Thermal insulation services with material supply qualify for abatement and works contract classification under service tax law.
Thermal insulation services supplied with insulation material were treated as eligible for 67% abatement under Notification No. 01/2006-ST because the exemption applied where material was supplied during provision of erection, commissioning or installation services, and the benefit could not be denied on a narrow reading limited to plant or machinery. The activity was also held to fall within works contract service under Section 65(105)(zzzza) of the Finance Act, 1994, as thermal insulation was covered within the statutory description and VAT or sales tax had been paid on the goods used. On that basis, denial of abatement and the service tax demand were set aside.
Issues: (i) Whether abatement of 67% was available under Notification No. 01/2006-ST for thermal insulation services rendered with supply of insulation material; (ii) Whether the activity was correctly classifiable as works contract service.
Issue (i): Whether abatement of 67% was available under Notification No. 01/2006-ST for thermal insulation services rendered with supply of insulation material.
Analysis: The exemption entry covered erection, commissioning or installation services where the gross amount included the value of plant, machinery, equipment, parts and other material sold during the course of providing the service. The dispute turned on whether supply of insulation material, rather than supply of plant or machinery in a narrow sense, satisfied the notification. Since the services were rendered along with material and the earlier decision on identical facts had held the benefit available, the notification was held to be applicable.
Conclusion: The abatement under Notification No. 01/2006-ST was available and denial of the benefit was unsustainable.
Issue (ii): Whether the activity was correctly classifiable as works contract service.
Analysis: Works contract service under Section 65(105)(zzzza) of the Finance Act, 1994 included thermal insulation within the specified categories, and the record showed that VAT or sales tax had been paid on the goods used in the installation activity. On that basis, the activity answered the statutory description of works contract service and the contrary classification adopted by the revenue could not be sustained.
Conclusion: The activity was properly classifiable as works contract service.
Final Conclusion: The demand of service tax based on denial of abatement was set aside, and the appeal succeeded with consequential relief as permissible in law.
Ratio Decidendi: Where thermal insulation services are rendered along with supply of materials and the activity falls within the statutory description of works contract service, abatement under the applicable exemption notification cannot be denied on the narrow ground that plant or machinery was not supplied as such.
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