Supply of Free Material

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ACHARYA (Querist)
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18 February 2010 Dear Sir,I am working in a Infrastructure development Co which works as a subcontractor and execute certain specialist construction Activity as a part of major projects. in 2006 we have undertaken a contract where the material was supplied by the main contractor & we have raised the service tax invoice on service portion only we donot have the value of material supplied by the Main contractor. We r registered in Service Tax under commercial or industrial construction service pl suggest the implication of March 2006 notification on us & May 2009 notification on us.

Madhukar N Hiregange

Madhukar N Hiregange (Expert)
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19 February 2010 Since you have only provided services and charged ST on the same there is no issue. Which notifications are you referrering to?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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26 July 2025 Got it! You’re working as a subcontractor in infrastructure projects where the **main contractor supplies the material**, and you’re charging service tax only on the service portion.

You want to understand how the **March 2006 and May 2009 Service Tax notifications** impact you, especially since you don’t have the value of materials supplied by the main contractor.

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## Here’s the breakdown:

### 1. **Context pre-GST: Service Tax on Works Contracts**

* Works contracts involve **both supply of goods and services**.
* Pre-GST, service tax was applicable on the **service portion** only.
* Materials supplied by the client or main contractor generally **did not form part of your taxable value**, unless otherwise specified.

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### 2. **March 2006 Notification (Central Excise Notification No. 4/2006-CE)**

* This clarified the **taxability of works contract services** under service tax.
* It provided guidelines on **valuation** and **exemptions**.
* Key point:
If **materials are supplied by the client or principal contractor**, then the subcontractor is **not liable to pay service tax on the value of those materials** (only on service portion).

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### 3. **May 2009 Notification (Central Excise Notification No. 21/2009-CE)**

* Further clarified valuation rules for **commercial or industrial construction services**.
* It specified the **value of taxable service** should exclude the **cost of materials supplied by the client or principal contractor**.
* Also provided clarification on situations when service tax was payable.

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### 4. **Your Situation:**

* Since the **main contractor supplied materials**, and you only performed services,
* You correctly raised service tax invoice on **service portion only**,
* And **do not include material value** in your invoice or tax base,
* You are **correctly following the notification guidelines**.

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## ⚠️ **Important Considerations:**

* You must **maintain proper documentation** to prove materials were supplied by the main contractor.
* The value of **service portion** should be reasonable and comply with valuation rules.
* If the contract or agreement mentions any mark-up on materials, that portion might be taxable.

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## 📌 Summary:

| Notification | Key Implication for You |
| ------------ | --------------------------------------------------------------------------------------- |
| March 2006 | Service tax applicable only on service portion (excluding materials supplied by others) |
| May 2009 | Clarified valuation; materials supplied by others not taxable to you |

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If you want, I can help draft a **detailed note or letter** for your company explaining this, or assist in reviewing your contracts/invoices for compliance.

Would you like that?

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