Works contract treatment of re-rubberising customer-owned rollers defeated pre-1 June 2007 service tax demand.

Re-rubberising used rollers was treated as a composite works contract because materials were supplied and used in processing customer-owned rollers, while property in the goods continued to vest in the customer. On that basis, the service tax demand for the period prior to 1 June 2007 was held unsustainable, as works contract service was not taxable in the manner demanded for that pre-2007 period. The impugned order was set aside and relief followed for the assessee.

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Issues: Whether the activity of re-rubberising used rollers was a works contract and, if so, whether the service tax demand for the period prior to 1 June 2007 was sustainable.

Analysis: The contract involved supply and use of materials together with processing of customer-owned rollers, and the finding below was that property in the goods continued to vest in the customer. On that basis, the activity was treated as a works contract. For the period in question, the governing principle applied was that works contract service was not taxable in the manner demanded for the pre-1 June 2007 period.

Conclusion: The demand was unsustainable and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: A composite works contract for the relevant pre-1 June 2007 period could not be subjected to the service tax demand in the manner upheld below.

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