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<h1>Court rules free materials not taxable in service supply.</h1> The court ruled in favor of the petitioner, holding that pending adjudication, the respondents should not include the supply of free material in ... Materials that are supplied free of cost by NTPC (service recipient, i.e. client) to the Petitioner (assessee) for the purposes of completing the contract cannot be included in the gross amount charged by the Petitioner for the purposes of determining the Service tax payable - Explanation appearing against Serial No. 7 in the table given in the Notification dated 1st March, 2006 will not be applied – appeal of assessee is allowed Issues: Challenge to Explanation in Notification regarding service tax on free materials supplied by contracting party.In this judgment, the petitioner challenged the Explanation to Serial No. 7 in a Notification dated 1st March, 2006, regarding the inclusion of free materials supplied by NTPC in the gross amount charged for determining Service tax. The petitioner argued that only the service element in the contract should be considered for taxation, excluding the value of materials provided free of cost. The petitioner contended that as per Section 67(3) of the Finance Act, 1994, the 'gross amount charged' should not include materials supplied free of charge. A show cause notice was issued proposing to include the free supply of material in the taxable service, but the matter was not yet adjudicated.The court noted the definition of 'gross amount charged' in Section 67(3) and prima facie agreed with the petitioner that free materials should not be included in the taxable service. Referring to a similar case in the Madras High Court, the court observed that the value of goods supplied free by the client should not be insisted upon for calculating taxable service. Consequently, the court held that pending adjudication, the respondents should not include the supply of free material in determining the taxable service, thereby ruling in favor of the petitioner. This decision was made subject to final orders in the writ petition, and the application was disposed of accordingly.
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