Works contract valuation applied to repair and maintenance with goods supply, making the service tax differential demand unsustainable.

Repair and maintenance activity involving supply of spares and other goods was treated as a works contract because the contract documents and invoices indicated transfer of goods in execution of the arrangement. The documentary record also showed a VAT element and supported classification of the activity as maintenance or repair service under the works contract framework. On that basis, valuation under Rule 2A of the Service Tax (Determination of Value) Rules, 2006 applied, with service tax payable on 70% of the gross amount charged. The demand on the alleged differential amount was therefore unsustainable.

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Issues: Whether the appellant's repair and maintenance activity to M/s. Mineral Exploration Corporation Ltd. constituted works contract service eligible for valuation under Rule 2A of the Service Tax (Determination of Value) Rules, 2006, and consequently whether the demand of service tax on the differential amount was sustainable.

Analysis: The agreement and invoices showed that the maintenance arrangement included supply of spares and other goods along with repair and maintenance, indicating transfer of goods in the execution of the contract. The documentary record also supported that VAT element was involved and that the amounts reflected in the balance sheet related to sale of services under the relevant service registration. On these facts, the service was held to be a works contract for maintenance or repair, attracting valuation under Rule 2A and service tax payable on 70% of the gross amount charged.

Conclusion: The appellant was entitled to the benefit of Rule 2A valuation for works contract service, and the demand raised on the alleged differential amount was unsustainable.

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