2026-VIL-751-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Works contract vs Trading activity – Activity of laying pipes from river to plant to supply treated water on a Build, Own, Operate and Transfer (BOOT) basis - Whether the billing of goods, used in the project, by the sub-contractor to the appellant can be treated as "trading" or an "exempted service" for the purpose of CENVAT credit reversal under Rule 6 of the CENVAT Credit Rules, 2004 – HELD - The activity of the appellant reimbursing the sub-contractor for materials purchased and utilized in the project does not amount to "trading activity" or an "exempt service". The contract is a single, indivisible BOOT contract for a water transmission project using pipelines, primarily for work and labour, and not a contract for sale of goods. The laying of pipeline, as in this case, is an example of works contract, where passing of property in the pipe is part of the works contract - The transfer of property in goods consumed while executing the contract is a part of the execution of the works contract, and not a separate activity of "trading". The legal fiction introduced by Article 366(29A)(b) of the Constitution, which divides the contract into a sale and service, should only be used for its intended purpose of levying tax on both sale and service in an indivisible contract, and cannot be used to convert the reimbursement of payment for goods by the sub-contractor into "trading" or treat the value of the deemed sale of goods as an "exempt service" - The appellant maintained separate records for availment and compliance of the inputs/input services, and the credit on works contract service invoices was used only to discharge output service tax on the works contract provided. Therefore, Rule 6(3) of the CENVAT Credit Rules, 2004, would not be applicable, and no reversal of CENVAT credit was required - The impugned order is set aside and the appeal is allowed
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GSTAT Appeal filed wrongly...
By CA Vivek Jalan

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