Composite work contracts with material supply not liable to service tax from October 2006 to September 2011

CESTAT Chennai held that composite work contracts involving supply of materials from October 2006 to September 2011 were not liable to service tax. The tribunal ruled that works contract service became taxable only from June 1, 2007, but composite contracts remained non-taxable until July 1, 2012 when Section 65B explanation was inserted. Following SC precedent in Larsen Toubro case, the tribunal found the demand unsustainable and allowed the appeal, setting aside the impugned order with consequential benefits.

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Issues involved:
The issue involved in this case is whether the contracts entered into were in the nature of works contracts and if they are divisible in nature.

Summary:
The Appellate Tribunal CESTAT Chennai considered a case where the appellant, a public limited company, was alleged to have wrongly availed the benefit of abatement under Notification No. 1/2006. The revenue claimed that the appellant had not fulfilled the requirements to avail the benefit of the notification. The original authority upheld the tax demand on the appellant, concluding that the contracts were not purely labor contracts but involved supply of materials as well. The appellant contended that the contracts were composite and indivisible, and the sale of goods/materials involved had already suffered State tax. The Tribunal, after considering the arguments and legal precedents, found that the contracts involved were not amenable to service tax for the period in question. Citing relevant case law, the Tribunal set aside the impugned order and allowed the appeal.

In conclusion, the Tribunal ruled in favor of the appellant, stating that the demand in the present appeal was unsustainable. The impugned order was set aside, and the appeal was allowed with any consequential benefits as per the law.

This judgment highlights the importance of correctly interpreting the nature of contracts and the applicability of tax laws in such cases. The Tribunal's decision was based on legal precedents and the specific circumstances of the case, ultimately providing relief to the appellant.

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