Apparently department is issuing show cause notices to all the contractors to include the value of free of cost material supplied by the principal to the contractor for before availing exemption under notification no. 1/2006 ST dated 1/3/2006.

Whereas the provisions of valuation or scheme of taxability of services do not refer any such circumstances.

Therefore, while disposing of a writ petition, Delhi High Court observed that,

"In view of the facts that we have narrated above as well as the interim order passed by the Madras High Court, we are of the opinion that while the adjudication proceedings may go on and be concluded by the Respondents, they will not include for the purposes of determining the taxable service the supply of free material to the Petitioner and to this extent the Explanation appearing against Serial No. 7 in the table given in the Notification dated 1st March, 2006 will not be applied to the detriment of the Petitioner."

 

Refer the followings:

1   Notification no. 1/2006 ST dated 1-3-2006

2   Section 67 - Valuation

3   2008 -TMI - 4494 - HIGH COURT OF DELHI

4   2008 -TMI - 4562 - MADRAS HIGH COURT

Service valuation: free materials supplied by a principal excluded from taxable service calculation under the exemption framework. The core issue is whether the value of free material supplied by a principal to a contractor must be included in gross value for claiming exemption under the notification. The Delhi High Court observed that adjudication may proceed but authorities must not include the value of free material in determining the taxable service for the petitioner, and that the Explanation to the notification entry should not be applied to the petitioner's detriment for this purpose.