Composite works contract valuation and composition option: tribunal orders partial pre-deposit and stays recovery of balance demand.

Waiver of balance pre-deposit was considered in an appeal on valuation of composite works contracts and the availability of the composition option under the service tax valuation rules. The record showed that VAT had been paid on materials used in civil construction and service tax had already been discharged at 4% through the composition route for the civil works component. The Tribunal noted a prima facie force in the Revenue's objection that composite contracts for design, supply, erection, commissioning and installation could not be bifurcated under the applicable rules, while also noting payment under the same rule. The appellant was directed to deposit 20% of the tax demanded; on deposit, the balance demand, interest and penalties were waived and recovery stayed.

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Issues: Whether the applicant was entitled to waiver of the balance pre-deposit in an appeal involving valuation of a composite works contract and applicability of the composition option under the service tax valuation rules.

Analysis: The record indicated that the appellant had paid VAT on materials used in civil construction and had already discharged service tax at 4% under the composition route for the civil works component. The Revenue contended that the contracts were composite contracts involving design, supply, erection, commissioning and installation, and that bifurcation of such contracts was not permissible under the applicable rules. On a prima facie view, the Tribunal found force in the Revenue's objection to the claimed option under Rule 3(1) of the Service Tax (Determination of Value) Rules, 2007, but also noted that tax had already been paid at 4% in terms of the same rule.

Conclusion: The appellant was directed to deposit 20% of the tax demanded in both appeals, and on such deposit the balance demand, including interest and penalties, was waived and recovery stayed pending disposal of the appeals.

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