Service Tax vs VAT: Supreme Court to Hear Revenue’s Appeal against CESTAT Ruling and Schindler India on Monday [Read Order]

The treatment of Value Added Tax (VAT) payments in works contracts is now before the Supreme Court, with the Revenue challenging the relief granted to Schindler India Pvt. Ltd. by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai.

The Tribunal, in its final order dated 15 March 2023, had set aside service tax demands against the elevator manufacturer, holding that VAT paid on the supply portion of elevator contracts must be excluded when determining the taxable value of services.

Schindler India, which manufactures and installs elevators, operates on dual business models, supplying both goods and installation services under one contract, or providing installation alone. While the company discharged VAT on the goods portion and service tax only on installation and commissioning, the Department sought to levy service tax on the gross contract value, arguing that the agreements were indivisible works contracts.

The adjudicating authority confirmed massive demands, but on appeal, CESTAT held that Section 67 of the Finance Act, 1994 and Rule 2A of the Service Tax (Determination of Value) Rules, 2006 clearly mandate deduction of the goods component from the service tax base where VAT has already been paid.

The tribunal, relying on precedents such as Wipro GE Medical Systems, Johnson Lifts, Lumino Industries, and Hindustan Aeronautics Ltd., observed that only the installation and commissioning element of elevator contracts is taxable under service tax.

The Revenue has now carried the matter to the Supreme Court through multiple civil appeals. At the hearing on 16 May 2025, a Bench comprising Justice B.V. Nagarathna and Justice Satish Chandra Sharma directed the matters to be listed on 1 September 2025 for further arguments.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates