Composite contract valuation must be verified before service tax is levied on the full contract value.

A composite contract involving supply of goods and provision of services must be examined to verify whether the bifurcation between goods and service components is genuine and correct before service tax is demanded on the entire value. Where invoices separately disclose sale of goods and service charges, and VAT has been paid on the goods, the goods component may fall outside service tax coverage to the extent protected by Notification No. 12/2003-ST, provided the valuation is properly substantiated. The matter was remanded for fresh adjudication after verification of the bifurcation of value between goods and services.

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Issues: Whether the value attributable to sale of goods in a composite contract could be excluded from service tax under Notification No. 12/2003-ST, and whether the demand could be sustained without verifying the correctness of the bifurcation between goods and services.

Analysis: The contract involved both supply of goods and provision of services. The invoices separately showed sale of goods and service charges, and VAT had been paid on the goods sold. The Revenue had proceeded to demand service tax on the entire contract value without first verifying whether the service value had been suppressed or whether the bifurcation was genuine and correct. In such circumstances, the value shown in sale invoices, if correct, would not be liable to service tax to the extent covered by Notification No. 12/2003-ST.

Conclusion: The impugned order was set aside and the matter was remanded to the Adjudicating Authority for fresh decision after proper verification of the bifurcation of value between goods and services.

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