Transactions where Supplied Material is Subjected to VAT are Work Contract Services: CESTAT Rejects Dept's Appeal [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench, rejected the department’s appeal and held that transactions wherein the material supplied is subjected to Value Added Tax (VAT) are Work Contract Services (WCS).

The brief facts are that the respondents, i.e., M/s Sri Comfort Air Products and Services, were executing work orders relating to supply of outdoor units/indoor units of Air Conditioning Systems (AC) and their installation. In respect of HVAC works, the respondents were discharging the service tax liability on 33% and 40% of the value of the said works under the category of WCS.

The counsel for the department argued that the work orders would remain to be pure service contracts and not work service contracts. On the other hand, the counsel for the respondent has submitted that they had paid VAT and so the contracts were treated as work contracts and the same shall be treated for service tax. Both the sides relied on several case laws.

The tribunal observed that in any AC installation work, there are substantial expenses incurred and it could not be a mere incidental part of work. It was noted that the materials are also leviable to VAT and that when VAT has been paid on the services of installation and commissioning, it is also treated as deemed sale.

The two member bench ruled that once the materials are involved in execution of installation and commissioning works, it cannot be treated as mere pure service of installation and commissioning and it would fall within the category of WCS involving both labour and material.

The appeal by the department was rejected and accordingly dismissed by A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member).

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