Composite works contracts cannot be taxed as service contracts before works contract taxation, and a demand cannot exceed the show cause notice.

Composite electrical contracts involving supply of materials and execution of wiring and related work in Government buildings were held not taxable as 'Erection, Commissioning and Installation Service' for the period before 01.06.2007, because the pre-existing charging scheme covered service contracts simpliciter and not composite works contracts. For the later period, the demand was unsustainable as the show cause notice had proposed only 'Erection, Commissioning and Installation Service', and a levy cannot be confirmed under a different taxable category not put to notice. Interest and penalty also could not survive once the demand failed. The impugned order was set aside and consequential relief followed.

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Issues: (i) Whether a composite contract for supply and laying of electrical wiring and related works in Government buildings could be classified as 'Erection, Commissioning and Installation Service' for the period prior to 01.06.2007; (ii) Whether demand could be sustained under 'Works Contract Service' for the period after 01.06.2007 when the show cause notice proposed classification only under 'Erection, Commissioning and Installation Service'.

Issue (i): Whether a composite contract for supply and laying of electrical wiring and related works in Government buildings could be classified as 'Erection, Commissioning and Installation Service' for the period prior to 01.06.2007

Analysis: The charging scheme under the Finance Act, 1994 as it then stood covered service contracts simpliciter and did not extend to composite works contracts involving both supply of goods and labour. The activities in question were composite electrical contracts involving supply of materials and execution of wiring and related work, and therefore did not fall within the taxable category invoked for the pre-01.06.2007 period.

Conclusion: The classification under 'Erection, Commissioning and Installation Service' for the period prior to 01.06.2007 was not sustainable and the assessee succeeded on this issue.

Issue (ii): Whether demand could be sustained under 'Works Contract Service' for the period after 01.06.2007 when the show cause notice proposed classification only under 'Erection, Commissioning and Installation Service'

Analysis: The show cause notice formed the foundation of the demand and confined the proposal to classification under 'Erection, Commissioning and Installation Service'. A demand cannot be confirmed under a different taxable category not proposed in the notice. The consequential levy of interest and penalty could not survive once the demand itself failed on this ground.

Conclusion: The demand under 'Works Contract Service' for the later period was beyond the scope of the show cause notice and was not sustainable, with the assessee succeeding on this issue.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential reliefs in law.

Ratio Decidendi: Composite contracts involving both supply of goods and execution of work cannot be taxed as service contracts simpliciter for the period before works contract taxation was introduced, and a demand cannot be sustained under a taxable entry not proposed in the show cause notice.

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