Input service credit and composite works contracts: employee event and advertisement services qualified, and pre-June 2007 vivisection was barred.

Input service credit was recognised for employee event celebration services and advertisement services, applying Rule 2(l) of the Cenvat Credit Rules, 2004 and the cited precedent; the denial of credit on those services was unsustainable. A composite contract involving supply of materials and installation was treated as a composite works contract, and it could not be vivisected for service tax as works contract service for the period before 1 June 2007; the demand for that pre-1 June 2007 period was unsustainable. The impugned order was set aside and the confirmed demands and related liabilities were deleted.

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Issues: (i) whether credit on employee event celebration services and advertisement services was admissible as input service credit; (ii) whether tax could be levied on a composite contract involving supply and installation services for the period prior to 1 June 2007.

Issue (i): whether credit on employee event celebration services and advertisement services was admissible as input service credit.

Analysis: Credit was claimed on services used for employee event celebration and advertisement. The applicable input service framework under Rule 2(l) of the Cenvat Credit Rules, 2004 was applied in light of the cited precedent treating such services as falling within the scope of input services.

Conclusion: The denial of credit on these services was not sustainable and was in favour of the assessee.

Issue (ii): whether tax could be levied on a composite contract involving supply and installation services for the period prior to 1 June 2007.

Analysis: The contract involved supply of materials as well as installation, making it a composite works contract. The binding principle applied was that such composite contracts could not be vivisected and subjected to service tax as works contract service for the period before 1 June 2007.

Conclusion: The demand on the composite supply and installation contract for the pre-1 June 2007 period was not sustainable and was in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal succeeded, resulting in deletion of the confirmed demands and related liabilities.

Ratio Decidendi: Composite contracts involving both supply of goods and installation services could not be vivisected and taxed as works contract service for the period prior to 1 June 2007, and services falling within the recognised scope of input service credit were eligible for Cenvat credit.

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