Works contract classification for composite contracts cannot be split into separate service heads for taxation.

Composite contracts involving both material and labour in oil company projects were treated as works contract on their true nature. Because the adjudicating authority had accepted the presence of both goods and service elements by granting abatement, the contracts could not be artificially split into civil construction, electrical, mechanical, repair and maintenance, or transportation heads. The Tribunal's legal position was that such indivisible contracts fall under Works Contract Service and cannot be taxed under another classification after 01.06.2007. The same activity was also not sustainable to the extent tax was sought for the period before that date. The demand based on alternative classifications was therefore unsustainable.

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Issues: Whether the services rendered under the composite contracts with the oil companies were classifiable only as Works Contract Service and, if so, whether the demand could be sustained by splitting the activity into different service heads or by taxing the same for the period prior to 01.06.2007.

Analysis: The record showed involvement of both material and labour in the execution of the contracts, and the adjudicating authority had itself accepted that material and service elements were present by allowing abatement under Notification No. 1/2006-ST dated 01.03.2006. Once the contracts were found to be composite in nature, the services could not be broken up and classified under separate heads such as civil construction, electrical, mechanical, repair and maintenance, or transportation. The legal position applied by the Tribunal was that such indivisible composite contracts fall under Works Contract Service and cannot be taxed under some other classification after 01.06.2007, while the same activity could not be subjected to service tax for the period before that date.

Conclusion: The contracts were held to be classifiable only as Works Contract Service, and the demand based on any other classification was unsustainable.

Ratio Decidendi: A composite contract involving both goods and services must be classified on its true nature as works contract, and it cannot be artificially split into separate taxable service categories or taxed under another head for the pre-works-contract-service period.

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