Service tax on indivisible works contracts before 01/06/2007 upheld where activity fit existing construction service entry

An indivisible works contract involving commercial or industrial construction, erection, installation or commissioning remained taxable under the service tax regime for the period before 01/06/2007 when it fell within the existing commercial or industrial construction service entry. The later introduction of the specific works contract service entry under the Finance Act, 1994 did not exclude taxation of such activity during the earlier period. The contrary view that no tax could apply before 01/06/2007 was held inconsistent with binding precedent, and the refund claim based on that premise was rejected.

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Issues: Whether an indivisible works contract involving commercial or industrial construction, erection, installation or commissioning was taxable under the service tax regime for the period prior to 01/06/2007.

Analysis: The relevant period preceded the introduction of works contract service under Section 65(105)(zzzza) of the Finance Act, 1994. The activity during the dispute period was commercial or industrial construction service falling under Section 65(105)(zzq) read with Section 65(25b) of the Finance Act, 1994. The prior introduction of the specific works contract entry did not exclude taxation of such activity when it was otherwise covered by the existing taxable entry. The earlier view that an indivisible works contract was not taxable for the pre-01/06/2007 period was found inconsistent with the binding precedent relied upon by the Revenue.

Conclusion: The service was taxable for the period prior to 01/06/2007, and the assessee's claim for refund on the footing that such activity became taxable only from 01/06/2007 was rejected.

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