Segregated service and material values defeat reclassification as Works Contract Service where VAT and service tax were separately paid.

Installation work performed under a consortium arrangement was found to involve a clear segregation of service and materials in the invoices and accounts. Service tax had been paid on the service component, while VAT had been discharged on the materials, and the Department did not dispute that factual split or the claimed exemption for the material value. On those facts, reclassifying the activity as Works Contract Service and raising differential service tax at the composition rate was unsustainable because it rested on a appreciation of the record and ignored the established segregation between taxable service and exempt material supply.

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Issues: Whether differential service tax was payable by treating the appellant's installation activity as Works Contract Service instead of Erection, Commissioning or Installation Service, and whether the appellant was entitled to exemption on the value of materials supplied.

Analysis: The appellant executed the work under a consortium arrangement and raised invoices segregating the value of service and materials. The materials portion had suffered VAT, while service tax was discharged on the service component. The Department did not dispute the factual segregation in the invoices or the appellant's reliance on the exemption for the value of materials. On these facts, reclassifying the activity as Works Contract Service and demanding differential tax at the composition rate was held to be based on a wrong appreciation of the record.

Conclusion: The differential service tax demand was unsustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: Where the invoices and accounts show a clear segregation of material and service values and service tax is paid on the service portion while VAT is paid on the materials, a demand cannot be sustained by reclassifying the activity as Works Contract Service without disputing the entitlement to exemption on the material portion.

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