2026-VIL-1107-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax - Composite works contracts, Taxability prior to 01.06.2007 - Appellant engaged in execution of contracts involving supply of machinery/equipment along with installation, erection, commissioning and allied services undertakes composite indivisible works contracts for consolidated consideration - Whether service tax was leviable on such composite works contracts prior to introduction of works contract service with effect from 01.06.2007 – HELD - Composite works contracts are not pure service contracts but clearly involve transfer of property in goods as well as service elements and thus squarely fall within the ambit of works contract. The primary issue is no longer res-integra as the Supreme Court in Larsen & Toubro Ltd. held that prior to introduction of works contract service with effect from 01.06.2007, composite works contracts were not liable to service tax under existing taxable service categories such as Erection, Commissioning and Installation Services. The Apex Court held that in the absence of machinery provisions for segregating service portion from goods portion, levy could not sustain. Applying the ratio of above judgment, contracts executed during the relevant period being composite works contracts were not taxable under Erection, Commissioning and Installation Service. Therefore, the very foundation of demand becomes unsustainable. Consequently, invocation of extended period of limitation is also not sustainable as the issue involves bonafide interpretational dispute regarding taxability of composite works contracts. Mere non-payment of tax due to interpretation dispute cannot automatically amount to suppression. Penalties under Sections 77 and 78 cannot survive – The impugned order is set aside and the appeal is allowed
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