Works contract classification upheld for HVAC installation where materials were supplied and VAT was paid on the goods component.

Low side work and HVAC installation contracts were treated as works contracts because the execution involved supply and use of substantial materials such as piping, wiring and ducting, with VAT paid on the material component. The contracts did not become pure service arrangements merely because the main AC equipment was separately supplied. In the absence of evidence that the materials used were only incidental or trivial, the composite nature of labour and goods was retained, and transfer of property in goods during execution meant the service could not be taxed as a pure service contract. The Revenue challenge failed and the abatement was upheld.

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Issues: Whether the low side work and HVAC installation contracts, involving supply of materials such as piping, wiring and ducting along with installation and commissioning, were classifiable as works contracts and entitled to abatement, or were to be treated as pure service contracts liable on the full value.

Analysis: The contract could not be viewed as a pure labour arrangement merely because the main AC equipment was separately supplied. The record showed that the installation and commissioning activity itself involved supply and use of substantial materials, and VAT had also been paid on such material component. The existence of a separate supply arrangement did not exclude the second contract from being a composite transaction involving labour and goods. In the absence of material to show that the inputs used in installation were only incidental or trivial, the transaction retained the character of a works contract. Once transfer of property in goods is involved in execution of the contract, the service cannot be treated as a pure service contract for tax purposes.

Conclusion: The low side work and HVAC contracts were correctly treated as works contracts, and the assessee was entitled to the abatement. The Revenue's challenge failed.

Final Conclusion: The appeal was dismissed and the Commissioner's order dropping the demand was left undisturbed.

Ratio Decidendi: A contract for installation and commissioning does not cease to be a works contract merely because the main equipment is separately supplied, if the execution of that contract itself involves transfer of property in goods and payment of VAT on the materials used.

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