Finality of dropped demand and exemption for subcontracted irrigation works contracts defeat service tax under manpower supply classification.

A demand dropped in original adjudication became final because Revenue's appeal did not challenge the classification of office-building works for Haryana State Warehousing Corporation as works contract service; it could not therefore be confirmed on appeal. Subcontracted works contract services for canal, dam and irrigation projects were exempt where the principal contractor's works were exempt and the services fell within the subcontractor exemption under Serial No. 29(h) of Notification No. 25/2012-ST. The demand could not be sustained by classifying those works as manpower supply services. The service-tax demand failed on both grounds, without deciding limitation.

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Issues: (i) Whether service tax could be sustained on works executed for Haryana State Warehousing Corporation after the original adjudication dropping that demand had attained finality; (ii) Whether works contract services supplied by a subcontractor for exempt canal, dam and irrigation works could be taxed as manpower supply services.

Issue (i): Whether service tax could be sustained on works executed for Haryana State Warehousing Corporation after the original adjudication dropping that demand had attained finality.

Analysis: The original adjudication classified the office-building activity as works contract service and dropped the demand. Although Revenue appealed, it did not raise any ground concerning this activity. The dropped demand consequently attained finality and could not be confirmed in the appellate order.

Conclusion: The demand relating to Haryana State Warehousing Corporation was unsustainable, in favour of the assessee.

Issue (ii): Whether works contract services supplied by a subcontractor for exempt canal, dam and irrigation works could be taxed as manpower supply services.

Analysis: The appellant performed part of the main contractor's works relating to canal, dam and irrigation projects. The principal works were exempt under Notification No. 25/2012-ST dated 20.06.2012, and the subcontracted works contract fell within Serial No. 29(h), which exempts a subcontractor's works contract services supplied to a contractor providing exempt works contract services. The demand raised under manpower supply services was therefore not maintainable.

Conclusion: The appellant was not liable to service tax under manpower supply services for the subcontracted irrigation works, in favour of the assessee.

Final Conclusion: The service-tax demand on both counts could not survive on merits; the limitation issue was not adjudicated.

Ratio Decidendi: A subcontractor's works contract service is exempt where it is supplied for an exempt works contract undertaken by the principal contractor, and a demand dropped in original adjudication becomes final when Revenue does not challenge that finding.

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