Works contract classification, notice-bound taxation and manpower supply service shape partial relief and surviving demands.

Composite construction of a women's hostel and Civil Services Officers Institute was treated as a works contract, not a pure commercial or industrial construction service, so that levy was not sustainable. Maintenance and power-backup charges were also held non-taxable because the adjudicating authority could not sustain the demand on a ground not set out in the show cause notice. By contrast, delayed discharge of service tax attracted interest, credit on common input services used for exempted services was denied for want of separate accounts or a valid option, and supply of skilled and semi-skilled labour for consideration was held to be taxable manpower supply service, justifying the extended period and penalties.

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Issues: (i) Whether construction of a women's hostel and Civil Services Officers Institute was liable under commercial or industrial construction service; (ii) Whether recovery of maintenance and power-backup charges attracted service tax when the Department sought to rely on a ground not put in the show cause notice; (iii) Whether service tax paid belatedly through Cenvat credit for an earlier period attracted interest; (iv) Whether Cenvat credit on common input services used for taxable and exempted services was admissible; (v) Whether supply of skilled and semi-skilled workmen to contractors amounted to manpower recruitment or supply agency service and whether the extended period and penalties were invocable.

Issue (i): Whether construction of a women's hostel and Civil Services Officers Institute was liable under commercial or industrial construction service.

Analysis: The activity was found to be in the nature of composite works contracts and not contracts for services simpliciter. The demand for the relevant period had already been dropped in the connected matter and the Department had not challenged that finding. The service entry under Section 65(105)(zzq) of the Finance Act, 1994 was held not to cover such composite contracts in the light of the settled distinction between works contracts and pure service contracts.

Conclusion: The levy under commercial or industrial construction service was set aside in favour of the assessee.

Issue (ii): Whether recovery of maintenance and power-backup charges attracted service tax when the Department sought to rely on a ground not put in the show cause notice.

Analysis: The adjudicating authority travelled beyond the show cause notices by proceeding on the basis of non-production of sales tax/VAT evidence, though that was not the foundation of the demand. Electricity was treated as goods in the adjudication, and no sustainable basis was shown for treating the activity as a taxable service on the footing adopted in the impugned order. The finding was also tested against the principle that an adjudicator cannot make out a new case outside the notice.

Conclusion: The demand on maintenance and power-backup charges was set aside in favour of the assessee.

Issue (iii): Whether service tax paid belatedly through Cenvat credit for an earlier period attracted interest.

Analysis: The tax liability for the relevant period was admittedly discharged late, even though payment was made through credit in a later month. Delay in making good the tax liability was sufficient to trigger interest under Section 73(1) of the Finance Act, 1994 read with Rule 14 of the Cenvat Credit Rules, 2004.

Conclusion: Interest on delayed payment was upheld against the assessee.

Issue (iv): Whether Cenvat credit on common input services used for taxable and exempted services was admissible.

Analysis: Input service credit was held to be available only for services used in providing taxable output services, while credit relatable to exempted services was not admissible. Since separate accounts were not maintained and no proper option under the Cenvat scheme was exercised, the denial of credit was justified under the credit restrictions governing exempted services.

Conclusion: Denial of Cenvat credit was upheld against the assessee.

Issue (v): Whether supply of skilled and semi-skilled workmen to contractors amounted to manpower recruitment or supply agency service and whether the extended period and penalties were invocable.

Analysis: The record showed that the assessee supplied not merely supervisory staff but also skilled and semi-skilled labour such as masons and wiremen for execution at sites, and received monthly consideration for such supply. That activity was held to be taxable manpower supply service and not a mere deputation of own officers. The activity was not covered by the negative list or the stated exemption notification, and the plea that the assessee was not an agency did not alter the taxability of the service. Since the assessee had registered only for a different service while rendering taxable manpower supply without proper disclosure, suppression with intent to evade tax was inferred, justifying the extended period and penalties.

Conclusion: The manpower supply demand, the extended limitation, and the penalties were upheld against the assessee.

Final Conclusion: The composite construction and power-backup demands failed, but the remaining demands relating to delayed tax payment, inadmissible credit, manpower supply, limitation, and penalties survived, resulting in only partial relief to the assessee.

Ratio Decidendi: Composite works contracts are not taxable as pure service contracts under the relevant service entry, an adjudicating authority cannot sustain demand on a ground not stated in the show cause notice, and supply of labour for consideration to assist execution at site constitutes taxable manpower supply service.

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