Composite turnkey contracts classified as works contracts, blocking inclusion of material value in service tax base.

Composite turnkey contracts covering design, engineering, supply of plant and equipment, erection, testing and commissioning were treated as works contract service, not Consulting Engineering Service. Because the contracts were composite and included both goods and service elements, the value of materials supplied could not be added to the taxable base for service tax under Consulting Engineering Service. The stated effect was that the tax demand, interest and penalty were set aside, with relief granted to the assessee.

---

---

Issues: (i) Whether the composite turnkey contracts for design, engineering, supply of plant and equipment, erection, testing and commissioning were taxable as Consulting Engineering Service and whether the value of materials supplied under those contracts could be included in the taxable value.

Issue (i): Whether the composite turnkey contracts for design, engineering, supply of plant and equipment, erection, testing and commissioning were taxable as Consulting Engineering Service and whether the value of materials supplied under those contracts could be included in the taxable value.

Analysis: The contracts were executed along with supply of material and related erection and commissioning activities during the relevant period. The dispute concerned classification of the activity and the valuation adopted for service tax. The record showed that the contracts were composite in nature and appropriately fell within works contract service rather than Consulting Engineering Service. In such a composite arrangement, the demand could not be sustained by treating the entire contract value, including goods, as taxable under Consulting Engineering Service.

Conclusion: The demand was not sustainable under Consulting Engineering Service and the inclusion of material value in the taxable base was rejected; the issue was decided in favour of the assessee.

Final Conclusion: The tax demand, interest and penalty were set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: A composite contract involving supply of goods together with design, engineering, erection and commissioning cannot be taxed as Consulting Engineering Service by including the value of materials in the taxable value where the service is properly classifiable as works contract service.

---