Composite turn-key contracts cannot be split to tax the design element separately under service tax principles.

A composite turn-key contract cannot be vivisected to levy service tax separately on the engineering or design element. The analysis relies on earlier Tribunal decisions treating such contracts as indivisible works-type arrangements, so the consideration cannot be split for taxation of a segregated contractual component. On that basis, the Commissioner (Appeals) accepted that the design portion was not independently taxable by severing the contract. The appeal was rejected and the Commissioner (Appeals) order was sustained.

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Issues: Whether a turn-key contract could be vivisected so as to separately tax the engineering or design element to service tax.

Analysis: The impugned order followed earlier Tribunal decisions holding that a composite turn-key contract cannot be split up for levy of service tax on a segregated part of the contractual consideration. The Commissioner (Appeals) had relied upon prior decisions, including the principle that the design element in such a works-type contract is not independently taxable by vivisecting the contract.

Conclusion: The appeal was rejected and the order of the Commissioner (Appeals) was sustained.

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