Composite construction contracts: abatement allowed where materials and VAT are proved, despite no bill-wise segregation.

In composite construction contracts, where substantial goods and materials are used and VAT is paid on the material component, service tax cannot be levied on the entire gross value. Abatement under Notification No. 1/2006-ST remains available, and exclusion of the value of materials sold under Notification No. 12/2003-ST cannot be denied merely because site-wise or bill-wise segregation is not produced, if the composite nature of the contracts is otherwise established. The demand, interest and penalties were set aside.

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Issues: Whether the appellant was eligible for abatement under Notification No. 1/2006-ST and consequential exclusion of the value of materials sold under Notification No. 12/2003-ST in respect of composite construction activities.

Analysis: The works executed were found to be composite in nature, involving substantial use of goods and materials and payment of VAT on the material component. The record showed that the activity was not confined to mere completion and finishing services so as to deny the benefit of abatement. The material on record was sufficient to show that the service element alone could be subjected to service tax, and the absence of site-wise or bill-wise segregation was not accepted as a valid ground to deny the benefit where the composite nature of the contracts and use of materials stood established.

Conclusion: The appellant was held entitled to abatement, and the demand, interest and penalties were set aside.

Ratio Decidendi: In composite construction contracts, where use of materials is established and VAT has been paid on the goods component, service tax cannot be levied on the entire gross value and abatement cannot be denied merely for want of granular bill-wise linkage if the composite nature of the contracts is otherwise proved.

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