Custom, Excise & Service Tax Tribunal
Naveen Constructions vs Mangalore on 23 June, 2025
ST/3182/2011
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 2
Service Tax Appeal No. 3182 of 2011
(Arising out of Order-in-Appeal No.180/2010 dated 14.05.2010
passed by the Commissioner of Central Excise (Appeals), Mangalore.)
M/s. Naveen Constructions
'Kusum', Pais Garden, Appellant(s)
Bejai,
Mangalore - 575 004.
VERSUS
The Communication of Central Excise
VI Floor, Trade Centre,
Respondent(s)
Bunts Hostel Road, Mangalore - 575 003.
APPEARANCE:
Shri M. S. Nagaraja, Advocate for the Appellant.
Shri Akshay Kumar, Superintendent, Authorised Representative for the Respondent.
CORAM:
HON'BLE MR. P.A. AUGUSTIAN, MEMBER (JUDICIAL) HON'BLE MRS. R. BHAGYA DEVI, MEMBER (TECHNICAL) Final Order No. 20886 / 2025 DATE OF HEARING: 23.06.2025 DATE OF DECISION: 23.06.2025 PER : P.A. AUGUSTIAN The issue in the present appeal is whether the cost of materials supplied by the customers of the appellant can be excluded while assessing service tax liability by invoking the benefit of Notification No.18/2005-ST dated 7.6.2005 and Notification No.1/2006 ST date 1.3.2006. Appellant is engaged in building residential apartments and on perusal of the document, it was observed that they were constructing commercial complexes from 10.09.2004 and they have obtained service tax Page 1 of 4 ST/3182/2011 registration in April 2006. Alleging short-payment of service tax for the period from 16.06.2005 to 30.06.2007, show-cause notice was issued. Thereafter, adjudicating authority held that since the customers have supplied major materials such as steel and cement and the value of such supplies has not been included in the labour charges collected by the service provider and since the above said omission on the part of the appellant is considered as short-payment of duty, adjudicating authority confirmed the demand and also imposed interest and penalty under 'Construction of Complex Service'. Aggrieved by such order, an appeal was filed before Commissioner (A) and the Commissioner (A) as per the impugned order dated 14.5.2010 upheld the order issued by the adjudicating authority. Aggrieved by such order, present appeal is filed.
2. When the appeal came up for hearing, the learned counsel for the appellant submitted that the issue is no more res integra and settled by the judgment of Hon'ble Supreme Court in the case of Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd.: 2018 (10) GSTL 401 (SC). Learned counsel further submitted that the issue whether the gross amount shown in the said Notification includes the value of goods and material supplied free of cost by the service recipient is settled as per judgment of Hon'ble Supreme Court in the cases of Commissioner of Service Tax vs. Bhayana Builders (P) Ltd.: 2018 (10) GSTL 118 (SC) and CCE & Cus. vs. Larsen & Toubro Ltd.: 2015 (39) STR 913 (SC).
2.1 Learned counsel also submitted that the appellant had paid Service Tax of Rs.1,30,113/-, Education Cess of Rs.2,603/- and SHE Cess of Rs.171/- totalling to Rs.1,32,887/- along with interest of Rs.12,455 and late fee of Rs.8,000/- as recorded in Para 23 of the adjudication order and the same stands appropriated. The appellant submitted that since the denial of exemption is contrary to law and there is no liability to pay service tax on the value of items supplied by the recipients of Page 2 of 4 ST/3182/2011 service, the deposits made during investigation and appropriated in the impugned order are required to be refunded with interest.
3. The learned Authorized Representative (AR) reiterated the findings in the impugned order.
4. Heard both sides. The issue is no more res integra and stands settled by the judgment of the Hon'ble Supreme Court in the case of Commissioner of Service Tax vs. Bhayana Builders (P) Ltd. (supra) wherein it is held that:
"17. Faced with the aforesaid situation, the argument of the Learned Counsel for the Revenue was that in case the assessees did not want to include the value of goods/materials supplied free of cost by the service recipient, they were not entitled to the benefit of notification dated September 10, 2004 read with notification dated March 1, 2005. It was argued that since building construction contract is a composite contract of providing services as well as supply of goods, the said notifications were issued for the convenience of the assessees. According to the Revenue, the purpose was to bifurcate the component of goods and services into 67% : 33% and to provide a ready formula for payment of service tax on 33% of the gross amount. It was submitted that this percentage of 33% attributing to service element was prescribed keeping in view that in the entire construction project, roughly 67% comprises the cost of material and 33% is the value of services. However, this figure of 67% was arrived at keeping in mind the totality of goods and materials that are used in a construction project. Therefore, it was incumbent upon the assessees to include the value of goods/material supplied free of cost by the service recipient as well otherwise it would create imbalance and disturb the analogy that is kept in mind while issuing the said notifications and in such a situation, the AO can deny the benefit of aforesaid notifications. This argument may look to be attractive in the first blush but on the reading of the notifications as a whole, to our mind, it is not a valid argument.
18. In the first instance, no material is produced before us to justify that aforesaid basis of the formula was adopted while issuing the notification. In the absence of any such material, it would be anybody's guess as to what went in the mind of the Central Government in issuing Page 3 of 4 ST/3182/2011 these notifications and prescribing the service tax to be calculated on a value which is equivalent to 33% of the gross amount. Secondly, the language itself demolishes the argument of the Learned Counsel for the Revenue as it says '33% of the gross amount 'charged' from any person by such commercial concern for providing the said taxable service'. According to these notifications, service tax is to be calculated on a value which is 33% of the gross amount that is charged from the service recipient. Obviously, no amount is charged (and it could not be) by the service provider in respect of goods or materials which are supplied by the service recipient. It also makes it clear that valuation of gross amount has a causal connection with the amount that is charged by the service provider as that becomes the element of 'taxable service'. Thirdly, even when the explanation was added vide notification dated March 1, 2005, it only explained that the gross amount charged shall include the value of goods and materials supplied or provided or used by the provider of construction service. Thus, though it took care of the value of goods and materials supplied by the service provider/assessee by including value of such goods and materials for the purpose of arriving at gross amount charged, it did not deal with any eventuality whereby value of goods and material supplied or provided by the service recipient were also to be included in arriving at gross amount 'gross amount charged'."
Following the ratio of the above judgment, the impugned order is set aside and appeal is allowed with consequential relief, if any, in accordance with law.
(Operative portion of the order was pronounced in Open Court on conclusion of hearing.) (P.A. AUGUSTIAN) MEMBER (JUDICIAL) (R. BHAGYA DEVI) MEMBER (TECHNICAL) rv Page 4 of 4