
principles based on rules of common sense and logic. As explained in Collector
of Central Excise v. Parle Exports (P) Ltd. - 1989 (38) E.L.T. 741 (S.C.) = (1989-1
S.C.C. 345 p. 357) and Tata Oil Mills Co. Ltd. v. C.C.E. - 1989 (43) E.L.T. 183
(S.C.) = (1989-4 S.C.C. 541 at p. 545-6) in interpreting the scope of any
notification, the Court has first to keep in mind the object and purpose of the
notification. All parts of it should be read harmoniously in aid of, and not in
derogation, of that purpose. In this case, the aim and object of the notification is
to grant a concession to small scale factories which manufacture paper with
unconventional raw materials. The question naturally arises : Could there have
37
been any particular object intended to be achieved by introducing the exceptions
set out in the proviso. Instead of proceeding on the premise that it is not
necessary to look for any reason in a taxing statute, it is necessary to have a
closer look at the wording of the proviso. If the proviso had referred only to
`coated paper’, no special object or purpose would have been discernible and
perhaps there would have been no justification to look beyond it and enter into a
speculation as to why the notification should have thought of exempting only
`coated paper’ manufactured by these factories from the purview of the
exemption. But the notification excepts not one but a group of items. If the items
mentioned in the group were totally dissimilar and it were impossible to see any
common thread running through them again, it may be permissible to give the
exceptions their widest latitude. But when four of them - undoubtedly, at least
three of them - can be brought under an intelligible classification and it is also
conceivable that the Government might well have thought that these small scale
factories should not be eligible for the concession contemplated by the
notification where they manufacture paper catering to industrial purposes, there
is a purpose in the limitation prescribed and there is no reason why the rationally
logical restriction should not be placed on the proviso based on this classification.
In our view, the only reasonable way of interpreting the proviso is by
understanding the words `coated paper’ in a narrower sense consistent with the
other expressions used therein.
(xi)
In Pardeep Aggarbatti, the issue was whether Dhoop and Aggarbatti
were covered by the word ‘perfumery’. Entry 16 of Schedule A of the Punjab
General Sales Tax Act, 1948 during the relevant period read “cosmetics,
perfumery and toilet goods, excluding tooth paste, tooth powder, kumkum and
soaps”. The said entry was bifurcated into entries 16 and 16A by a subsequent
Notification No. 289/79. The issue was whether “Dhoop and Aggarbatti” were
covered under ‘perfumery” in entry No.16 (prior to its bifurcation, since the
transaction was entered into before the entry was bifurcated). Allowing the
assessee’s appeal, Supreme Court applied the noscitur principle to hold that
‘perfumery’, in the context in which the word is used has no application to “Dhoop
and Aggarbatti”. The Supreme Court explained:
“9.Entries in the Schedules of Sales tax and Excise statutes list some
articles separately and some articles are grouped together. When they are
grouped together, each word in the Entry draws colour from the other words
therein. This is the principle of noscitur a sociis.
10.We are in no doubt whatever that the word “perfumery” in the said
Entry No. 16 draws colour from the words `cosmetics’ and `toilet goods’ therein
38
and that, so read, the word `perfumery’ in the said Entry No. 16 can only refer to
such articles of perfumery as are used, as cosmetics and toilet goods are, upon
the person. The word “perfumery” in the context in which it is used has, therefore,
no application to `dhoop’ and `aggarbatti’. The distinction between the present
case and the case of Indian Herbs Research and Supply Company is evident for
the word `perfumes’ in the entry under consideration in the latter case was not
limited by the words before and after, as in the entry before as; both the words
`scent’ and `perfumes’ related to articles that produced fragrances.”
(xii)
Earlier, in Hariprasad Shivshankar Shukla and another vs. A.D.
Divelkar and Others, the Supreme Court applied the noscitur principle to infer a
contextual meaning to the phrase “for any reason whatsoever”, occurring in
Section 25F of the Industrial Disputes Act, to hold that termination of a workman
occasioned by a bonafide closure of the business is excluded and would not
amount to retrenchment within the meaning of the expression in Section 25F.
(xiii) Elaborating on the noscitur principle it is contended that the expression
“used” in the Explanation to Notification No. 15/2004-ST (to explain the meaning
of “gross amount charged”, an expression in the preamble to the Notification),
cannot be construed, in so far as language permits, as be inconsistent with the
meaning of the expression “gross amount charged” in the preamble to the
Notification. In substance, the contention is that the Notification exempts service
tax to the extent of the tax leviable on 67% of the “gross amount charged”, in
relation to construction service; Section 67 (a provision dealing with valuation of
taxable services for charging tax) enacts that the value of any taxable service
shall be the “gross amount charged”; and “gross amount charged” under Section
67 would not include the value of free supplies. We have also concluded that
that is the position; that implicit in this legislative architecture (of Section 67) is
the concept that any value to constitute a consideration, whether monetary or
otherwise should have flown or should flow from a service recipient to a service
39
provider and should accrue to the benefit of the later; and that this is a
precondition of taxability under Section 67.
On this syllogism, in defining to
explain the meaning of “gross amount charged”, the Explanation could not be
construed as expanding the scope of “gross amount charged” in the preamble to
the Notification, is the contention.
(xiv) The appellants placed reliance for the above proposition on Bihta
Cooperative Development Cane Marketing Union Ltd. vs. Bank of Bihar &
Others35. The core issue in Bihta was whether Explanation (1) to Section 48(1)
of the Bihar and Orissa Cooperative Societies Act, 1935 ousts the jurisdiction of
the Civil Court in respect of disputes other than those covered by Clauses (a) to
(e) of Section 48(1). Allowing the appeal, the Supreme Court observed that the
word “non-member” was not found in the Explanation to the Section before the
1948 amendment of the Act; that Clause (e) was added to Section 48 (1) by the
1948 amendment; that by the addition of Clause (e), a dispute between the
financing bank authorised under the provisions of Section 16(1) and a person
who is not a member of a registered society could also be referred to the
Registrar; and that Explanation (1) cannot be considered as enlarging the scope
of the main Section 48(1), so as to make all kinds of disputes between a
registered society and a non-member cognisable by the Registrar and thus
excluding the jurisdiction of the ordinary courts. The following observations of
Supreme Court (explaining the scope of the Explanation and notwithstanding its
broad cover), are relevant:
“9. We find ourselves unable to accept this contention. Before the
amendments introduced in 1948, the Explanation to the section made no mention
of non-members and non-members had to be included in the Explanation
35
AIR 1967 SC 389
40
because of the inclusion of this class of persons in category (e) of sub-s.(1) of
s.48. The Explanation must be read so as to harmonise with and clear up any
ambiguity in the main section. It should not be so construed as to widen the
ambit of the section. The scheme of sub-section (1) of s.48 seems to be that
certain disputes touching the business of a registered society should not be
taken to civil courts and made the subject matter of prolonged litigation. The
legislature took pains to specify the persons whose disputes, were to be subject
matter of reference to the Registrar. Non-members did not come into the picture
at all. Non-members other than officers, agents or servants of the society do not
figure in sub-cls.(a) to (d) except as sureties of members. By sub0cls.(e) only
those non-members who had disputes with a financing bank authorised under
the provisions of sub-s.(1) of s. 16 were made amendable to the jurisdiction of
the Registrar. It was probably thought desirable in the interest of the financing
bank which might otherwise be faced with litigation in a civil court in respect of its
ordinary day-to-day transactions of advances to agriculturists who were nonmembers that disputes between the society and this class of person should be
quickly and inexpensively adjudicated upon by the Registrar. Before the
amendment of 1948, the Explanation only served to clear up the doubt as to
whether a dispute was referable to the Registrar when the debt or demand was
admitted and the only point at issue was the ability to pay or the manner of
enforcement of payment. As already pointed out by this Court, the Explanation
had to include non-members after the insertion of category (e) in sub-s.(1) of
s.48. The purpose of the Explanation never was to enlarge the scope of
sub-s.(1) of s.48 and the addition of category (e) to that sub-section and the
inclusion of non-members in the Explanation cannot have the effect”.
(Emphasis added)
(xv)
The principle in Bihta Co-operative was applied again in M/s Oblum
Electrical Industries Pvt. Ltd. Hyderabad vs. Collector of Customs,
Bombay36. In this case the issue was whether customs duty exemption could be
claimed on imported crystal beams. Explanation (viii) to Notification No. 116/88Cus dated 30.03.1988 as defined “materials” as meaning goods which are raw
material, components, intermediate products or consumables used in the
manufacture of the resultant products and their packings or mandatory spares to
be exported in the resultant products. Imported crystal beams were actually
used in kilns for manufacture of porcelain insulators. Allowing the assessee’s
appeal, the Court observed that in trying to explain the language used in an
exemption Notification, one must keep in mind (a) the object and purpose of the
exemption; and (b) the nature of the actual process involved in the manufacture
36
(1997) 7 SCC 581
41
of the commodity in relation to which exemption is granted. The principle and its
application to interpretation of the relevant part of the Explanation, is set out in
paras 12 and 13 of the judgment, which read:
“12. It is true that in Clause (viii) of the Explanation to the Notification
expression ‘materials’ has been defined to mean goods which are raw materials,
components, intermediate products or consumables used in the manufacture of
resultant products and their packings or mandatory spares to be exported in the
resultant products. But the said definition in the Explanation has to be read in
consonance with the main part of the notification. It is a well settled principle of
statutory construction that the Explanation must be read so as to harmonize with
and clear up any ambiguity in the main provision. (See: Bihta Cooperative
Development Cane Marketing Union Ltd. v. Bank of Bihar MANU/SC/0260/1966:
[1967]1SCR 848. The definition of “materials” in Clause (viii) of the Explanation
mast, therefore, be so construed as not to eliminate the distinction between the
words materials required for the purpose of manufacture of products and the
words materials used in the manufacture of the resultant products in the main
part of the definition.
13.
On a proper Construction the definition of “materials” in Clause
(viii) of the Explanation must be confined in its application to the word “materials”
in the expression replenishment of materials used in the manufacture of the
resultant products in Notification No. 116/88-Cus. Dated March 30, 1988”.
(xvi)
Reliance is also placed by appellant on several judgments which
propound the principle that the charging section of a taxing statute would not be
attracted where the corresponding computation provision is inapplicable. In CIT,
Bangalore vs. B.C. Srinivasa Setty37 the question was whether capital gains
could arise, under Section 45 of the Income Tax Act, 1961, on transfer of its
goodwill by the assessee – firm to the newly constituted firm. Dismissing the
appeal by Revenue, the Supreme Court observed:
“The character of the computation provisions in each case bears a relationship to
the nature of the charge. Thus the charging section and the computation
provisions tougher constitute an integrated code. When there is a case to which
the computation provisions cannot apply at all, it is evident that such a case was
not intended to fall within the charging section. Otherwise one would be driven to
conclude that while a certain income seems to fall within the charging section
there is no scheme of computation for quantifying it. The legislative pattern
discernible in the Act is against such a conclusion. It must be borne in mind that
the legislative intent is presumed to run uniformly through the entire conspectus
37
(1981) 2 SCC 460
42
of provisions pertaining to each head of income. No doubt there is a qualitative
difference between the charging provision and a computation provision. And
ordinarily the operation of the charging provision cannot be affected by the
construction of a particular computation provision. But the question here is
whether it is possible to apply the computation provision at all if a certain
interpretation is pressed on the charging provision. That pertains to the
fundamental integrality of the statutory scheme provided for each head”.
The Supreme Court also observed that none of the provisions pertaining to
the head “Capital gains” suggest that they include an asset in the acquisition of
which no cost at all can be conceived.
(xvii)
Ld. Counsel also refers to the observations in Govind Saran Ganga
Saran vs. Commissioner of Sales Tax38.
The observation of the Court to
which our attention is drawn are set out in paragraph 6 where the Court explain
the components which enter into the concept of a tax. The Court pointed out that
among the components are firstly, the character of the imposition, known by its
nature which prescribes the taxable event attracting the levy; the second is a
clear indication of the person on whom the levy is imposed and who are obliged
to remit the tax; the third is the rate at which tax is imposed; and the fourth is the
measure or value to which the rate would be applied, for computing the tax
liability. The Court proceeded to observe that if those components are not clearly
and definitely ascertainable, it is difficult to say that the levy exists in point of law;
and any uncertainty or vagueness in the legislative scheme defining any of those
components of the levy, will be fatal to its validity. This principle is analogous to
the principle that a liability to tax could not be inferred on a doubtful or an
ambiguous provision and the benefit of ambiguity must be resolved in favour of
the assessee and against Revenue.
38
1985 (Supp) SCC 205
43
(xviii)
Assessee’s rely on the above judgments to contend that since the
expression “used”, in the Explanation to Notification No. 15/2004-ST is inherently
ambiguous and more so in the context of the other expressions therein i.e.
“supplied” or “provided”, the noscitur principle must be applied to conclude that
only such goods and materials which are “supplied” by the service provider or
“provided” by the service provider or “used” when supplied or provided by the
service provider, i.e., goods and materials whether supplied, provided or used in
the construction and charged on the service recipient and the value whereof is
received by the provider towards a consideration that accrues to the provider’s
benefit, would alone comprise the “gross amount charged” by the provider for
providing construction service; and the value of such material alone would form
part of the “gross amount charged” within the meaning of Section 67; and for the
purpose as well, of availing the benefits under Notification No. 15/2004-ST (apart
from the other conditions therein). Alternatively, it is contended that since the
value of free supplies is incapable of computation (since no principle of
computation of free supplies is indicated and the provisions of Section 67(1) (iii)
would not apply as free supplies would not fall within Section 67), the
computation provision fails and consequently this restriction on the availability of
the benefits of exemption under the said Notification would nugatory.
(xix)
Shri Mittal, for the assessees would rely on the judgment in
Associated Cement Companies Ltd. vs. State of Bihar and Others 39.
The
issue was whether the assessee was entitled to avail reduction of sales tax
liability to the extent of entry tax paid, though it was granted exemption from
sales tax on additional/ incremental production.
39
(2004) 7 SCC 642
The exemption Notification
44
provided for reduction of the liability of an importer of cement to sales tax on sale
of such cement, to the extent of entry tax paid by him. The assessee imported
cement by paying the tax but was granted exemption from Sales Tax Act on the
additional / incremental production of cement, under a scheme.
In these
circumstances, allowing the assessee’s appeal, the Supreme Court observed
that the question of exemption arises only when there is a liability and that
exigibility to tax is not the same as the liability to pay tax; that the former depends
on the charge created by the Statute, the latter on computation in accordance
with the provisions of the Statute and the Rules framed there under if any; and
that liability to pay tax and the actual payment of tax are conceptually different.
The observation of the Court that exemption presupposes a liability and unless
there is liability, the question of exemption does not arise, were made in that
context. In the reference before us it is not the case that there is no liability to tax
on construction services under the scheme of the Act. Since there is admittedly
such liability exemption Notification No. 15/2004-ST was issued (and benefits
thereunder are claimed). We are only concerned with the scope of the
expression “used” in the Explanation to the said Notification, introduced by
Notification No. 4/2004-ST. On the same premise, the decision in Peekay ReRolling Mills (P) Ltd., vs. Assistant Commissioner40 cited by Shri Mittal for
the same proposition, does not really assist in interpretation of the expression
“used” nor for resolution of the issue referred to this Bench.
11.
Etymologically the words supplied and provided are closely associated
words.
Provided also means to supply; furnish. Supply bears a similar
connotation. The word used is structurally associated (in the Explanation) with
40
2007 (219) ELT 3 (SC)
45
the earlier two words and the three words are employed to define the meaning of
the expression gross amount charged, an expression that occurs in the preamble
to Notification No. 15/2004-ST. The word use variously means cause to act or
serve for a purpose; avail oneself of; exploit for one’s own ends; the right of
power of using.
12.
The word use therefore has multiple connotation and bears different
meanings depending upon the context.
The word used is therefore
per se
ambiguous or obscure. Since in its preambular context, the expression gross
amount charged (as our analysis has concluded) means an amount charged on
the service recipient, received by the provider and accruing to the benefit of the
later in relation to the taxable service provided and the Explanation seeks to
define gross amount charged, an expression occruing in the preamble, by
employing three words to contextualise the definition – supplied, provided, used,
we are satisfied that application of the noscitur principle could be gainfully
employed to identify the legal meaning of the word used from
several
grammatical/ literal meanings of the said word, by employing the associational
context.
It is true, as contended by Revenue, that even if one of the literal
meanings of the expression used, namely free supplies used is considered as
the legal meaning as well, construction service providers may not be
handicapped as they may seek benefits under Notification No. 12/2003-ST. In
our view however the fact that the assessee have an alternative recourse to
avoiding the rigour cannot be the criterion for interpreting the Explanation. This
contention by Revenue proceeds on a fallacious comprehension of Notification
No. 12/2003-ST. The benefits under this Notification are only in respect of the
value of goods and materials sold by a service provider to the recipient of a
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taxable service. In the case of free supplies by the recipient there is no sale or
transfer of title in the goods and materials in favour of the service provider, at any
point of time.
Therefore when free supplied goods and materials are
incorporated into the construction would be no sale by the provider to the
recipient either. Notification No. 12/2003-ST would therefore be inapplicable.
13.
In any event, provisions of the Explanation must be interpreted and the
true meaning of the problematic expressions therein ascertained, independent of
a cost - benefit analysis.
14.
Board Circular dated 16.02.2006 (a circular issued subsequent to the
introduction of the Explanation in Notification No. 15/2004-ST) and in the context
of an identical Explanation introduced in Notification No. 18/2005-ST, clarified
that gross amount charged shall include the value of goods and materials
supplied. This circular constitutes contemporanea expositio of the meaning of
the Explanation in Notification No. 18/2005-ST.
15.
From the several aids to interpretation, referred to (supra) we are
compelled to conclude that goods and materials, supplied/ provided/ used by the
service provider for incorporation in the construction, which belong to the
provider and for which the service recipient is charged towards the value of such
supply/ provision / use and the corresponding value whereof was received by the
service provider, to accrue to his benefit, whether independently specified as
attributable to the specific material/ goods incorporated or otherwise, would alone
constitute the gross amount charged.,
This is not to say that an exemption
Notification cannot enjoin a condition that the value of free supplies must also go
into the gross amount charged for valuation of the taxable service.
If such
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intention is to be effectuated the phraseology must be specific and denuded of
ambiguity.
16.
In conclusion we answer the reference as follows:
(a)
The value of goods and materials supplied free of cost by a service
recipient to the provider of the taxable construction service, being neither
monetary or non-monetary consideration paid by or flowing from the
service recipient, accruing to the benefit of service provider, would be
outside the taxable value or the gross amount charged, within the meaning
of the later expression in Section 67 of the Finance Act, 1994; and
(b)
Value of free supplies by service recipient do not comprise the gross
amount charged under Notification No. 15/2004-ST, including the
Explanation thereto as introduced by Notification No. 4/2005-ST.
17.
Consequent on our answer to the reference, the appeals shall be listed
before the appropriate Bench for disposal on merits and in accordance with this
decision, to the extent applicable to each of the appeals.
(Pronounced in the Court on
06/09/2013).
(Justice G. Raghuram)
President
(Sahab Singh)
Technical Member
(Manmohan Singh)
Technical Member
Pant
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