Composite works contracts cannot be split to levy service tax on isolated components where the arrangement is integrated.

Composite contracts for design, development, supply and installation-related activities were treated as an indivisible works arrangement, not separate taxable contracts for each component. Because the billing pattern did not create distinct service contracts and the goods element had already suffered excise duty, the contract could not be vivisected to levy Service Tax on isolated activities as Consulting Engineer services for the relevant period. The demand, interest and penalties were therefore not sustainable.

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Issues: Whether the activities undertaken under the composite contracts were liable to Service Tax as Consulting Engineer services and whether the contracts could be vivisected to levy tax on individual components.

Analysis: The contracts were for design, development, supply, installation-related and allied activities as part of an indivisible arrangement for supply of equipment and spares. The billing pattern did not create separate taxable contracts for each activity. The contract was treated as a works contract involving multiple integrated obligations, and the goods component already suffered excise duty separately. On the reasoning adopted, such composite contracts could not be split up to fasten Service Tax on isolated activities under the category of Consulting Engineer services.

Conclusion: The activities were not liable to Service Tax under the category of Consulting Engineer services, and the demand, interest and penalties could not be sustained.

Ratio Decidendi: A composite works contract cannot be vivisected so as to levy Service Tax on individual components when the contract is an integrated arrangement and the taxable service category does not cover the activities during the relevant period.

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