Service tax valuation excludes diesel cost in DG set supply where Rule 5 cannot sustain the demand.

Diesel cost used in supplying diesel generator sets was not includible in taxable value under Rule 5 of the Service Tax (Determination of Value) Rules, 2006, because Rule 5 had been held ultra vires Section 67 of the Finance Act, 1994. The valuation demand based on inclusion of that cost therefore could not be sustained. In view of the binding Supreme Court ruling and the absence of any ground to disturb the earlier findings, the Commissioner (Appeals)' order was upheld and the Revenue's appeal was rejected.

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Issues: Whether the cost of diesel used in supplying diesel generator sets was includible in the taxable value under Rule 5 of the Service Tax (Determination of Value) Rules, 2006, and whether the demand based on that rule could be sustained.

Analysis: The demand had been raised by treating the diesel cost as part of the service value under Rule 5. The impugned order had already been set aside on the basis that diesel cost was not includible in the rental value of DG sets and that Rule 5 had been declared ultra vires Section 67 of the Finance Act, 1994. No ground was shown to disturb those findings, and the binding effect of the Supreme Court ruling on Rule 5 governed the valuation dispute.

Conclusion: The diesel cost was not includible in the taxable value under Rule 5, and the Revenue's challenge failed.

Final Conclusion: The order of the Commissioner (Appeals) was upheld and the Revenue's appeal was rejected.

Ratio Decidendi: Where the valuation demand rests on Rule 5 of the Service Tax (Determination of Value) Rules, 2006, and that rule is held ultra vires Section 67 of the Finance Act, 1994, the demand based on inclusion of the disputed cost cannot be sustained.

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