Value of free oxygen supplies not includible in taxable service; free supplies excluded from service tax valuation and demand set aside

Issue concerns whether value of oxygen supplied free by the service recipient must be included in the value of taxable service for service tax. Reliance on the Apex Court authority establishes that gratuitous supplies made under contractual arrangement by the service receiver to the provider do not constitute consideration and therefore cannot be added to the taxable service value, with the operative effect that such free supplies are excluded from service tax valuation and related demand is unsustainable, resulting in allowance of the appeal and setting aside of the impugned demand.

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Issues: Whether the value of oxygen supplied free of cost by the service recipient to the service provider must be included in the value of taxable service for payment of Service Tax.

Analysis: The Tribunal examined the contractual arrangement under which oxygen was supplied free of cost by the service recipient to the appellant for processing activities and considered the applicability of valuation principles under Section 6 of the Finance Act, 1994 and the demand framed under Section 73(1) of the Finance Act, 1994. The Tribunal relied on the authoritative ruling of the Hon'ble Supreme Court in M/s. Bhayana Builders (P) Ltd., which holds that free supplies made by the service receiver to the service provider under a contract cannot be added to the value of the taxable service. Applying that principle to the facts where oxygen was contractually provided free by the recipient, the Tribunal found no basis to include the value of such free supplies in the taxable value of the service.

Conclusion: The value of oxygen supplied free of cost by the service recipient is not to be included in the value of the taxable service; decision is in favour of the assessee.

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