Contracts as Composite Works: Service Tax Exemption

The Tribunal held that the contracts were composite works contracts and not liable for service tax under erection, commissioning, or installation services before June 1, 2007. The appeal was allowed, setting aside the order and granting consequential relief. The Tribunal stressed the significance of adhering to binding judicial precedents and criticized the Commissioner for failing to do so.

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Issues Involved:
1. Applicability of service tax on turnkey contracts involving supply of goods and services.
2. Distinction between indivisible and divisible contracts for service tax purposes.
3. Binding nature of judicial precedents on lower authorities.

Issue-wise Detailed Analysis:

1. Applicability of Service Tax on Turnkey Contracts:
The appellant, a manufacturer of excisable goods, also rendered services under various heads like erection, commissioning, or installation services. During an audit, it was found that the appellant did not pay service tax on certain amounts recorded as "Turnkey receipts" in their profit and loss account for the period April 2004 to March 2008. A show cause notice was issued demanding service tax amounting to Rs. 6,39,26,719/-. The appellant argued that their contracts were composite turnkey contracts involving both supply of goods and services, and as per the Supreme Court ruling in Larsen & Toubro Ltd., no service tax could be levied on such contracts prior to June 1, 2007, when "Works contract Service" was introduced.

2. Distinction Between Indivisible and Divisible Contracts:
The Commissioner, in the impugned order, held that the contracts were divisible and service tax could be levied on the service component. The appellant countered that even though the contracts mentioned separate amounts for goods and services, they were still composite works contracts. The appellant cited previous Tribunal decisions in their favor, which held that such contracts could not be taxed under erection, commissioning, or installation services prior to June 1, 2007.

3. Binding Nature of Judicial Precedents:
The Tribunal noted that the Commissioner did not follow binding judicial precedents, specifically the Tribunal's own decisions in the appellant's earlier cases. The Commissioner distinguished the appellant's case from the Supreme Court's ruling in Larsen & Toubro Ltd. by arguing that the contracts were divisible. However, the Tribunal held that judicial discipline required the Commissioner to follow the binding precedents, which were not adhered to.

Conclusion:
The Tribunal found that the contracts in question were composite works contracts and could not be subjected to service tax under the heads of erection, commissioning, and installation services prior to June 1, 2007. The impugned order was set aside, and the appeal was allowed with consequential relief. The Tribunal emphasized the importance of following binding judicial precedents and criticized the Commissioner for ignoring them.

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