Service tax valuation excludes free supplies and scrap sale proceeds when they are not consideration for the taxable service.

For service tax valuation of commercial and industrial construction service, only consideration received for the taxable service can form part of the assessable value. Free supplies of steel, cement and other goods provided by the service recipient were treated as outside the service provider's consideration and therefore not includible. Scrap sale proceeds generated during provision of service were also excluded because they were not shown to be consideration for the taxable service and no specific charging provision permitted their inclusion. On that basis, the demand could not be sustained and the assessee succeeded.

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Issues: (i) Whether the value of steel, cement and other goods supplied free of cost by the service recipient was includible in the taxable value of commercial and industrial construction service; (ii) Whether the sale proceeds of scrap generated during provision of service were includible in the taxable value as additional consideration.

Issue (i): Whether the value of steel, cement and other goods supplied free of cost by the service recipient was includible in the taxable value of commercial and industrial construction service.

Analysis: The larger bench decision in Bhayana Builders was held to squarely govern the question. Free supplies received from the customer were not part of the consideration flowing to the service provider and therefore could not be loaded into the assessable value for service tax purposes.

Conclusion: The value of free supplies was not includible and the demand on this count could not survive.

Issue (ii): Whether the sale proceeds of scrap generated during provision of service were includible in the taxable value as additional consideration.

Analysis: The scrap sale proceeds were not shown to be consideration for the taxable service. In the absence of any specific legal provision permitting inclusion of scrap value in the service tax measure, and since only amounts received towards the taxable service are chargeable, the demand was unsustainable.

Conclusion: The value of scrap sales was not includible in the taxable value and the demand on this count was liable to be set aside.

Final Conclusion: The entire service tax demand, along with the impugned order sustaining it, was set aside and the assessee succeeded in the appeal.

Ratio Decidendi: For service tax valuation, only consideration for the taxable service can be included in the taxable value; free supplies from the service recipient and unrelated sale proceeds such as scrap cannot be added absent a specific charging provision.

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