2026-VIL-1046-CESTAT-KOL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Composite Works Contract vs. Consulting Engineer Service – Appellant engaged in execution of Government construction projects including roads, hospitals, educational institutions, and canals under turnkey contracts on cost-plus-margin basis raises the question whether the margin/fee earned constitutes taxable consulting engineer service - Whether a turnkey composite works contract involving construction and commissioning of projects with fee payable as a percentage of total project cost can be vivisected to impose service tax on the fee portion as consulting engineer service – HELD - The appellant is appointed for construction and commissioning of projects on a turnkey basis where the contractor is responsible for total expenditure and receives a fee as profit margin. The nature of contract itself demonstrates that the appellant undertakes composite works contracts involving supply of materials and services, not merely consulting services. Applying the principle established in landmark judgments, a composite works contract cannot be vivisected to fasten service tax demand on a portion of the work under consulting engineer service category - The entire construction cost plus fee is treated as a single transaction and paid to the appellant under works contract classification, with tax deducted under section 194C applicable to contractors on full value, not merely on fee portion. Regarding the extended period demand, the projects were statutorily exempted from service tax both before and after 01.07.2012, warranting bonafide belief that no service tax was payable. The revenue has failed to establish any wilful suppression by the appellant, who declared all details in financial statements and income tax returns from which the department derived data for the show cause notice. The appellant being a reputed public sector undertaking has no intent to evade tax - The impugned order is set aside and the appeal is allowed
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