Composite works contracts could not be taxed under pre-2007 service heads, and VAT-paid value could not face service tax again.
Before 1 June 2007, an indivisible composite works contract could not be brought to tax under the heads of Commercial or Industrial Construction Services or Erection, Commissioning or Installation Services, because those entries applied only to service contracts simplicitor and did not permit vivisection of a composite contract. A works contract already subjected to VAT also could not be charged to service tax on the same composite value, as VAT and service tax were treated as mutually exclusive for that transaction. The disputed demand was therefore unsustainable, and the analysis concludes that composite works contracts were not taxable under the pre-1 June 2007 service heads and could not be taxed again where VAT had been paid.
Issues: (i) Whether, prior to 1 June 2007, an indivisible composite works contract could be taxed under the categories of Commercial or Industrial Construction Services or Erection, Commissioning or Installation Services. (ii) Whether service tax could be demanded on the value of a works contract that had already suffered VAT.
Issue (i): Whether, prior to 1 June 2007, an indivisible composite works contract could be taxed under the categories of Commercial or Industrial Construction Services or Erection, Commissioning or Installation Services.
Analysis: The contracts on record showed supply of both goods and services in an indivisible composite arrangement. Works contract was a distinct species of contract and the pre-existing taxable entries covered only service contracts simplicitor. The statutory scheme before 1 June 2007 did not contemplate vivisection of such composite works contracts for levy under the existing heads.
Conclusion: The demand under Commercial or Industrial Construction Services and Erection, Commissioning or Installation Services for the period prior to 1 June 2007 was unsustainable.
Issue (ii): Whether service tax could be demanded on the value of a works contract that had already suffered VAT.
Analysis: The assessee was registered under the VAT law as a works contractor and had discharged VAT on the gross receipts. VAT and service tax were held to be mutually exclusive in relation to the same composite works contract, and a composite contract already subjected to VAT could not again be taxed as a service contract merely because of an initial registration error.
Conclusion: Service tax could not be demanded on the value of the works contract already subjected to VAT.
Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief, because the disputed activities were composite works contracts not chargeable under the pre-1 June 2007 service tax heads and could not be taxed again where VAT had already been paid.
Ratio Decidendi: Before 1 June 2007, a composite indivisible works contract could not be taxed under the pre-existing service tax heads meant for service contracts simplicitor, and VAT and service tax could not be imposed simultaneously on the same composite contract.
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