Free-of-cost materials excluded from abatement value under service tax notifications; denial of benefit held unsustainable.

Goods supplied free of cost by the service recipient are excluded from the gross amount used to compute abatement under the applicable service tax notifications for construction services. Applying the settled position in Bhayana Builders and later authorities, the tribunal held that such free supplies do not form part of the taxable value for this purpose, so denial of abatement was unsustainable. The demand was set aside, and the matter was remitted only for limited quantification, with consequential refund subject to that quantification.

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Issues: Whether the value of goods supplied free of cost by the service recipient was required to be included for the purpose of availing the abatement benefit under the relevant service tax notifications.

Analysis: The issue was governed by the settled legal position that, for construction services covered by the notifications, goods supplied free of cost by the client do not form part of the gross amount for computing the abatement. The decision of the Supreme Court in Bhayana Builders, as followed by subsequent judicial authorities, accepted that such free supplies are to be excluded from the taxable value for availing the prescribed abatement.

Conclusion: The value of free-of-cost materials was not includible, and the denial of abatement was unsustainable.

Final Conclusion: The demand was set aside and the matter was sent back only for limited quantification, with consequential refund subject to such quantification.

Ratio Decidendi: Goods supplied free of cost by the service recipient are to be excluded while computing the gross amount for availing abatement under the applicable service tax notifications.

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