Service tax liability on materials received free of cost

This query is : Resolved

Mcgupta (Querist)
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11 August 2009 We are providing a service of Site preparation and formation to a unit. We are charging rate at per MT basis say Rs. 50/- per tonne. Additionally the unit is supplying us HSD free of cost at actual consumption rate of the equipments used at unit site.

My query is:
We should charge service tax on basis rate i.e. Rs. 50/- per tonne only OR

We should also charge service tax on HSD price supplied to us at free of cost.

The unit is of the opinion that HSD is reimbursement on actual basis and it's a material and doesn't cover in service, so we should not charge service tax on HSD.

Kindly provide your valuable suggestions with relevent notification / circulars.

SARATHY RP

SARATHY RP (Expert)
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12 August 2009 Dear Mr Gupta,

Only in case of Works Contract Services under Composition method of discharge, the value of material issued free by the contractee has been included vide notification no.23/2009-ST, dated July 7, 2009.

Your scope of work is purely rendering taxable services without transferring any goods to your contractee.

Hence, according to me, the HSD supplied by the contractee is not a part of your taxable service and hence there is no service tax liability.

Thanks.

Sarathy