Goods and Services Tax – GST – By: – Dr. Sanjiv Agarwal – Dated:- 28-2-2018 Last Replied Date:- 3-5-2018 – Any indirect tax has to be levied on the basis of valuation of goods or services. In case of Goods and Services Tax (GST), it is on the value of supplies where as in erstwhile Service Tax regime, it was on value of taxable services provided or to be provided. The value of taxable service means, the gross amount received by the service provider for the taxable service provided or to be provided by him. Taxable value had to be determined as per the provisions of the Section 67 of the Finance Act, 1994 read with Service Tax (Determination of Value) Rules, 2006. Section 67 and valuation rules enabled charging of service tax in cases where the consideration received is not in money terms. Where the service tax was charged on the basis of similar services provided by the same person, the same ought to be based on a normal transaction between two independent persons at an arm s length p
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s by a manufacturer is similar to receipt of materials free of cost by a service provider, as both the manufacturer and the service provider will have to otherwise incur cost of these items to produce excisable goods or to render taxable service. In both the cases, receipt of free supply of materials does not yield any additional return to the assessee. However, it is well recognized that for the purpose of section 4 of the Central Excise Act, free supply of items constitutes additional consideration received by a manufacturer. Therefore, inclusion of money value of free supply on items in the taxable value of the service rendered is consistent with the intention of the Legislature as reflected in the language of the Act as well as the Service Tax (Determination of Value) Rules, 2006. In a case where the service recipient does not provide such items to the service provider, the assessee will include the value of the materials used in rendering the taxable service and charge the same fr
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o full value including free supply being considered. It observed that 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 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 consideratio
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the gross amount charged for valuation of the taxable service. If such intention is to be effectuated the phraseology must be specific and denuded of ambiguity. The final conclusion was thus 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. Supreme court has recently settled this issue by its order dated 19.02.2018 in CST v. Bhayana Builders Pvt. Ltd. [(2018) 2 TMI 1325(SC)] deciding in favour of as
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him would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the gross amount simply, because of the reason that no price is charged by the assessee/service provider from the service recipient in respect of such goods/materials. This further gets strengthened from the words for such service provided or to be provided by the service provider/assessee. Again, obviously, in respect of the goods/materials supplied by the service recipient, no service is provided by the assessee/service provider. 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
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ent and used for providing the taxable service of construction or industrial complex, is to be included in computation of gross amount (charged by the service provider), for valuation of the taxable service, under Section 67 of the Act and for availing the benefits under Notification No. 15/2004-ST dated September 10, 2004. In a ruling in favor of the assessee, it has been held that service tax cannot be levied on the value of goods/material supplied free of cost by a service recipient during construction. The assessees in the instant case were covered by Section 65(25b) of the Finance Act, 1994 as they are rendering construction or industrial construction service , which is a taxable service as per the provisions of Section 65(105)(zzq) of the Finance Act. This order of Supreme Court settles the issue of taxability of free supplies in of goods and services favour of taxpayers and against the revenue. However, in GST regime, such supplies shall be taxable in view of the statutory provi
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