Composite machine supply contracts cannot be split artificially; installation incidental to sale was not separately taxable as service.

Service tax was not leviable on erection, commissioning and installation where the machines were supplied and installed under a composite contract, the invoice and contract showed no separate consideration for the service element, and the entire contract value had already been treated as sale value on which excise duty was discharged. The Tribunal held that artificial bifurcation of a lump-sum transaction is impermissible when installation is merely incidental to supply of the machine, and followed its earlier decision in the same assessee's case and other consistent rulings. On those facts, no separate taxable value remained available for service tax, and the Revenue's challenge failed.

---

---

Issues: Whether service tax was leviable on erection, commissioning and installation of machines where the contract required supply of the machines along with installation and commissioning, the entire contract value formed part of the sale price, and no separate consideration was received for the service element.

Analysis: The respondent manufactured and supplied the machines under a composite arrangement in which installation and commissioning at the customer's site formed part of the same transaction. The sale invoice and contractual terms showed no segregation of any amount towards erection, commissioning or installation. In such a case, the entire value was treated as the value of sale of goods on which excise duty had already been discharged, and no separate taxable value remained available for service tax. The Tribunal followed its earlier decision in the respondent's own case and the consistent line of decisions holding that artificial bifurcation of a lump sum contract is impermissible when the service activity is only incidental to the supply of the machine.

Conclusion: Service tax was not payable on the erection, commissioning and installation activity in the facts of the case, and the Revenue's challenge failed.

---