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July 2016

2016 (42) STR 329 (Tri.-Bang.) AMR India Ltd. vs. Commissioner of C. Ex, Cus. and S.T., Hyderabad-II.

By Puloma Dalal
Jayesh Gogri
Mandar Telang
Chartered Accountants
Reading Time 2 mins
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Free supply of items by service recipient cannot be added to the value of service.

Bonus or incentive given for good performance to service provider after the completion of service cannot be assumed to be the value of services as it was not known at the time of provision of services.

Facts

Appellants were engaged in providing site formation, clearance and excavation services and service tax was discharged on consideration for such service. As per the terms of agreement, their clients were providing specific quantities of diesel and explosives with the condition of incentives/penalties for short/excess usage of free supplies. Revenue contended that cost of free supplies and amount of incentive should be added to value of services. Commissioner did not follow the decision of Larger Bench in case of Bhayana Builders (P) Ltd vs. CST, Delhi 2013 (32) STR 49 (Tri.-LB) on the basis that the said decision was in the context of construction services in general and on the meaning of the term “gross amount charged” provided in specific notification. Further, various judgements were relied observing that bonus/incentive given to service provider for appreciating services which were not known at the time of providing services were never a ‘consideration’ received by the assessee.

Held

Following various decisions, it was held that the value of diesel and explosives supplied free of cost shall not be included in the value of services. Further, bonus/ incentives calculated after the provision of services were in the nature of prize money for good performance and cannot be linked to the value of services.

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