Works contract classification and service tax abatement applied to composite contracts, with demands also barred by limitation.

A composite contract involving supply of materials with execution, design and civil work was treated as works contract service, so no demand under erection, installation and commissioning service survived for the period before 01.06.2007. For the period after 01.06.2007, the assessee was held entitled to the abatement under Notification No. 1/2006-ST because the activity involved materials and the taxable portion had been discharged on the applicable basis. The demands were also held time-barred, as the notices relied on the extended period without establishing suppression or wilful misstatement. The impugned orders were set aside and consequential relief followed.

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Issues: (i) Whether the services executed along with materials were classifiable as works contract service, so that no demand under erection, installation and commissioning service survived for the period prior to 01.06.2007; (ii) Whether the assessee was entitled to the benefit of Notification No. 1/2006-ST dated 01.03.2006 for the period after 01.06.2007; (iii) Whether the demands were barred by limitation on account of invocation of the extended period.

Issue (i): Whether the services executed along with materials were classifiable as works contract service, so that no demand under erection, installation and commissioning service survived for the period prior to 01.06.2007;

Analysis: The scope of work showed supply of materials along with execution, design and civil works, bringing the activity within the nature of a composite works contract. For the period prior to 01.06.2007, works contract service was the proper classification and such service was not yet in the tax net. A demand raised under erection, installation and commissioning service for that period could not be sustained when no demand had been made under works contract service.

Conclusion: The demand for the period prior to 01.06.2007 was not sustainable.

Issue (ii): Whether the assessee was entitled to the benefit of Notification No. 1/2006-ST dated 01.03.2006 for the period after 01.06.2007;

Analysis: The notification granted abatement where taxable services were provided along with materials and the value of the service component could not be separately quantified. The activity in question involved supply of materials and the assessee had discharged tax on the taxable portion corresponding to 33% of the gross value, which matched the practical effect of the abatement scheme.

Conclusion: The assessee was entitled to the benefit of Notification No. 1/2006-ST dated 01.03.2006, and the demand for the later period was not sustainable.

Issue (iii): Whether the demands were barred by limitation on account of invocation of the extended period.

Analysis: The taxability of the activities was itself under dispute during the relevant period, and the notices were issued by invoking the extended period. In such circumstances, suppression or wilful misstatement was not established on the record.

Conclusion: The demands were barred by limitation.

Final Conclusion: The impugned orders were set aside and the appeals succeeded with consequential relief.

Ratio Decidendi: A composite contract involving supply of materials and execution of civil and installation work is to be treated as works contract service for classification purposes, and where taxability itself was disputed, the extended period cannot be invoked in the absence of established suppression.

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