Works contract classification barred service tax under Commercial or Industrial Construction for the pre-01.06.2007 period.

A composite contract involving supply of goods and services, with VAT paid on the goods component, was treated as a works contract rather than Commercial or Industrial Construction service. On that basis, service tax was held not payable for the period before 01.06.2007 under that service category, because such composite transactions fell outside the taxable scope relied on for the demand. The service tax demand was therefore unsustainable and the impugned order was set aside.

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Issues: Whether service tax was payable under the category of Commercial or Industrial Construction services for the period prior to 01.06.2007 in respect of a composite contract involving supply of goods along with services.

Analysis: The contract was found to be composite, with supply of goods and payment of VAT on the goods component. In such circumstances, the activity fell within the ambit of works contract. The decision relied upon clarified that where goods are supplied along with services, the transaction is to be treated as works contract and, for the prior period before 01.06.2007, service tax was not payable under Commercial or Industrial Construction services.

Conclusion: The demand of service tax was unsustainable and the impugned order was set aside.

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