Composite works contract taxation demand failed where construction involved both goods and services under the applicable service tax regime.

Composite construction contracts involving both supply of goods and provision of services were treated as not taxable under Commercial or Industrial Construction Service for the period before 01.06.2007, because such composite works contracts were outside that category. For the period after 01.06.2007, the demand was confined to Works Contract Service, but the assessee had already discharged tax under that head by availing Notification No. 01/2006-S.T. dated 01.03.2006. The service tax demand was therefore not sustainable for either period, as the contracts were composite and the applicable tax treatment had been addressed under the works contract framework.

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Issues: Whether the service tax demand raised on construction activities involving both goods and services was sustainable under Commercial or Industrial Construction Service for the period prior to 01.06.2007 and under Works Contract Service for the period thereafter.

Analysis: The contracts were found to be composite in nature, involving supply of goods as well as provision of services. The materials were not wholly supplied by the clients, as the assessee also procured and used materials in execution of the work orders. For the period prior to 01.06.2007, the demand under Commercial or Industrial Construction Service could not be sustained in view of the settled position that composite works contracts were not liable to be taxed under that category. For the period after 01.06.2007, the demand was held to fall only within Works Contract Service, and the assessee had discharged tax under that category by availing the benefit of Notification No. 01/2006-S.T. dated 01.03.2006.

Conclusion: The demand was not sustainable for either period and the assessee succeeded.

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