Works contract classification for road construction services upheld, defeating service tax demand, interest, and penalty.

Blasting, quarrying, loading and transportation activities used in road construction were treated as works contract service because the work involved execution of a contract with transfer of property in goods, and the dominant intention test was held inapplicable once the statutory ingredients of a works contract were satisfied. The earlier view on similar facts was followed, and the relevant exemption position was also accepted because the service value fell within the applicable threshold. On that basis, the demand for service tax, interest and penalty could not be sustained and was set aside.

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Issues: Whether the appellant's blasting, quarrying, loading and transportation activities for road construction were classifiable as works contract service and, if so, whether the demand of service tax, interest and penalty was sustainable.

Analysis: The Tribunal treated the controversy as covered by its earlier decision on similar facts. It noted that, after the Forty-sixth Amendment, a works contract is not confined to a pure labour contract and includes contracts involving transfer of property in goods in the execution of the work. The dominant intention test was held to be no longer decisive where the contract otherwise answers the character of a works contract. On the facts, the activity involved use of material in execution of the work and the earlier view that such blasting-related services fell within works contract service was followed. The exemption position was also accepted as the value of the service was within the threshold contemplated by the relevant exemption notification.

Conclusion: The services were held to fall within works contract service and the demand of service tax, interest and penalty could not be sustained. The issue was decided in favour of the assessee.

Final Conclusion: The impugned demand was set aside and the appeal was allowed.

Ratio Decidendi: After the Forty-sixth Amendment, a contract involving execution of work with transfer of property in goods is assessable as a works contract, and the dominant intention test does not govern its tax treatment where the statutory ingredients are otherwise satisfied.

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