Free Supplies Excluded from Taxable Value in Construction Contracts, preserving abatement under Notification No. 1/2006.

Free supplies provided by the service recipient were held not to form part of the gross amount charged in construction service contracts, so they were not includible in the taxable value for abatement under Notification No. 1/2006. Applying the Larger Bench principle on identical wording, the Tribunal treated recipient-supplied materials as outside the taxable base and found denial of abatement unsustainable.

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Issues: Whether, for availing abatement under Notification No. 1/2006 dated 1-3-2006, the value of free supplies received from the service recipient is to be included in the taxable value of construction services.

Analysis: The dispute turned on valuation of taxable services in construction contracts where the service recipient supplied materials free of cost. The Tribunal followed the Larger Bench ruling that free supplies by the recipient do not form part of the gross amount charged by the service provider. It noted that the Explanation in Notification No. 1/2006 was similarly worded to the provision considered in the earlier Larger Bench decision, so the same legal principle applied.

Conclusion: The value of free supplies was not includible in the taxable value, and the denial of abatement was unsustainable.

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