Works Contract classification prevails for composite construction with labour and material, barring pre-2007 tax under construction service.

Composite construction activity involving both labour and material is treated as Works Contract Service where the contractor is registered for sales tax/VAT and the transaction bears such tax treatment. The note states that this classification follows the Supreme Court's approach to composite construction contracts. Because Works Contract Service came into force only from 01.06.2007, the same activity could not be taxed under Commercial or Industrial Construction Service for the earlier period. The demand confirmed under that category is therefore described as unsustainable, and the assessee is stated to be entitled to relief.

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Issues: Whether the construction activities involving labour and material were correctly classifiable as Works Contract Service and, consequently, whether the demand under Commercial or Industrial Construction Service for the disputed period was sustainable.

Analysis: The work undertaken involved construction activity with both labour and material. The appellants were registered with the State sales tax authorities and had discharged sales tax/VAT on the disputed activities, satisfying the ingredients of a works contract. The issue was treated as covered by the Supreme Court ruling on the classification of composite construction contracts. As works contract service came into force only from 01.06.2007, the activity could not be subjected to service tax under Commercial or Industrial Construction Service for the period prior to that date. The demand confirmed under the latter category was therefore not sustainable.

Conclusion: The activities fell within Works Contract Service, and the demand under Commercial or Industrial Construction Service was liable to be set aside in favour of the assessee.

Ratio Decidendi: A composite construction activity involving both labour and material, supported by VAT/sales tax treatment, is classifiable as works contract and cannot be taxed under Commercial or Industrial Construction Service for the period before the levy of works contract service.

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