COMMISSIONER OF SERVICE TAX ETC.versusM/S. BHAYANA BUILDERS (P) LTD. ETC.

1128                      [2018]REPORTS
                SUPREME COURT    S.C.R. 1128               [2018] 1 S.C.R.


 A                COMMISSIONER OF SERVICE TAX ETC.
                                        v.
                  M/S. BHAYANA BUILDERS (P) LTD. ETC.
                      (Civil Appeal Nos. 1335-1358 of 2015)
 B                            FEBRUARY 19, 2018
                [A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
             Finance Act, 1994 –
             s. 65(105)(zzq) and 67 – Service tax – On construction
 C     services – Valuation of taxable service – By Notification dated
       10.9.2004, service tax was to be calculated on the value equivalent
       to 33% of the ‘gross amount charged’ from any person by such
       commercial concern for providing taxable service – This Notification
       was further amended by Notification dated 1.3.2005 whereby it was
       explained that ‘gross amount charged’ shall include the value of
 D
       goods and materials supplied and provided or used by the provider
       of construction service for providing such service – In the
       construction projects undertaken by the assessees, some of the
       materials were provided by the service recipients – Assessee paid
       the service tax @33% of the gross amount charged from the service
 E     recipients – Revenue demanded that value of such materials, even
       when supplied or provided free, should be included while calculating
       the ‘gross value’ and 33% thereof should be treated as value for
       the purpose of levying service tax – Held: In respect of goods/
       materials supplied by the service recipient, no service is provided
       by the assessee/service provider – Therefore, the value of goods/
 F
       material that is provided by the service recipient free of charge is
       not to be included while arriving at the ‘gross amount’ as no price
       has been charged by the service provider from service recipient –
       Goods/materials supplied free, cannot also be called ‘form of
       payment’ as explained in Explanation (c) to s.67.
 G           Dismissing the appeals, the Court
             HELD: 1.1 A plain meaning of the expression ‘the gross
       amount charged by the service provider for such service provided
       or to be provided by him’ as occurring in s.67(2) of Finance Act,
       1994 would lead to the obvious conclusion that the value of goods/
 H
                                       1128
 COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANA                      1129
             BUILDERS (P) LTD. ETC.

material that is provided by the service recipient free of charge      A
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
                                                                       B
provider/assessee. Again, obviously, in respect of the goods/
materials supplied by the service recipient, no service is provided
by the assessee/service provider. Explanation 3 to sub-section
(1) of Section 67 removes any doubt by clarifying that the gross
amount charged for the taxable service shall include the amount
received towards the taxable service before, during or after           C
provision of such service, implying thereby that where no amount
is charged that has not to be included in respect of such materials/
goods which are supplied by the service recipient, naturally, no
amount is received by the service provider/assessee. Though,
sub-section (4) of Section 67 states that the value shall be
                                                                       D
determined in such manner as may be prescribed, however, it is
subject to the provisions of sub-sections (1), (2) and (3).
Moreover, no such manner is prescribed which includes the value
of free goods/material supplied by the service recipient for
determination of the gross value. [Para 13] [1141-F-H; 1142-A-
B]                                                                     E
      1.2 The definition of “gross amount charged” given in
Explanation (c) to Section 67 only provides for the modes of the
payment or book adjustments by which the consideration can be
discharged by the service recipient to the service provider. It
does not expand the meaning of the term “gross amount charged”         F
to enable the Department to ignore the contract value or the
amount actually charged by the service provider to the service
recipient for the service rendered. The fact that it is an inclusive
definition and may not be exhaustive also does not lead to the
conclusion that the contract value can be ignored and the value
of free supply goods can be added over and above the contract          G
value to arrive at the value of taxable services. The value of
taxable services cannot be dependent on the value of goods
supplied free of cost by the service recipient. The service
recipient can use any quality of goods and the value of such goods
can vary significantly. Such a value, has no bearing on the value      H
1130            SUPREME COURT REPORTS                      [2018] 1 S.C.R.


 A     of services provided by the service recipient. Thus, on first
       principle itself, a value which is not part of the contract between
       the service provider and the service recipient has no relevance
       in the determination of the value of taxable services provided by
       the service provider. Therefore, it is not correct to say that the
       value of goods/materials supplied free, is a form of payment and,
 B
       therefore, should be added. [Para 15 and 16] [1142-G-H; 1143-
       A-C-D]
             1.3 The service tax is to be levied in respect of ‘taxable
       services’ and for the purpose of arriving at 33% of the gross
       amount charged, unless value of some goods/materials is
 C     specifically included by the Legislature, that cannot be added.
       The notifications in questions are exemption notifications which
       have been issued under Section 93 of the Act. As per Section 93,
       the Central Government is empowered to grant exemption from
       the levy of service tax either wholly or partially, which is leviable
 D     on any ‘taxable service’ defined in any of sub-clauses of clause
       (105) of Section 65. Thus, exemption under Section 93 can only
       be granted in respect of those activities which the Parliament is
       competent to levy service tax and covered by sub-clause (zzq) of
       clause (105) and sub-clause (zzzh) of clause (105) of Section 65 of
       Chapter V of the Act under which such notifications were issued.
 E     [Para 19 and 20] [1145-E-G]
             Commissioner, Central Excise and Customs, Kerala v.
             M/s. Larsen & Tubro Ltd. (2016) 1 SCC 170 : [2015] 8
             SCR 1046 – relied on.

 F           2. In Civil Appeal No. 3247 of 2015, the assessee was a
       sole proprietorship concern of the person who died. This appeal
       has abated. [Para 22] [1146-A-B]
             Shabina abraham & Ors. v. Collector of Central Excise
             & Customs (2015) 10 SCC 770 : [2015] 8 SCR 151 –
 G           referred to.
                              Case Law Reference
             [2015] 8 SCR 1046        relied on               Para 19
             [2015] 8 SCR 151         referred to.            Para 22
 H
 COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANA                           1131
             BUILDERS (P) LTD. ETC.

      CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1335-                A
1358 of 2018.
      From the Order of the assailing Interim Order No. 394-417 of
2013dated 06.09.2013 of the Customs, Excise and Service Tax Appellate
Tribunal, New Delhi in Appeal Nos. ST/247, 52, 53, 65, 97, 119, 158, 236,
503, 601, 621,629 and 746 of 2008; ST/334, 422, 436, 469, 482, 490 and      B
510 of 2009; ST/935, 936 and 1075 of 2010; ST/55615 of 2013
                               WITH
      C.A. No. 15865 of 2017, C.A. No.2888 of 2015, C.A. No. 7238
of 2015, C.A. Nos. 3248-3252 of 2015, C.A. Nos. 2452-2455 of 2014,
C.A. No. 45 of 2015, C.A. No. 1400 of 2015, C.A. No. 10206 of 2017,         C
C.A. No. 6207 of 2016, C.A. Nos. 8148-8149 of 2014, C.A. No. 7370
of 2014, C.A. No. 10027 of 2014, C.A. No. 4209 of 2015,
C.A. No. 1326 of 2015, C.A. No. 1647 of 2015, C.A. No. 3060 of 2015,
C.A. No. 2437 of 2015, C.A. No. 1888 of 2015, C.A. No. 2081 of 2015,
C.A. Nos. 2082-2083 of 2015, C.A. No. 4208 of 2015, C.A. No. 3247           D
of 2015, C.A. No. 2474 of 2015, C.A. No. 5601 of 2015, C.A. No. 7038
of 2015, C.A. No. 7235 of 2015, C.A. No. 7243 of 2015, C.A. No. 4970
of 2016, C.A. No. 5941 of 2016, C.A. No. 8484 of 2016, C.A. No. 2338
of 2018, C.A. Nos. 5319-5320 of 2017, C.A. No. 15485 of 2017, C.A.
No. 11085 of 2017, C.A. No. 10606 of 2017, C.A. No. 15570 of 2017,
C.A. No. 12451 of 2017, C.A. No. 11182 of 2017, C.A. No. 1430 of            E
2015, C.A. No. 9423 of 2017 and C.A. No. 10611 of 2017.
      Ms. Shirin Khajuria, Ms. Nisha Bagchi, Ms. B. Sunita Rao, Rajiv
Nanda, Ms. Pooja Sharma, Anurag, Shashank Kumar, Rupesh Kumar,
B. Krishna Prasad, V. Lakshmikumaran, Ms. L. Charanya, Aditya
Bhattacharya, Victor Das, L. Badri Narayanan, Ms. Apeksha Mehta,            F
M. P Devanath, Anil Kumar Tandale, K. V. Mohan, Rakesh Sinha,
Ms. Shipra Ghose, Ashok K. Mahajan, Rupesh Kumar, Susmit Pushkar,
Abhijeet Swaroop, Ayush Mehrotra, Praveen Swaroop, Ms. Madhumita
Bhattacharjee, Pramod B. Agarwala, M. P. Vinod, R. Parthasarathy,
Praveen Satale, Rajiv Shankar Dvivedi, S. Sunil, Sudarshan Singh Rawat,     G
Amit Yadav, J. K. Mishra, Nilakanta Nayak, Kaushal Narayan Mishra,
Shishir Deshpande, Tarun Gulati, Sparsh Bhargava, Ms. Ishita Farsaiya,
Nikhil Gupta, Anupam Mishra, Vipin Upadhyay, Kishore Kunal, R.
Chandrachud, M/s Mitter & Mitter Co., Rajat Joseph, Punit Dutt Tyagi,
Aravindh S., A. Lakshmi Narayanan, Mohinder Jit Singh, Ruchir Bhatia,
                                                                            H
1132            SUPREME COURT REPORTS                           [2018] 1 S.C.R.


 A     Bhargava V. Desai, Akshat Malpani, Vinay Garg, Uday Singh,
       Ms. Deepam Garg, Aayush Agarwala, Rupesh Gupta and Ms. Tanya
       Tiwari, Advs for the appearing parties.
              The Judgment of the Court was delivered by
              A. K. SIKRI, J. 1. Delay condoned in Diary No. 42349 of 2016.
 B
              2. The respondents herein are engaged in the business of
       construction and, in the process, providing the services known as
       ‘Commercial or Industrial Construction Service’. This service is exigible
       to service tax as per the provisions of Section 65(105)(zzq) of the Finance
       Act, 1994 (hereinafter referred to as the ‘Act’). The assessees accept
 C     that they are covered thereby and, therefore, are paying service tax as
       well. The dispute, however, is with regard to the valuation of taxable
       service provided by them. Under Section 67 of the Act deals with such
       a valuation.
              3. It is a matter of common knowledge that for undertaking
 D     construction projects, the assessees not only render services, lot of
       materials/goods are also used in the construction of building or civil
       structure etc. For valuation of taxable services, the material/goods
       element has to be excluded. In order to make the things easier for the
       assessees as well as the Assessing Officers (AOs), the Government
 E     issued the Notification No. 15/2004-ST dated September 10, 2004 as
       per which service tax is to be calculated on the value which is equivalent
       to 33% of the gross amount charged from any person by such commercial
       concern for providing the taxable service. This notification was amended
       vide another Notification No. 4/2005-ST dated March 01, 2005 whereby
       an explanation was added to the original notification. This explanation
 F     mentions that the ‘gross amount charged’ shall include the value of goods
       and material supplied and provided or used by the provider of construction
       services for providing such service. It is made optional for the assessees
       to take advantage of the aforesaid notification and get the value
       calculated as per the aforesaid formula provided therein. The assessees
 G     have availed the benefit and paid the service tax @33% of the gross
       amount which they have charged from the persons for whom
       construction was carried out, i.e., the service recipients. It so happened
       that in all these cases where the construction projects were undertaken
       by the assessees, some of the goods/materials (particularly, steel and
       cement) were supplied or provided by the service recipients. As these
 H
 COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANA                              1133
       BUILDERS (P) LTD. ETC. [A.K. SIKRI, J.]

materials were to be utilised in the projects meant for service recipients     A
themselves, obviously, no costs thereof was charged from the assessees.
The Department wants that value of such goods/materials even when
supplied or provided free should be included, while calculating the “gross
value” and 33% thereof be treated as value for the purpose of levying
service tax.
                                                                               B
       4. The question, therefore, which has fallen for consideration is
as to whether, the value of goods/material supplied or provided free of
cost by a service recipient and used for providing the taxable service of
construction or industrial complex, is to be included in computation of
gross amount (charged by the service provider), for valuation of the
taxable service, under Section 67 of the Act and for availing the benefits     C
under Notification No. 15/2004-ST dated September 10, 2004 as amended
by Notification No. 4/2005-ST dated March 01, 2005 (whereby an
Explanation was added to Notification No. 15/2004-ST).
        5. We may mention here that different benches of the Customs,
Excise and Service Tax Appellate Tribunal (for short ‘CESTAT’) had             D
given conflicting views on the aforesaid question and, therefore, the matter
was referred to the Larger Bench which has, by impugned judgment
dated September 6, 2013 rendered in a batch of matters, has decided the
issue in favour of the assessees by holding that the value of the goods/
materials cannot be added for the purpose of aforesaid notification dated      E
September 10, 2004, as amended by notification dated March 01, 2005.
It is the said judgment of the Larger Bench dated September 6, 2013,
correctness whereof is the subject matter of present appeals.
       6. For answering the question, it would be necessary to refer to
the relevant provisions of the Act and the Notifications, which are as         F
under:
      As mentioned above, ‘commercial or industrial construction
service’ is a taxable service enumerated under Section 65(105)(zzq) of
the Act. Section 65(25b) of the Act defines construction or industrial
construction service to mean:                                                  G
      (a) construction of a new building or a civil structure or a part
      thereof; or
      (b) construction of pipeline or conduit; or

                                                                               H
1134            SUPREME COURT REPORTS                            [2018] 1 S.C.R.


 A           (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
 B
             (d) repair, alteration, renovation or restoration of, or similar
             services in relation to, building or civil structure, pipeline or
             conduit,
             which is-
 C           (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
 D           include such services provided in respect of roads, airports,
             railways, transport terminals, bridges, tunnels and dams;”
             7. Section 67 of the Act deals with valuation of taxable services.
       This Section was amended w.e.f. April 18, 2006. Unamended provision
       reads as under:
 E           “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
 F           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;
 G           (b) the adjustments made by the telegraph authority from any
             deposits made by the subscriber at the time of application for
             telephone connection or pager or facsimile or telegraph or telex
             or for leased circuit;
             (c) the amount of premium charged by the insurer from the policy
 H           holder;
COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANA                            1135
      BUILDERS (P) LTD. ETC. [A.K. SIKRI, J.]

   (d) the commission received by the air travel agent from the             A
   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         B
   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,                                 C

   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;                                D
   (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         E
   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   F
   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           G
   customer during the course of providing erection, commissioning
   or installation service; and
   (viii) interest on loans.
   Explanation 2.-Where the gross amount charged by a service
   provider is inclusive of service tax payable, the value of taxable       H
1136      SUPREME COURT REPORTS                           [2018] 1 S.C.R.


 A     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
 B     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
 C     not wholly or partly consisting of money, be such amount in money
       as, with the addition of service tax charged, is equivalent to the
       consideration;
       (iii) in a case where the provision of service is for a consideration
       which is not ascertainable, bet he amount as may be determined
 D     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
 E     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
 F
       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;
 G     (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;

 H
COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANA                           1137
      BUILDERS (P) LTD. ETC. [A.K. SIKRI, J.]

   (c) “gross amount charges” includes payment by cheque, credit           A
   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 transac-
                                                                           B
   tion of taxable service is with any associated enterprise.]”
   8. After the amendment, Section 67 of the Act is as follows:
   Section 67. Valuation of taxable services for charging ser-
   vice tax
   (1) Subject to the provisions of this Chapter, service tax charge-      C
   able on any taxable service with reference to its 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;
                                                                           D
   (ii) in a case where the provision of service is for a consideration
   not wholly or partly consisting of money, be such amount in money,
   with the addition of service tax charged, is equivalent to the
   consideration;
   (iii) in a case where the provision of service is for a consideration
                                                                           E
   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
                                                                           F
   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.
                                                                           G
   (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-
                                                                           H
1138            SUPREME COURT REPORTS                            [2018] 1 S.C.R.


 A           (i) any amount that is payable for the taxable services provided
             or to be provided;
             (ii) any reimbursable expenditure or cost incurred by the service
             provider and charged, in the course of providing or agreeing to
             provide a taxable service, except in such circumstances, and
 B           subject to such conditions, as may be prescribed;
             (iii) any amount retained by the lottery distributor or selling agent
             from gross sale amount of lottery ticket in addition to the fee or
             commission, if any, or, as the case may be, the discount received,
             that is to say, the difference in the face value of lottery ticket and
 C           the price at which the distributor or selling agent gets such ticket.]
             (c) “gross amount charged” includes payment by cheque, credit
             card, deduction from account and any form of payment by issue
             of credit notes or debit notes and 2[book adjustment, and any
             amount credited or debited, as the case may be, to any account,
 D           whether called “Suspense account” or by any other name, in the
             books of account of a person liable to pay service tax, where the
             transaction of taxable service is with any associated enterprise.]”
             9. Exemption Notifications:
             (a) Notification No. 12/2003-ST dated June 26, 2003, issued by
 E     the Central Government, exercising powers under Section 93(1) of the
       Act exempted the value of goods and materials sold by a service
       provider to a recipient of service from the tax leviable thereon, subject
       to documentary proof specifically indicating the value of such goods and
       material. This notification was specified to come into force w.e.f. July
 F     01, 2013.
             (b) By Notification No. 15/2004-ST dated September 10, 2004, a
       further exemption was granted in respect of taxable service provided by
       a commercial concern to any person in relation to construction service.
       This Notification reads:
 G           “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
 H
 COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANA                           1139
       BUILDERS (P) LTD. ETC. [A.K. SIKRI, J.]

      said Act, as is in excess of the service tax calculated on a value    A
      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       B
      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   C
      (Department of Revenue) No. 12/2003-Service Tax, dated the
      20th June, 2003 [G.S.R. 503(E), dated the 20th June, 2003].”
      (c) Notification No. 4/2005-ST was issued on March 01, 2005,
      introducing an Explanation at the end of Notification No. 15/2004-
      ST. This Explanation reads:                                           D
      “Explanation. – For the purposes of this notification, the “gross
      amount charged” shall include the value of goods and materials
      supplied or provided or used by the provider of the construction
      service for providing such service.”
       10. We may also note at this stage that the Board has also issued    E
the Circular dated September 17, 2004 clarifying the scope of these
services. In para 13.5 thereof, reasons for issuing the exemption
notifications were given. This para reads as under:
      “13.5 The gross value charged by the building contractors include
      the material cost, namely, the cost of cement, steel, fittings and    F
      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        G
      (Notification No. 12/2003-S.T.) but the exemption is subject to
      the condition of availability of documentary proof specially
      indicating the value of the goods sold. In case of a composite
      contract, bifurcation of value of goods sold is often difficult.
                                                                            H
1140             SUPREME COURT REPORTS                            [2018] 1 S.C.R.


 A           Considering these facts, an abatement of 67% has been provided
             in case of composite contracts where the gross amount charged
             includes the value of material cost. (Refer Notification No. 15/
             2004-S.T. dated 10-9-2004). This would, however, be optional
             subject to the condition that no credit of input goods, capital goods
             and no benefit (under Notification No. 12/2003-S.T.) of exemp-
 B
             tion towards cost of goods are availed.”
              11. As already pointed out in the beginning, all these assessees
       are covered by Section 65(25b) of the Act as they are rendering
       ‘construction or industrial construction service’, which is a taxable service
       as per the provisions of Section 65(105)(zzq) of the Act. The entire
 C     dispute relates to the valuation that has to be arrived at in respect of
       taxable services rendered by the assessees. More precisely, the issue is
       as to whether the value of goods/materials supplied or provided free of
       cost by a service recipient and used for providing the taxable service of
       construction or industrial complex, is to be included in computation of
 D     gross amount charged by the service provider, for valuation of taxable
       service. For valuation of taxable service, provision is made in Section
       67 of the Act which enumerates that it would be ‘the gross amount
       charged by the service provider for such service provided or to be
       provided by him’. Whether the value of materials/goods supplied free
       of cost by the service recipient to the service provider/assessee is to be
 E     included to arrive at the ‘gross amount’, or not is the poser. On this
       aspect, there is no difference in amended Section 67 from unamended
       Section 67 of the Act and the parties were at ad idem to this extent.
              12. On a reading of the above definition, it is clear that both prior
       and after amendment, the value on which service tax is payable has to
 F     satisfy the following ingredients:
              a. Service tax is payable on the gross amount charged:- the
                 words “gross amount” only refers to the entire contract value
                 between the service provider and the service recipient. The
                 word “gross” is only meant to indicate that it is the total
 G               amount charged without deduction of any expenses. Merely
                 by use of the word “gross” the Department does not get any
                 jurisdiction to go beyond the contract value to arrive at the
                 value of taxable services. Further, by the use of the word
                 “charged”, it is clear that the same refers to the amount
 H               billed by the service provider to the service receiver.
 COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANA                             1141
       BUILDERS (P) LTD. ETC. [A.K. SIKRI, J.]

            Therefore, in terms of Section 67, unless an amount is charged    A
            by the service provider to the service recipient, it does not
            enter into the equation for determining the value on which
            service tax is payable.
       b. The amount charged should be for “for such service provided”:
           Section 67 clearly indicates that the gross amount charged         B
           by the service provider has to be for the service provided.
           Therefore, it is not any amount charged which can become
           the basis of value on which service tax becomes payable but
           the amount charged has to be necessarily a consideration
           for the service provided which is taxable under the Act. By
           using the words “for such service provided” the Act has            C
           provided for a nexus between the amount charged and the
           service provided. Therefore, any amount charged which
           has no nexus with the taxable service and is not a
           consideration for the service provided does not become part
           of the value which is taxable under Section 67. The cost of        D
           free supply goods provided by the service recipient to the
           service provider is neither an amount “charged” by the
           service provider nor can it be regarded as a consideration
           for the service provided by the service provider. In fact, it
           has no nexus whatsoever with the taxable services for which
           value is sought to be determined”                                  E

       13. A plain meaning of the expression ‘the gross amount charged
by the service provider for such service provided or to be provided by
him’ would lead to the obvious conclusion that the value of goods/
material that is provided by the service recipient free of charge is not to
be included while arriving at the ‘gross amount’ simply, because of the       F
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       G
provided by the assessee/service provider. Explanation 3 to sub-section
(1) of Section 67 removes any doubt by clarifying that the gross amount
charged for the taxable service shall include the amount received towards
the taxable service before, during or after provision of such service,
implying thereby that where no amount is charged that has not to be
                                                                              H
1142            SUPREME COURT REPORTS                           [2018] 1 S.C.R.


 A     included in respect of such materials/goods which are supplied by the
       service recipient, naturally, no amount is received by the service
       provider/assessee. Though, sub-section (4) of Section 67 states that the
       value shall be determined in such manner as may be prescribed, however,
       it is subject to the provisions of sub-sections (1), (2) and (3). Moreover,
       no such manner is prescribed which includes the value of free goods/
 B
       material supplied by the service recipient for determination of the gross
       value.
             14. We may note at this stage that Explanation (c) to sub-section
       (4) was relied upon by the learned counsel for the Revenue to buttress
       the stand taken by the Revenue and we again reproduce the said
 C     Explanation hereinbelow in order to understand the contention:
             (c) “gross amount charges” includes payment by cheque, credit
             card, deduction from account and any form of payment by issue
             of credit notes or debit notes and [book adjustment, and any amount
             credited or debited, as the case may be, to any account, whether
 D           called ‘suspense account’ or by any other name, in the books of
             account of a person liable to pay service tax, where the transac-
             tion of taxable service is with any associated enterprise.]”
                                                           [emphasis supplied]
              15. It was argued that payment received in ‘any form’ and ‘any
 E     amount credited or debited, as the case may be...’ is to be included for
       the purposes of arriving at gross amount charges and is leviable to pay
       service tax. On that basis, it was sought to argue that the value of
       goods/materials supplied free is a form of payment and, therefore, should
       be added. We fail to understand the logic behind the aforesaid
 F     argument. A plain reading of Explanation (c) which makes the ‘gross
       amount charges’ inclusive of certain other payments would make it clear
       that the purpose is to include other modes of payments, in whatever
       form received; be it through cheque, credit card, deduction from
       account etc. It is in that hue, the provisions mentions that any form of
       payment by issue of credit notes or debit notes and book adjustment is
 G     also to be included. Therefore, the words ‘in any form of payment’ are
       by means of issue of credit notes or debit notes and book adjustment.
       With the supply of free goods/materials by the service recipient, no case
       is made out that any credit notes or debit notes were issued or any book
       adjustments were made. Likewise, the words, ‘any amount credited or
 H     debited, as the case may be’, to any account whether called ‘suspense
 COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANA                                1143
       BUILDERS (P) LTD. ETC. [A.K. SIKRI, J.]

account or by any other name, in the books of accounts of a person               A
liable to pay service tax’ would not include the value of the goods
supplied free as no amount was credited or debited in any account. In
fact, this last portion is related to the debit or credit of the account of an
associate enterprise and, therefore, takes care of those amounts which
are received by the associated enterprise for the services rendered by
                                                                                 B
the service provider.
       16. In fact, the definition of “gross amount charged” given in
Explanation (c) to Section 67 only provides for the modes of the
payment or book adjustments by which the consideration can be dis-
charged by the service recipient to the service provider. It does not
expand the meaning of the term “gross amount charged” to enable the              C
Department to ignore the contract value or the amount actually charged
by the service provider to the service recipient for the service rendered.
The fact that it is an inclusive definition and may not be exhaustive also
does not lead to the conclusion that the contract value can be ignored
and the value of free supply goods can be added over and above the               D
contract value to arrive at the value of taxable services. The value of
taxable services cannot be dependent on the value of goods supplied
free of cost by the service recipient. The service recipient can use any
quality of goods and the value of such goods can vary significantly. Such
a value, has no bearing on the value of services provided by the service
recipient. Thus, on first principle itself, a value which is not part of the     E
contract between the service provider and the service recipient has no
relevance in the determination of the value of taxable services provided
by the service provider.
       17. Faced with the aforesaid situation, the argument of the learned
counsel for the Revenue was that in case the assessees did not want to           F
include the value of goods/materials supplied free of cost by the service
recipient, they were not entitled to the benefit of notification dated
September 10, 2004 read with notification dated March 01, 2005. It was
argued that since building construction contract is a composite contract
of providing services as well as supply of goods, the said notifications         G
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
                                                                                 H
1144            SUPREME COURT REPORTS                           [2018] 1 S.C.R.


 A     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
 B
       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.
 C            18. In the first instance, no material is produced before us to
       justify that aforesaid basis of the formula was adopted while issuing the
       notification. In the absence of any such material, it would be anybody’s
       guess as to what went in the mind of the Central Government in issuing
       these notifications and prescribing the service tax to be calculated on a
 D     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
 E     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
 F     service’. Thirdly, even when the explanation was added vide
       notification dated March 01, 2005, it only explained that the gross amount
       charged shall include the value of goods and materials supplied or
       provided or used by the provider of construction service. Thus, though
       it took care of the value of goods and materials supplied by the service
       provider/assessee by including value of such goods and materials for the
 G     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’.

 H
     COMMISSIONER OF SERVICE TAX ETC. v. M/S. BHAYANA                          1145
           BUILDERS (P) LTD. ETC. [A.K. SIKRI, J.]

       19. Matter can be looked into from another angle as well. In the        A
case of Commissioner, Central Excise and Customs, Kerala v. M/s.
Larsen & Toubro Ltd.1 This Court was concerned with exemption
notifications which were issued in respect of ‘taxable services’ covered
by sub-clause (zzq) of clause (105) read with clause (25b) and sub-
clause (zzzh) of clause (105) read with clause (30a) and (91a) of
                                                                               B
Section 65 of Chapter V of the Act. This Court in the aforesaid
judgment in respect of five ‘taxable services’ [viz. Section 65(105)(g),
(zzd), (zzh), (zzq) and (zzzh)] has held as under:
          “23. A close look at the Finance Act, 1994 would show that the
          fixed taxable services referred to in the charging Section 65(105)
          would refer only to service contracts simpliciter and not to         C
          composite works contracts. This is clear from the very language
          of Section 65(105) which defines ‘taxable service’ as ‘any service
          provided’.
Further, while referring to exemption notifications, it observed:
      “42. …Since the levy itself of service tax has been found to be          D
      non-existent, no question of any exemption would arise.”
       It is clear from the above that the service tax is to be levied in
respect of ‘taxable services’ and for the purpose of arriving at 33% of
the gross amount charged, unless value of some goods/materials is
specifically included by the Legislature, that cannot be added.                E
       20. It is to be borne in mind that the notifications in questions are
exemption notifications which have been issued under Section 93 of the
Act. As per Section 93, the Central Government is empowered to grant
exemption from the levy of service tax either wholly or partially, which
is leviable on any ‘taxable service’ defined in any of sub-clauses of          F
clause (105) of Section 65. Thus, exemption under Section 93 can only
be granted in respect of those activities which the Parliament is compe-
tent to levy service tax and covered by sub-clause (zzq) of clause (105)
and sub-clause (zzzh) of clause (105) of Section 65 of Chapter V of the
Act under which such notifications were issued.
                                                                               G
      21. For the aforesaid reasons, we find ourselves in agreement
with the view taken by the Full Bench of CESTAT in the impugned
judgment dated September 6, 2013 and dismiss these appeals of the
Revenue.
1
    (2016) 1 SCC 170
                                                                               H
1146                SUPREME COURT REPORTS                        [2018] 1 S.C.R.


 A            22. Insofar as Civil Appeal No. 3247 of 2015 is concerned, where
       the assessee is Gurmehar Construction, it may additionally be noted (as
       pointed out by the learned counsel for the respondent) that the assessee
       was a sole proprietorship concern of Mr. Narender Singh Atwal, who
       died on February 24, 2014. This is so stated in the counter affidavit filed
       by the respondent on May 16, 2017 and this position has not been disputed
 B
       by the Department. This appeal, in any case, has abated as well in view
       of the judgment of this Court in Shabina Abraham & Ors. v. Collector
       of Central Excise & Customs2.
                 23. As a result, all appeals stand dismissed.
 C
       Kalpana K. Tripathy                                        Appeals dismissed.




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       2
           (2015) 10 SCC 770
 G




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