Works contract classification prevails for composite supply-and-labour contracts; demand under erection, commissioning and installation service was set aside.

A composite contract involving supply of materials and execution of work for the DMRC project was treated as works contract service because the arrangement was running-account, material-inclusive, and understood by the parties as a works contract. On that basis, the Tribunal held that the service could not be taxed under erection, commissioning or installation service when the show-cause notice invoked only that category and not works contract service. The service tax demand therefore did not survive under the classification adopted in the notice, and the demand was set aside in favour of the assessee.

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Issues: Whether the activities undertaken in connection with the DMRC project were classifiable as works contract service and, if so, whether service tax demand could be sustained under erection, commissioning or installation service.

Analysis: The Tribunal followed its earlier decision in the assessee's own case and the settled position that a composite contract involving supply of materials along with execution of work is to be treated as a works contract. The contract was executed as a running-account, material-inclusive arrangement and was treated by the parties as a works contract. On that footing, the service could not be taxed under the category invoked in the show-cause notice. Since the demand was confirmed only under erection, commissioning or installation service and not under works contract service, the levy could not survive.

Conclusion: The activity was held to be works contract service, and the service tax demand under erection, commissioning or installation service was set aside in favour of the assessee.

Ratio Decidendi: A composite contract involving supply of materials and execution of work cannot be assessed under a non-composite service category when the notice does not invoke the appropriate works contract classification.

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