Works-contract valuation excludes VAT-paid goods, while business-linked input services and concurrent interior work receive appropriate tax treatment.

Works-contract service tax valuation must exclude the value of goods transferred in execution where that value is identified in agreements and quotations and subjected to VAT or sales tax; applying prescribed percentage valuation without evidence that the declared goods value is incorrect would overlap the goods component. Aviation services used for official travel, supported by service-tax payment evidence and no proof of non-business use, qualify for CENVAT credit. Road cleaning and gardening services qualify where they promote the brand and their cost forms part of flat costing. Interior decoration undertaken simultaneously with construction is not completion and finishing service without evidence of separate post-construction activity.

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Issues: (i) Whether service tax on works contracts could be demanded by rejecting the value of goods on which VAT/sales tax had been paid and applying the prescribed percentage valuation; (ii) Whether CENVAT credit on aviation, public-road cleaning and gardening services was admissible; (iii) Whether interior-decoration work undertaken simultaneously with construction was liable to be valued as completion and finishing services.

Issue (i): Whether service tax on works contracts could be demanded by rejecting the value of goods on which VAT/sales tax had been paid and applying the prescribed percentage valuation.

Analysis: Rule 2A(i) requires exclusion of the value of property in goods transferred in execution of a works contract, and the value adopted for VAT/sales tax is relevant for determining the service portion. The agreements and quotations separately identified materials and labour, and VAT had been paid on the goods component. The Revenue produced no actual-cost analysis demonstrating that the 70% and 75% goods values adopted in Karnataka and Kerala were incorrect. Variation in material costs between States was also possible. Levying service tax on the value already subjected to VAT would impermissibly overlap the goods component.

Conclusion: The service-tax demands based on rejection of the VAT/sales-tax-paid goods value were unsustainable, in favour of the assessee.

Issue (ii): Whether CENVAT credit on aviation, public-road cleaning and gardening services was admissible.

Analysis: Aviation services were used for official travel, and the debit note evidenced payment of service tax. No evidence established non-business use. Road-cleaning and garden-maintenance activities promoted the assessee's brand, and their cost formed part of the costing of flats; they therefore had nexus with the output service.

Conclusion: CENVAT credit on the disputed aviation, road-cleaning and gardening services was admissible, in favour of the assessee.

Issue (iii): Whether interior-decoration work undertaken simultaneously with construction was liable to be valued as completion and finishing services.

Analysis: The Revenue did not produce evidence that the interior work was separately undertaken as post-construction completion and finishing activity. Interior decoration performed simultaneously with construction could not, on that basis alone, be treated as completion and finishing services rather than original works.

Conclusion: The demand applying valuation for completion and finishing services to the interior-decoration work was unsustainable, in favour of the assessee.

Final Conclusion: The valuation of the works contracts and interior work, and the disputed input-service credits, were determined in accordance with the assessee's tax treatment.

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