Works contract valuation dispute: separate invoices, VAT-paid goods and Rule 2A compliance defeated artificial bifurcation allegation.

Separate invoices for goods and service portions, with VAT paid on the goods component, were held sufficient to defeat the allegation of artificial bifurcation in a works contract service valuation dispute. The adjudicating authority had accepted that the service element was taxed in accordance with Rule 2A of the Service Tax (Determination of Value) Rules, 2006, and that valuation was correctly applied on the service portion. On those facts, the demand based on alleged artificial splitting of material and service value could not be sustained, and the Revenue's challenge to the respondent's valuation failed.

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Issues: Whether the service tax demand on works contract service could be sustained on the allegation of artificial bifurcation of the value of goods and service, and whether valuation under Rule 2A of the Service Tax (Determination of Value) Rules, 2006 was correctly applied where separate invoices were issued and VAT was paid on the goods component.

Analysis: The respondent maintained separate invoices showing the value of goods sold and the value of service, and the goods component suffered VAT. On the record, the adjudicating authority had accepted that the service element was taxed in accordance with Rule 2A of the Service Tax (Determination of Value) Rules, 2006. In these circumstances, the allegation that the invoices reflected an artificial bifurcation of material and service value was not sustainable. The finding that the tax had been correctly discharged on the service portion could not be faulted.

Conclusion: The allegation of artificial bifurcation was rejected and the Revenue's challenge to the valuation adopted by the respondent failed.

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