Composite work contract cannot be split for service tax where supply and installation are the principal object.

A composite turnkey work contract for supply, installation and commissioning cannot be vivisected to levy service tax on an alleged service element where the principal object is construction, supply and installation rather than an independently taxable service. Relying on earlier decisions on identical facts, CESTAT held that the contract had to be treated as a single composite transaction and that splitting it for tax purposes was not justified. The service tax demand confirmed by treating the service component separately was therefore set aside in favour of the assessee.

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Issues: Whether the service tax demand on supply, installation and commissioning charges arising from a composite work contract could be sustained by splitting the contract and taxing the service element.

Analysis: The Tribunal noted that the dispute was covered by earlier decisions on identical facts holding that a turnkey work contract is a composite contract and cannot be vivisected for the purpose of levying service tax on a part of the transaction. It further noted that the principal object of the contract was construction/supply and installation, and not the rendering of a taxable service in isolation. In that view, the demand confirmed by treating the service component separately was not justified.

Conclusion: The issue was decided in favour of the assessee and against the Revenue; the service tax demand was set aside.

Ratio Decidendi: A composite turnkey work contract cannot be split up and taxed in part where the principal object of the contract is not the rendition of an independently taxable service.

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