Deleted addition of value of goods deemed to be supplied in execution of works contract services in trading turnover

The Customs, Excise & Services Tax Appellate Tribunal (CESTAT) has ruled that the value of goods used in a works contract cannot be added to a company's trading turnover. The tribunal clarified that such goods are not considered simple trading items. This decision allows an appeal by M/s. Deify Infrastructures Limited, overturning the addition of these values to their trading turnover.

The Hon'ble Customs, Excise & Services Tax Appellate Tribunal, Delhi ("CESTAT") in the matter of M/s. Deify Infrastructures Limited v. Commissioner of Central Tax, Central Excise & Customs [Final Order No. 51927/2021 dated October 27, 2021], held that the value of goods deemed to be supplied in the course of works contract cannot by any stretch of imagination be added to the trading turnover of the appellant as it is not a trading simplicitor.

Factually, M/s. Deify Infrastructures Limited ("the Appellant") filed the current appeal being aggrieved ofthe Order-in-Appeal passed by the Commissioner of Customs (Appeals), Raipur in which addition of value of goods deemed to be supplied in execution of works contract services was made to trading turnover of the Appellant.

The Hon'ble CESTAT, Delhi observed that the Appellant is not maintaining separate books of accounts and has opted for reversal under Rule 6(3)(ii) read with Rule 6(3A) of the Cenvat Credit Rules, 2004 ("Cenvat Credit rules"). Thus, the dispute is whether the numerator of the formula (as specified in in Rule 6(3A)(c)(iii) of the Cenvat Credit Rules) should also include the value of the supplies or the goods used in the execution of the works contract service, as trading goods.

Noted that the value of the goods transferred in the course of rendering of works contract service is not a trading simplicitor. There are separate rules namely Service Tax (Determination of Value) Rules, 2006, which provides determination of taxable value for levy of service tax. The value of goods deemed to be supplied in the course of works contract cannot by any stretch of imagination be added to the trading turnover of the Appellant.

Further, held that that the addition to the trading turnover, of the value of the goods deemed to be supplied in the execution of the works contract, is erroneous and wrong and allowed the appeal.