No service tax on pre-2007 composite construction contracts; only pure services taxable before Works Contract Service entry

CESTAT Chandigarh (AT) held that service tax was not leviable on composite construction contracts (involving both supply of materials and services) under construction of residential/commercial complex service prior to 01.06.2007. Relying on the SC ruling in Larsen & Toubro and its own coordinate Bench decision in Real Value Promotors, the Tribunal held that only pure service contracts (without supply of goods) could be taxed under construction-related service categories before the introduction of Works Contract Service on 01.06.2007. As the contracts in dispute were composite in nature, the demand of service tax and related impugned orders were found unsustainable and were set aside, and the appeals were allowed.

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Issues Involved:
1. Whether the service tax can be demanded under the category of construction of residential/commercial complex service in a case of composite contract which includes services as well as the material prior to 01.06.2007.
2. Whether the service tax can be demanded under the category of construction of residential/commercial complex service after 01.06.2007 for composite contracts.

Issue-wise Summary:

1. Pre-01.06.2007 Service Tax Demand:
The core issue is whether service tax can be levied on composite contracts involving both service and material components under the category of construction of residential/commercial complex service prior to 01.06.2007. The Tribunal referred to the decision of the Hon'ble Apex Court in Commissioner of C.Ex. & Cus., Kerala Vs. Larsen & Toubro Ltd. (2015 (39) S.T.R. 913 (S.C.)), which held that composite works contracts cannot be taxed under service categories like construction services before 01.06.2007. The Tribunal also cited multiple decisions, including Real Value Promotors Pvt Ltd and Skyway Infra Projects Pvt. Ltd., which confirmed that service tax on composite contracts prior to 01.06.2007 is invalid as the Finance Act did not provide a mechanism for taxing such contracts.

2. Post-01.06.2007 Service Tax Demand:
For the period after 01.06.2007, the Tribunal examined whether composite contracts could be taxed under the construction of residential/commercial complex service. The Tribunal reiterated that such contracts should be classified under the "Works Contract Service" as defined under Section 65(105)(zzzza) of the Finance Act, 1994. The Tribunal noted that even after 01.06.2007, composite contracts cannot be taxed under construction service categories but should fall under the works contract service. This was supported by decisions such as URC Construction (P) Ltd. and India Guniting Corporation, which emphasized that composite contracts involving both service and material components should be taxed under the works contract service category.

Conclusion:
The Tribunal concluded that the impugned orders demanding service tax under the construction of residential/commercial complex service for composite contracts, both for the period prior to and after 01.06.2007, are not sustainable. The demands were set aside, and the appeals were allowed with consequential relief as per law.

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