Composite contract taxation barred double levy where VAT was paid on materials supplied with erection and installation services.

In composite erection and installation contracts, where VAT was discharged on the materials supplied, the same material value could not again be included in the service tax base. The Tribunal applied the principle that a value already subjected to State sales tax treatment cannot be doubly taxed as part of the taxable service value, and the reversal of CENVAT credit did not alter that position. On that reasoning, the demand of service tax on the value of materials was held unsustainable.

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Issues: Whether service tax could be demanded on the value of materials supplied in composite contracts for erection and installation where VAT had been discharged and the assessee claimed abatement under the relevant exemption notification.

Analysis: The assessee executed composite contracts involving supply of materials along with services, and had discharged VAT on the materials supplied. The demand was founded on inclusion of material value in the taxable service value and denial of abatement under Notification No. 12/2003-ST as amended by Notification No. 12/2004-ST. The Tribunal relied on the principle that where value added tax is paid on the materials sold in the course of providing the service, the same value cannot again be subjected to service tax. The fact that CENVAT credit had been reversed did not dislodge the core position that the materials were separately taxed under the State levy.

Conclusion: The demand of service tax on the value of materials was not sustainable, and the appeal succeeded in favour of the assessee.

Ratio Decidendi: In composite contracts, once VAT is discharged on the materials supplied in the course of the transaction, service tax cannot be levied again on that same material value.

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