Works contract classification upheld for composite HVAC contracts; VAT non-payment alone cannot defeat the service category.

A composite contract for supplying, installation, testing and commissioning of HVAC systems was held to be classifiable as works contract service because it involved both transfer of property in goods and rendition of services, and its true character had to be determined from the nature of the work performed. Classification could not be denied merely because VAT had not been paid on the goods element. Applying Larsen & Toubro and Jambeshwar Construction Co., such composite contracts fall within works contract service from the date that levy was introduced. The contrary classification as erection, commissioning or installation service was rejected, and the demand based on non-payment of VAT was unsustainable.

---

---

Issues: Whether the appellant's composite contract for supplying, installation, testing and commissioning of HVAC systems was classifiable as works contract service or as erection, commissioning or installation service, and whether non-payment of VAT on the goods element could be a ground to deny such classification.

Analysis: The contract involved both transfer of property in goods and rendition of services, and its true character had to be determined from the nature of the work performed. Classification did not depend on whether VAT had been discharged on the goods portion. In light of the Supreme Court's ruling in Larsen & Toubro and the Tribunal's later view in Jambeshwar Construction Co., composite contracts of this kind fall within works contract service from the date such service was introduced.

Conclusion: The service rendered by the appellant was classifiable as works contract service and not under erection, commissioning or installation service. The reasoning based on non-payment of VAT was unsustainable, and the demand could not be upheld on that basis.

---