Composite sale contracts: no service tax on incidental erection, commissioning and installation when no separate consideration is charged.

Service tax was held not leviable on erection, commissioning and installation where the transaction was a composite lump-sum contract for manufacture, supply and installation of machines. The contract and invoices showed that the entire consideration formed part of the sale value, with no separate charge attributable to the service component. In that situation, the service element could not be artificially severed from the sale price for tax purposes, particularly where the whole value was treated as sale value and subjected to excise duty. The Tribunal's consistent view on incidental installation and commissioning in such composite contracts was applied, and the demand was unsustainable.

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Issues: Whether service tax was leviable on erection, commissioning and installation of machines supplied under a composite sale contract where the entire contract value formed part of the sale price and no separate consideration was shown for the service element.

Analysis: The transaction was found to be a single composite arrangement for manufacture, supply, erection, commissioning and installation of the machines at the buyer's site. The sale invoices and contract showed that the entire value was towards the supply of machines, with no separate amount attributable to erection, commissioning or installation. In such a case, the service element could not be artificially separated from the sale value for the purpose of levy of service tax. The issue was held to be covered by the Tribunal's earlier consistent view that where the whole value is assessed as sale value and subjected to excise duty, no separate service tax liability arises on the incidental installation and commissioning activity.

Conclusion: Service tax was not leviable on the facts of the case, and the demand could not be sustained.

Final Conclusion: The impugned order was upheld and the Revenue's appeal failed.

Ratio Decidendi: Where manufacture and supply are undertaken under a composite lump-sum contract and the entire consideration is treated as sale value without any separate charge for erection, commissioning or installation, no service tax can be demanded on the incidental activity.

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