Composite works contracts and limitation in service tax disputes: separate agency charges, invoice verification, and no extended period without suppression.

Composite contracts involving supply of materials, labour and integrated construction work were treated as works contracts and not taxed by vivisecting them into commercial or industrial construction service or erection, commissioning or installation service. For Rajendra Agricultural University, the taxable base was held to require re-quantification and to be confined to the separately agreed 8.5% agency charge, not the entire project cost. Extended limitation was not invocable absent wilful suppression or intent to evade, particularly where the assessee was a public sector undertaking and the dispute was largely classificatory or quantificatory. The CENVAT credit dispute was remanded for verification of invoices and supporting records within the normal period.

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Issues: (i) whether the civil and structural contracts for BHEL and SAIL were composite works contracts not classifiable under commercial or industrial construction service or erection, commissioning or installation service; (ii) whether the demand relating to Rajendra Agricultural University could be raised on the full project cost or was confined to the separately stipulated 8.5% agency charges; (iii) whether the extended period of limitation was invocable against a public sector undertaking in the facts of the case; (iv) whether the disputed CENVAT credit denial required verification of invoices and whether the matter had to be remanded for that purpose.

Issue (i): whether the civil and structural contracts for BHEL and SAIL were composite works contracts not classifiable under commercial or industrial construction service or erection, commissioning or installation service.

Analysis: The contracts for BHEL and SAIL involved supply of materials, labour, consumables and execution of integrated construction activity. The material component was an essential and inseparable part of the arrangements, and works contract tax had also been indicated in the contractual dealings. A composite works contract cannot be vivisected and taxed as a mere service contract under the cited taxable entries. Where the show cause notice proceeds only on service classifications such as commercial or industrial construction service or erection, commissioning or installation service, confirmation on a different basis is not sustainable on the merits recorded here.

Conclusion: The BHEL demand was set aside on merits, and the SAIL demand was not sustained on the pleaded service classification for the portion requiring verification of discharge through CENVAT debit.

Issue (ii): whether the demand relating to Rajendra Agricultural University could be raised on the full project cost or was confined to the separately stipulated 8.5% agency charges.

Analysis: The agreement showed that the appellant acted as executing agency for the project and the demand had been computed by taking the entire construction value together with the 8.5% agency charge. The taxable element, if any, could not extend to the full project cost when that amount represented the construction/reimbursement component. The separate 8.5% agency charge stood on a different footing and alone could form the basis for re-quantification.

Conclusion: The demand was required to be re-quantified and could be sustained only to the extent of the 8.5% agency charges for the normal period, with interest and without penalty.

Issue (iii): whether the extended period of limitation was invocable against a public sector undertaking in the facts of the case.

Analysis: The appellant was a public sector undertaking engaged in infrastructure and construction work for other public bodies. The record did not disclose wilful suppression with intent to evade payment, and the disputed classifications and quantifications were themselves shown to be legally unsustainable or debatable on merits. In such circumstances, the longer limitation period was not available, though admitted liabilities and amounts already reflected in returns remained payable with interest.

Conclusion: The extended period demand was held to be barred by limitation, and penalty was not sustainable on the time-barred components.

Issue (iv): whether the disputed CENVAT credit denial required verification of invoices and whether the matter had to be remanded for that purpose.

Analysis: The appellant asserted possession of supporting invoices for the credit taken, and the dispute turned on documentary verification rather than immediate rejection. The proper course was to confine the dispute to the normal period and have the adjudicating authority examine the invoices and related evidence before finalising entitlement to credit.

Conclusion: The CENVAT credit issue was remanded to the adjudicating authority for verification of the documentary evidence, confined to the normal period.

Final Conclusion: The appeal succeeded in substantial part, with major tax demands set aside, some liabilities upheld or re-quantified, penalty largely excluded, and the CENVAT credit dispute sent back for fresh verification on the limited remand scope.

Ratio Decidendi: A composite contract involving substantial supply of materials and execution of construction activity cannot be taxed as a mere service contract under a narrow service entry, and extended limitation is not invocable in the absence of wilful suppression or intent to evade, particularly where the assessee is a public sector undertaking and the dispute is substantially classificatory or quantificatory.

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