Free supplies excluded from service tax valuation; extended limitation failed without proof of suppression or intent to evade.

For service tax valuation under Section 67 of the Finance Act, 1994, only consideration that actually accrues to the service provider forms part of the taxable value; free construction materials supplied by the recipient, used for the recipient's own project and not forming part of the amount charged, were held outside the taxable value, so the valuation demand failed. On limitation, the extended period required proof of suppression or wilful misstatement with intent to evade tax, and in the absence of such proof the longer period could not be invoked, so the demand was time-barred. The impugned demand and confirming order were set aside.

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Issues: (i) Whether the value of construction material supplied free of cost by the service recipient was liable to be included in the taxable value of the construction service; (ii) Whether the demand was barred by limitation and the extended period could be invoked.

Issue (i): Whether the value of construction material supplied free of cost by the service recipient was liable to be included in the taxable value of the construction service.

Analysis: The valuation provisions under Section 67 of the Finance Act, 1994 treat the taxable value as the gross amount charged, and where consideration is not wholly in money, the equivalent monetary value must represent consideration flowing to the service provider. The free materials supplied by the recipient were not a benefit accruing to the service provider, since they were used for the recipient's own project and were not part of any amount charged by the provider. The exemption/abatement notifications applicable to construction services also showed that only the value of goods and materials supplied or used by the provider, when charged, could enter the gross amount charged. Free supplies by the recipient were therefore outside the taxable value.

Conclusion: The value of free-supplied construction material was not includible in the taxable value, and the valuation demand failed on merits.

Issue (ii): Whether the demand was barred by limitation and the extended period could be invoked.

Analysis: The show cause notice was issued beyond the normal limitation period. Invocation of the extended period required suppression or wilful misstatement with intent to evade tax, and the burden to establish such ingredients lay on the Revenue. In the absence of proof of deliberate suppression or mala fide conduct, the extended period could not be sustained.

Conclusion: The demand was time-barred and the extended period was not invocable.

Final Conclusion: The impugned demand and the confirming order were set aside, resulting in complete relief to the appellant.

Ratio Decidendi: For service tax valuation, only consideration that actually accrues to the service provider forms part of the taxable value, and free supplies by the recipient are not includible unless they constitute charged consideration; the extended limitation period cannot be invoked without proof of suppression or wilful intent to evade tax.

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