Service tax valuation cannot include a recipient's separate trading income absent a direct nexus to the taxable service.

Only consideration flowing to the service provider for the taxable service can be included in service tax valuation. Excavation and processing work was undertaken for a fixed rate per metric tonne, and service tax had already been paid on that consideration. The processed material was separately sold by the service recipient to a sister concern on excise invoices with excise duty paid, so the recipient's trading income could not be treated as extra consideration for the appellant's services. In the absence of a direct nexus between that third-party sale and the service transaction, and to avoid impermissible double taxation, the proposed addition to taxable value was unsustainable and the demand, interest, and penalty were set aside.

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Issues: Whether the sale of processed material by the service recipient to the appellant's sister concern, on payment of excise duty, could be treated as extra consideration and added to the value of taxable services rendered by the appellant for levy of service tax.

Analysis: The appellant had undertaken excavation and processing work for a fixed rate per metric tonne, and service tax had already been discharged on the consideration received from the service recipient. The processed material sold to the sister concern was cleared by the service recipient on excise invoices and excise duty was paid thereon. Any alleged breach of tender conditions was a matter between the contracting parties and did not by itself create a service tax liability on the appellant. In the absence of a legal nexus showing that the third-party trading income formed part of the appellant's consideration for services, the amount could not be included in valuation. Treating the same transaction as both excisable sale and service consideration would also result in impermissible double taxation.

Conclusion: The addition of the sister concern's trading income to the taxable value was unsustainable, and the service tax demand, interest and penalty could not be sustained against the appellant.

Final Conclusion: The demand was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: For service tax valuation, only consideration flowing to the service provider for the taxable service can be included; income from a separate third-party sale by the recipient cannot be treated as extra consideration in the absence of a direct nexus to the service transaction.

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