Composite construction contracts cannot be taxed through Rule 2A valuation, and tax paid on an inapplicable levy is refundable.

A retrospective amendment to Rule 2A of the Service Tax Valuation Rules, 2006 could not be used to sustain service tax on a composite construction contract for purchase of residential units under construction of complex service, because Rule 2A is only a valuation mechanism for works contract service and cannot enlarge the charge under that taxable category. The refund claim was admissible where the record showed, through a chartered accountant certificate and the builder's no-objection letter, that the service tax burden had been borne by the buyers and deposited by the builder; tax collected on an inapplicable levy was therefore refundable.

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Issues: (i) Whether the retrospective amendment to Rule 2A of the Service Tax Valuation Rules, 2006 could justify levy of service tax on a composite construction contract for purchase of residential units under construction of complex service; (ii) whether refund of the service tax paid by the buyers was admissible on the evidence showing that the tax burden had been borne by them and was deposited by the builder.

Issue (i): Whether the retrospective amendment to Rule 2A of the Service Tax Valuation Rules, 2006 could justify levy of service tax on a composite construction contract for purchase of residential units under construction of complex service.

Analysis: Rule 2A is a valuation mechanism for works contract service and is directed to determination of the service portion in execution of a works contract. The dispute, however, concerned construction of complex service under Section 65(105)(zzzh) of the Finance Act, 1994. The reasoning in the governing Delhi High Court decisions was applied to hold that the amendment to Rule 2A could not enlarge the charge under construction of complex service or supply the machinery for taxing composite contracts of the kind involved here. The levy could not be sustained by treating the transaction as a works contract when the controversy related to construction of complex service.

Conclusion: The retrospective amendment to Rule 2A did not apply to the appellants' composite construction contracts and could not justify the levy.

Issue (ii): Whether refund of the service tax paid by the buyers was admissible on the evidence showing that the tax burden had been borne by them and was deposited by the builder.

Analysis: The record contained a chartered accountant certificate and a no-objection letter from the builder indicating that service tax had been borne by the appellants and deposited by the builder for the relevant period. The earlier decisions on identical facts were followed. Since the amount collected represented tax on a levy found inapplicable to the transaction, there was no basis to retain it against the appellants' refund claim.

Conclusion: The refund claim was admissible and the appellants were entitled to refund.

Final Conclusion: The refund rejection orders were unsustainable and the appeals succeeded with consequential relief to the appellants.

Ratio Decidendi: A valuation rule framed for works contract service cannot be invoked to sustain service tax on a composite construction contract under construction of complex service, and tax collected on such an inapplicable levy is refundable when borne by the claimant and duly evidenced.

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