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<h1>Works contract classification prevails where composite construction activity involves materials and execution, defeating a commercial construction demand.</h1> A composite activity of digging pits and fitting oil tanks with materials was treated as Works Contract Service because the contracts and surrounding ... Activity of digging pits and fitting oil tanks with materials - Classification of Commercial or Industrial Construction Service or as Works Contract Service - demand raised under the former category. Works contract service - Commercial or industrial construction service - Composite contract - HELD THAT:- The Tribunal found that the show cause notice proceeded on a presumption without first ascertaining the exact nature of the activity undertaken for the oil companies. On the contracts placed on record, the work consisted of digging pits, fitting oil tanks and executing the work with materials, and VAT had also been paid on the entire value as works contract. On these admitted features, the activity was treated as works contract service, and once that was so, the department could not sustain a demand framed under commercial construction services. Following its earlier decision in Yadvinder Singh Contractor [2025 (10) TMI 7 - CESTAT CHANDIGARH], which dealt with an identical controversy, the Tribunal held that a demand proposed under one service category cannot be upheld under another category. [Paras 6, 7, 8, 9] The demand of service tax raised under commercial or industrial construction service was set aside by applying the ratio in Yadvinder Singh Contractor on the same terms. Final Conclusion: The Tribunal partly allowed the appeal by holding that the impugned demand, having been raised under commercial or industrial construction service despite the activity being a composite works contract, was not sustainable. The appeal was disposed of on the same terms as in Yadvinder Singh Contractor. Issues: (i) Whether the activity of digging pits and fitting oil tanks with materials was classifiable as Commercial or Industrial Construction Service or as Works Contract Service, and whether the demand raised under the former category could be sustained.Analysis: The activity was examined on the basis of the contracts and the surrounding facts, which showed a composite arrangement involving material as well as execution of work. The Tribunal noted that the department proceeded on a presumption without ascertaining the true nature of the service. It further noted that VAT had been paid on the value received, indicating treatment of the transaction as works contract. Following the earlier co-ordinate Bench view on identical facts, the Tribunal accepted that where the real nature of the transaction is works contract, a demand cannot be sustained under Commercial or Industrial Construction Service.Conclusion: The activity was held to be Works Contract Service and the demand under Commercial or Industrial Construction Service was not sustainable. The appeal was partly allowed, with the demand and the consequential penalty under Section 78 set aside, while the penalty under Section 77 for non-filing of returns remained.
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