Composite works contract classification limited service tax demand; pre-2012 levy failed, admitted post-2012 liability survived, penalty deleted.

Composite works contract involving supply of materials and construction cannot be taxed as a service contract simpliciter under a different head unless the notice and adjudication proceed under the proper charging provision. On that basis, the demand for the pre-30.06.2012 period under commercial or industrial construction service was set aside, as the construction was also not shown to be for commercial or industrial use. For the post-30.06.2012 period, the admitted service tax liability already accepted and paid in relation to BSNL work was retained, while the balance demand and penalty were deleted because the penalty followed the fate of the substantive demand.

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Issues: (i) Whether the services rendered by the appellant were classifiable as works contract service, with the consequence that the demand raised under commercial or industrial construction service could not be sustained for the period up to 30.06.2012. (ii) Whether the demand relating to the post-30.06.2012 period and the penalty could be sustained.

Issue (i): Whether the services rendered by the appellant were classifiable as works contract service, with the consequence that the demand raised under commercial or industrial construction service could not be sustained for the period up to 30.06.2012.

Analysis: The services involved supply of materials along with construction activity, which brought them within the nature of composite works contract. The legal position applied was that composite works contracts were not taxable as service contracts simpliciter under the pre-30.06.2012 regime unless specifically brought to tax under the proper charging provision. The demand in the show-cause notice and the adjudication proceeded under commercial or industrial construction service, while no demand had been raised under works contract service. The construction of the Nagaland guest house was also treated as not being for commercial or industrial use.

Conclusion: The issue was decided in favour of the assessee. The demand for the period up to 30.06.2012 was set aside.

Issue (ii): Whether the demand relating to the post-30.06.2012 period and the penalty could be sustained.

Analysis: For the period after 30.06.2012, the appellant had accepted liability in respect of the services rendered to BSNL and had paid the service tax. In view of that admitted payment, the remaining confirmed demand could not survive, and the penalty followed the fate of the substantive demand.

Conclusion: The issue was decided partly in favour of the assessee. The admitted demand for the post-30.06.2012 period was maintained only to the extent of the assessee's acceptance, while the balance demand and the penalty were set aside.

Final Conclusion: The impugned order was modified by retaining only the admitted tax liability for the post-30.06.2012 period and deleting the rest of the demand and the penalty, resulting in a partial allowance of the appeal.

Ratio Decidendi: A composite works contract cannot be taxed as a service contract simpliciter under a different head unless the show-cause notice and adjudication proceed under the proper charging provision, and construction not shown to be for commercial or industrial use cannot be sustained under the impugned levy.

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