Contract-wise scrutiny required for construction tax exemption where material-inclusive entries and VAT payment are shown.

Composite construction contracts must be examined contract-wise to determine whether the levy applies as commercial or industrial construction service or as a works contract. Where the record shows that some entries are material-inclusive and that VAT was paid in many cases, the benefit of Notification No. 1/2006-ST cannot be denied across the board on a blanket assumption of non-production of documents. The Tribunal therefore required individual scrutiny of each contract entry on evidence and set aside the denial of exemption and demand to that extent, remanding the matter for fresh adjudication.

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Issues: Whether the demand of service tax on construction contracts could be sustained without examining each contract entry individually, and whether the assessee was entitled to the benefit of Notification No. 1/2006-ST where the contract value included materials and VAT was paid in many cases.

Analysis: The documents produced before the Tribunal showed that the contracts comprised different entries, some involving supply of material and some not. The Tribunal found that the earlier denial of relief was founded mainly on alleged non-production of evidence, but the material placed before it indicated that in many instances the contract price included material and that VAT had been paid. On that basis, the Tribunal held that the nature of each contract entry had to be examined separately to determine whether the levy fell under commercial or industrial construction service or was a works contract. Since the record indicated material-inclusive contracts, the benefit of the notification could not be refused across the board.

Conclusion: The denial of exemption and the demand were set aside to that extent, and the matter was remanded for fresh adjudication after individual examination of the contract entries.

Ratio Decidendi: Where a composite set of construction contracts contains both material-inclusive and material-exclusive entries, tax liability and entitlement to abatement must be determined contract-wise on the evidence, and exemption cannot be denied merely on a blanket assumption of non-production of documents.

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