Composite works contract cannot be split and taxed as construction service before works contract taxability.

A composite construction activity involving supply of materials and labour, including materials supplied free by the recipient, was treated as a works contract on the evidence. For the period before 01.06.2007, such a composite contract could not be vivisected and taxed under Commercial or Industrial Construction Service, because works contract service became taxable only from that date. The demand on that head was therefore unsustainable and deleted, while the demand relating to consulting engineer service was retained, resulting in partial relief to the assessee.

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Issues: Whether the demand confirmed under the category of Commercial or Industrial Construction Service could survive when the underlying activity was a composite works contract involving supply of materials and labour, for the period prior to 01.06.2007.

Analysis: The appellant's activity was found to consist of construction work involving both materials and labour, with certain materials supplied free by the recipient. On the evidence on record, the activity was treated as a works contract. The binding principle applied was that works contract service became taxable only from 01.06.2007 and, for the earlier period, a composite contract involving both goods and services could not be split up and taxed under a different head.

Conclusion: The demand under Commercial or Industrial Construction Service was unsustainable for the disputed earlier period and was set aside.

Final Conclusion: The demand relating to consulting engineer service was maintained, while the demand treating the construction activity as Commercial or Industrial Construction Service was deleted, resulting in partial relief to the assessee.

Ratio Decidendi: A composite works contract involving both goods and labour cannot be vivisected and taxed under a different service head for the period before works contract service became taxable.

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