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Issues: (i) Whether the contract work of replacing old AC/CGI sheet roofing with profile sheet was an original works contract or a repair and maintenance contract under Rule 2A of the Service Tax (Determination of Value) Rules, 2006. (ii) Whether, under the contract, the respondents could pass on their share of service tax to the petitioner and deduct that amount from the petitioner's bills.
Issue (i): Whether the contract work of replacing old AC/CGI sheet roofing with profile sheet was an original works contract or a repair and maintenance contract under Rule 2A of the Service Tax (Determination of Value) Rules, 2006.
Analysis: The work was a composite contract for replacing existing roofing with new profile sheets in functioning godowns. The Court held that, though new material was used, the work did not involve abandoned or damaged structures in the sense required for classification as original works under the relevant rule. The nature of the contract, read as a whole, indicated replacement, maintenance, repairs, and renewal rather than an original works contract.
Conclusion: The work was not an original works contract. It was to be treated as a contract for maintenance, repairs, and renewal, attracting service tax on 70% of the gross value of the contract component for that purpose.
Issue (ii): Whether, under the contract, the respondents could pass on their share of service tax to the petitioner and deduct that amount from the petitioner's bills.
Analysis: The applicable service tax notification contemplated shared liability between the service provider and the service recipient. The contract clause making tendered rates inclusive of taxes did not clearly transfer the respondents' statutory share of service tax to the petitioner. On a harmonious reading of the contract and the tax notification, the Court held that the petitioner had not undertaken to bear the respondents' statutory tax burden, and deduction of the respondents' share from the petitioner's bills was unsupported.
Conclusion: The respondents could not pass on their 50% share of service tax to the petitioner, and they were not entitled to deduct that amount from the petitioner's bills.
Final Conclusion: The writ petition was partly allowed by protecting the petitioner from deduction of the respondents' share of service tax and by directing refund of the amount already deducted, while the remaining reliefs were declined.
Ratio Decidendi: A contractual clause making rates inclusive of taxes does not, without clear language, shift a party's statutory share of service tax to the other contracting party; tax liability under the statute governs inter se rights unless the contract expressly reallocates that burden.
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