2026-VIL-1813-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Exclusion of value of goods from works contract service on the ground that VAT was not paid on the material used - Appellant, an unregistered individual service provider, undertook civil work for companies and received consideration, and SCN was issued on the basis of information received from the Income Tax Department in Form 26AS demanding service tax on the gross amount received - Adjudicating authority, on remand, dropped part of the demand and confirmed the remaining demand with interest and penalties under Sections 77 and 78 of the Finance Act, 1994, which was upheld by the FAA - Appellant contended that the services were rendered along with material and that if the value of material is excluded on actual or presumptive basis, the aggregate value of services in each financial year falls below the threshold for registration and payment of service tax - FAA rejected the contention on the ground that the Appellant provided no evidence of payment of VAT on the material, that no VAT was charged in the invoices even after crossing the threshold under the State VAT law, and that transfer of property in goods was not established - Whether service tax can be charged on the goods component of a works contract merely because VAT was not paid on the goods used - HELD - The undisputed position is that the services rendered were works contracts, and the value of the goods has to be excluded either on actual or on presumptive basis, since service tax can be levied only on the service component. Whether VAT was paid or not paid on the goods is not relevant to determine the service component of a works contract. If VAT was chargeable but not paid, it is for the State Government to take action, and non-payment of VAT cannot justify charging service tax on the goods component - The impugned order is set aside and the appeal is allowed
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