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Issues: Whether the value of free materials supplied by the service recipient could be included in the taxable value for service tax in relation to construction services, and whether the show cause notice founded on such inclusion was sustainable.
Analysis: The service tax levy under the relevant charging and valuation provisions extends only to the consideration received for the taxable service. The valuation mechanism cannot travel beyond the charging provision by adding expenditure or costs not forming part of the gross amount charged by the service provider. Free supplies made by the recipient are not non-monetary consideration to the service provider and do not form part of the taxable turnover for valuation purposes. On the same reasoning, a show cause notice that proceeds on the premise that such free supplies must be included in the assessable value cannot be sustained.
Conclusion: The value of free materials supplied by the recipient is not includible in the taxable value, and the impugned show cause notice and consequential action were quashed in favour of the assessee.
Ratio Decidendi: For service tax valuation, only the consideration for the taxable service can be charged and assessed; costs or materials supplied free by the recipient cannot be added to the taxable value unless the charging provision itself so permits.
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