Is the value of free supplies includable in the gross value for the purpose of charging service tax? Pravin Bagadia
As per notification no.1/2006-ST dated March 1, 2006, the contractor can charge service tax on 25% of the gross amount charged if the gross amount includes the value of land or charge service tax on 33% of the gross amount charged if the gross amount does not include value of land.
The gross amount charged includes the value of the goods and material supplied or provided or used for providing the service and hence the gross amount will have to include the value of the material used by you as well as the value of the free supplies.
In the case of Jaihind Projects Ltd versus commissioner of service tax, Ahmedabad, 2010 (18) STR 650 the brief facts are as under
The appellant, engaged in laying in of pipelines, is covered by Commercial or Industries Construction service, and availed abatement of 67% vide Notification No. 15/2004 and paid service tax on the balance amount excluding value of free supplies. The abatement was denied on the ground of non-inclusion of value of free supplies of pipes by the service recipient used in construction services. Penalty also was levied u/s.76 and u/s.78. The appellant contested that the value of free supplies is not includible in gross amount charged, as appellants have not charged anything for free supplies.
The CESTAT opined that the case was covered by Rule 3 of the service tax (determination of value rules), 2006 providing for valuation of services. The said rule provides that value of consideration would be the gross amount charged inclusive of monetary and non-monetary consideration and where such valuation is not possible, the gross amount charged would be money equivalent to consideration charged and in no case it would be less than the cost of provision of service.
It also states that proviso to the notification only explains when and how the benefit of this notification can be taken. The explanation in current case is only explaining actual meaning of gross amount charged and does not expand the scope of main operative part of notification. So, the value of free supplies is to be included in the gross amount charged.