Works contract classification bars service tax demand where composite contracts include both materials and services

Composite contracts involving both supply of materials and rendition of services are to be classified as works contract services on the ratio of the Apex Court, and demands raised by treating such activity as Interior Decorator's Services cannot be sustained. Where the transactions are disclosed in returns and abatement is claimed for composite works, denial of abatement is unsustainable. The service tax demand based on an incorrect service classification was therefore not upheld.

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Issues: Whether service tax demand could be sustained by denying abatement on contracts involving both supply of materials and rendition of services, on the footing that the activity was liable to classification under Interior Decorator's Services.

Analysis: The contracts were found to be composite in nature, involving both supply of materials and rendition of services. Such contracts, on the ratio of the Apex Court, are classifiable as works contract services. The earlier Tribunal decision relied on the same principle and held that demands raised under other service categories cannot be sustained where the works are composite. On the facts, the appellant had disclosed the nature of the transactions in the returns and had availed abatement in relation to the composite works.

Conclusion: The denial of abatement was unsustainable and the service tax demand could not be upheld.

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