Composite telecom tower contracts treated as works contracts, with pre-2007 service tax demand set aside and GTA liability sustained.

Composite contracts for supplying materials and erecting telecom transmission towers were treated as works contract service, not erection, commissioning or installation service, for the period before 1 June 2007, because such composite arrangements could not be split and taxed under another service head. The related demand on that basis was set aside, and the tower-erection issue was remanded for de novo verification of the exact contracts. The GTA demand and associated interest were sustained, as that liability was not disputed on merits and no reason was found to interfere with the adjudication.

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Issues: (i) Whether the activity of supplying materials and erecting transmission towers for telecom companies was classifiable as works contract service or as erection, commissioning or installation service, and whether service tax could be demanded for the period prior to 01.06.2007; (ii) Whether the demand of service tax and interest under the GTA category was liable to be upheld.

Issue (i): Whether the activity of supplying materials and erecting transmission towers for telecom companies was classifiable as works contract service or as erection, commissioning or installation service, and whether service tax could be demanded for the period prior to 01.06.2007.

Analysis: The contracts involved both supply of materials and execution of erection work, making them composite contracts. In view of the principle that such composite contracts cannot be vivisected and subjected to tax under another service category for the period prior to the introduction of works contract service on 01.06.2007, the activity was treated as falling within works contract service alone. The certificates placed on record also supported the characterisation of the activity as works contracts. However, for the assessee against whom the demand period ended on 31.03.2007, the exact contracts still required scrutiny and verification before a final finding could be recorded on the entire service tax liability.

Conclusion: The demand under erection, commissioning or installation service was set aside, and the matter was remanded for de novo verification and decision.

Issue (ii): Whether the demand of service tax and interest under the GTA category was liable to be upheld.

Analysis: The GTA demand was not disputed on merits, and the corresponding interest for delayed payment was also found payable in addition to the amount already appropriated. No ground was found to interfere with this part of the adjudication.

Conclusion: The GTA demand and the related interest were upheld.

Final Conclusion: The appeals were partly allowed, with relief granted on the classification and pre-01.06.2007 service tax demand, while the GTA liability and interest were sustained, and the disputed tower-erection issue was remitted for fresh adjudication.

Ratio Decidendi: Composite contracts involving both supply of goods and provision of services cannot be split and taxed under other service heads for the period before works contract service was statutorily introduced; such liability, if any, must be examined within the works contract regime.

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