Composite works contracts before works contract service was introduced could not be taxed as Commercial or Industrial Construction Service.

Composite construction contracts involving both supply of material and execution of work were treated as works contracts, not as Commercial or Industrial Construction Service. Because the contracts for cottages and technical buildings related to a period before 01.06.2007, when works contract service had not yet been introduced, the demand for service tax could not be sustained under that category. On that settled classification position, the related interest and penalty also failed.

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Issues: Whether the construction contracts executed for construction of cottages and technical buildings were works contracts not liable to be classified under Commercial or Industrial Construction Service for the period prior to 01.06.2007, and whether the demand of service tax, interest and penalty could be sustained.

Analysis: The contracts awarded to the appellant showed supply of material as well as rendering of service, indicating that the activity was a composite works contract. For the period in question, which was prior to 01.06.2007, works contract service had not yet been introduced under the service tax regime. In such a situation, the demand could not be sustained under the category of Commercial or Industrial Construction Service, and the controversy stood covered by the settled legal position on classification of composite works contracts.

Conclusion: The demand, interest and penalty were unsustainable and the issue was decided in favour of the appellant.

Ratio Decidendi: A composite construction contract involving supply of material and service, for a period prior to the introduction of works contract service, cannot be taxed as Commercial or Industrial Construction Service.

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