Service tax demand under CICS cannot be sustained for composite contracts involving both goods supply and services

CESTAT Chennai held that service tax demand under Commercial or Industrial Construction Service (CICS) cannot be sustained for composite contracts involving both supply of goods/materials and services. The tribunal distinguished CICS definition, which covers only service contracts without goods supply, from Works Contract Service introduced in 2007 that includes goods value. Following SC precedent in Commissioner v. Larsen Toubro Ltd., the tribunal ruled that CICS provisions don't apply to composite contracts and set aside the demand. Appeal allowed.

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Issues:
The main issue is whether the demand of service tax raised under 'Commercial or Industrial Construction Services' is sustainable or not.

Facts:
The appellant, engaged in providing construction services, had obtained free supplies from customers during the period 2007-08 to 2011-12 without discharging the service tax liability. The original authority confirmed the demand interest and imposed penalties, leading to this appeal.

Appellant's Argument:
The appellant argued that the construction activities undertaken were composite in nature, involving both supply of materials and rendering of services. Citing a Tribunal case, it was contended that the demand of service tax under 'Commercial or Industrial Construction Services' cannot sustain.

Appellant's Additional Submission:
The appellant also argued that the demand was raised on the gross amount without extending the benefit of abatement under Notification No.1/2006. Referring to a Supreme Court decision, it was asserted that even if materials were supplied free of cost by the customer, the abatement should be considered for calculating the taxable value.

Respondent's Argument:
The respondent supported the findings in the impugned order, stating that construction for educational institutions is taxable as per Board circulars. It was argued that the demand was correctly confirmed as some materials were obtained free of cost.

Legal Analysis:
The definition of 'Commercial or Industrial Construction Service' under Section 65 (105) (zzza) excludes services provided in respect of certain structures. The Tribunal and the Supreme Court have held that demand under composite contracts involving both supply of goods and services cannot sustain.

Precedent and Decision:
The Tribunal in a previous case set aside a similar demand under 'Commercial or Industrial Construction Services,' which was upheld by the Supreme Court. Considering these precedents, the demand in the present case was set aside, and the appeal was allowed with consequential relief.

Conclusion:
The demand of service tax under 'Commercial or Industrial Construction Services' was found unsustainable and was set aside, leading to the allowance of the appeal with any necessary consequential relief as per law.

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