Free-of-cost goods in works contracts are excluded from exemption-value computation, defeating the service tax demand.

Free-of-cost goods supplied by the service recipient are not includible in the value used to deny exemption under the relevant service tax notifications. The service tax demand, along with interest and penalty, depended entirely on treating such supplies as part of the taxable value for exemption purposes, but that approach was already covered by a Larger Bench ruling against inclusion. On that basis, the demand could not be sustained and the assessee succeeded.

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Issues: Whether the service tax demand could be sustained by denying the benefit of exemption notifications on the ground that the assessee did not disclose the value of goods supplied free of cost by the service recipient for use in execution of the works.

Analysis: The liability to service tax, interest and penalty rested entirely on the view that free-of-cost supplies made by the service recipient formed part of the value for denying the exemption under the relevant notifications. That issue was already covered by the Larger Bench decision holding that such free supplies are not to be added for this purpose.

Conclusion: The demand could not be sustained on that basis and the assessee succeeded.

Ratio Decidendi: Free-of-cost goods supplied by the service recipient are not includible in the value for denying exemption under the relevant service tax notifications.

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