Works contract valuation requires goods-service bifurcation before taxing only the service portion.

Works contract classification depended on the true nature of the contracts and the segregation of goods and service components. The article states that where materials and execution of work were both supplied, and VAT/Sales Tax was paid, service tax could be levied only on the service portion under the works contract regime, including the composition scheme or valuation under Rule 2A of the Service Tax (Determination of Value) Rules, 2006. A demand raised on the gross contract value, without first examining bifurcation and the applicable works contract treatment, was unsustainable. The matter was remanded for fresh adjudication on classification, VAT/Sales Tax payment, and taxable value.

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Issues: Whether the appellant's activity was correctly classifiable as Works Contract Service and whether the demand confirmed on the gross contract value could be sustained without proper examination of VAT payment and segregation of goods and service components.

Analysis: The dispute turned on the true nature of the contracts executed by the appellant. The record showed supply of materials along with execution of work, including aluminum doors and windows, and payment of VAT/Sales Tax on the contractual activity. The applicable service tax regime recognized works contract service and permitted taxation only of the service portion, including through the composition scheme or valuation under Rule 2A of the Service Tax (Determination of Value) Rules, 2006. A demand on the entire contract value, without first determining the goods-service bifurcation and without examining whether the contracts were taxed under the works contract regime, was held to be unsustainable. The eligibility for composition or valuation under Rule 2A required fresh examination on the facts and documents.

Conclusion: The classification and quantification adopted in the impugned order were set aside, and the matter was remanded for fresh adjudication on whether the contracts were works contracts and on the extent of VAT/Sales Tax payment and service-taxable value.

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