Free supplies by service recipient excluded from service tax valuation under service tax exemption notifications.

Free supplies made by the service recipient were held to be outside the taxable value of services for purposes of Notification No. 20/2004-S.T. and Notification No. 1/2006-S.T. The Larger Bench view was applied that materials supplied free of cost do not form part of the value of the service, so they must be excluded when computing service tax under those notifications. On that basis, the value of free-of-cost materials was not includible in the taxable base, and the appeal succeeded.

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Issues: Whether the value of items supplied free of cost by the service recipient was includible in the value of services for the purpose of service tax under Notification No. 20/2004-S.T. and Notification No. 1/2006-S.T.

Analysis: The issue had already been settled by the Larger Bench, which held that free supplies made by the service recipient do not form part of the value of the service. As a result, such items are to be excluded while computing the value for the purpose of the notifications in question.

Conclusion: The value of free of cost materials was not includible in the taxable value, and the appeal was entitled to succeed.

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