Prize money paid to service provider for good performance isn't liable to service tax

Facts:

a. Assessee was a registered service provider under the category of ‘site formation and clearance and excavation services’. It was discharging its service tax liability on basis of bills raised and amount paid by the service recipient.

b. One service recipient provided specific quantities of explosives and diesel oils for rendering services. There was agreement that if assessee used quantity of explosives and diesels below agreed quantity, it would be paid bonus/incentive by the service recipient.

c. Revenue contended that explosives and diesel oils which were provided free of cost and amount of bonus paid in shape of incentives would form part of assessable value of services. Assessee did not pay service tax on aforesaid amount and a show cause notice was issued to it.

The CESTAT held as under:

1) In the case of Bhayana Builders (P.) Ltd. v. CST [2013] 38 taxmann.com 221/42 GST 76 (New Delhi - CESTAT) Larger Bench of the Tribunal held that the cost of the free supply items by the service recipient was not to be added in the assessable value of the services. Therefore, the value of diesel and explosives would not be added in value of services.

2) Incentives received by the assessee from service recipient for appreciating performance were not known at the time of providing services and the same was never a consideration received by the assessee for services rendered. Thus, incentives given to the service providers in the form of discounts were not liable to service tax.