Composite works contracts were outside pre-01.07.2006 service tax on installation services, leaving the demand unsustainable.

A composite arrangement involving supply of materials along with installation, testing and commissioning for cathodic protection systems was treated as a works contract, not a pure service contract. Applying Larsen & Toubro, the pre-01.07.2006 service tax regime covered only service contracts simpliciter, and composite works contracts were not exigible under Erection, Commissioning and Installation Services merely because installation or commissioning was involved. The later statutory recognition of works contracts and the 2007 composition scheme confirmed that such contracts were brought to tax prospectively. The demand was therefore unsustainable, and relief granted to the assessee was sustained.

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Issues: Whether the activity of supplying materials, carrying out installation, testing and commissioning in connection with cathodic protection systems constituted a composite works contract not exigible to service tax under Erection, Commissioning and Installation Services for the period prior to 01.07.2006.

Analysis: The dispute concerned a composite arrangement involving supply of materials and execution of installation and commissioning work. The original authority itself treated the activity as a works contract. The governing principle from the Supreme Court decision in Larsen & Toubro was applied, namely that the charging provisions of the Finance Act, 1994, as they then stood, covered service contracts simpliciter and not composite works contracts. The later statutory recognition of works contracts and the scheme under the 2007 composition rules reinforced that such composite contracts were brought to tax only prospectively.

Conclusion: The activity was a works contract not taxable under Erection, Commissioning and Installation Services for the period in dispute, and the demand was unsustainable.

Final Conclusion: The Revenue's appeal failed, and the order granting relief to the assessee was sustained.

Ratio Decidendi: Composite works contracts were not taxable as service contracts under the pre-01.07.2006 service tax regime merely because installation or commissioning elements were involved.

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