Works contract taxability before 01.06.2007 could not be upheld by reclassifying the activity under another service category.

Composite or indivisible works contract services executed before 01.06.2007 were not liable to service tax, because such contracts could not be brought to tax by reclassifying them under Commercial or Industrial Construction Service. The settled position applied was that works contract service was introduced only from 01.06.2007, so a pre-2007 demand based on another taxable category could not survive. The impugned demand and penalty were therefore unsustainable for the relevant period, and the issue was decided in favour of the assessee.

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Issues: Whether composite works contract services executed prior to 01.06.2007 were liable to service tax and whether the demand could be sustained by classifying the activity under Commercial or Industrial Construction Service.

Analysis: The dispute turned on the taxability of indivisible/composite works contracts for the period before works contract service was introduced. The settled legal position applied by the Court is that such contracts could not be subjected to service tax prior to 01.06.2007 merely by classifying them under other taxable service categories. The demand founded on a pre-01.06.2007 classification, therefore, could not survive.

Conclusion: The issue is answered in favour of the assessee. The impugned demand and penalty were unsustainable for the relevant period.

Ratio Decidendi: Indivisible works contract services are not taxable under service tax law for periods prior to 01.06.2007, and such activities cannot be retrospectively taxed by reclassification under another service category.

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