Works contract taxation and circular-based exemption defeated the service tax demand on composite contracts and public utility services.

Composite contracts involving supply of material and service were treated as works contract service, so service tax was payable only on the taxable portion of the gross contract value and the demand on the abated portion was unsustainable. Services rendered to Government College, port, SEZ, hospital and public utility water supply recipients were covered by the exemption recognised in the applicable circular, so no service tax was payable on those supplies. The tax demand was therefore wholly unsustainable and full relief was granted to the assessee.

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Issues: (i) Whether the appellant's composite contracts were liable to service tax beyond the taxable portion applicable to works contract service. (ii) Whether services rendered to Government College, Port, SEZ, Hospital and Public Utility Service - Water Supply were exempt from service tax under the applicable circular.

Issue (i): Whether the appellant's composite contracts were liable to service tax beyond the taxable portion applicable to works contract service.

Analysis: The appellant supplied both material and service, and the contracts were treated as works contract service. On that basis, service tax was payable only on the taxable portion of the gross contract value, while the demand sought to recover tax on the balance abated portion was not sustainable.

Conclusion: The demand of service tax on the abated portion was set aside in favour of the assessee.

Issue (ii): Whether services rendered to Government College, Port, SEZ, Hospital and Public Utility Service - Water Supply were exempt from service tax under the applicable circular.

Analysis: The services rendered to the specified government and public utility recipients were held to fall within the exemption recognised by the circular relied upon in the order.

Conclusion: No service tax was payable on those services and the demand was rejected in favour of the assessee.

Final Conclusion: The tax demand was wholly unsustainable and the assessee obtained full relief.

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