Composite lift-installation works contracts cannot face service tax again on value already taxed under VAT.

In a composite works contract for erection, installation and commissioning of lifts, VAT was paid on the goods component and service tax on the service component after bifurcation of contract value. The Tribunal applied the settled principle that VAT and service tax are mutually exclusive to the extent the same value cannot be taxed under both levies. It also noted that value on which VAT had already been discharged under the Tamil Nadu VAT Rules could not again be included for service tax under the service tax valuation rules. An earlier identical lift-installation decision was treated as directly applicable, and the demand, interest and penalties were held unsustainable.

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Issues: Whether the demand of service tax on the composite supply, erection, installation and commissioning of lifts/elevators was sustainable where VAT had already been discharged on the material component under the Tamil Nadu VAT regime and service tax had been paid on the service component.

Analysis: The activity was a composite works contract involving supply of materials as well as rendering of services. The contract value was bifurcated for VAT and service tax purposes, and VAT was paid on the value attributable to goods under Rule 8(5)(d) of the Tamil Nadu VAT Rules, 2007, while service tax was paid on the balance service portion. The Tribunal applied the settled principle that VAT and service tax are mutually exclusive to the extent the same value cannot be subjected to both levies. It also relied on the view that when the assessee has discharged VAT on the value of goods in a works contract, that value cannot again be brought to service tax under Rule 2A(ii) of the Service Tax (Determination of Value) Rules, 2006. The earlier decision dealing with an identical lift-installation contract was treated as squarely applicable.

Conclusion: The service tax demand, together with the connected interest and penalties, was held unsustainable and was set aside. The appeals were allowed.

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