The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that differential service tax cannot be demanded under the Works Contract Service category when the assessee has correctly discharged service tax on the service portion after availing exemption on material value under Notification No. 12/2003-ST.
The bench of Dr. D.M. Misra (Judicial Member) and R. Bhagya Devi (Technical Member) has observed that once the assessee had correctly paid service tax on the service component and availed permissible exemption on the material portion, reclassifying the activity under Works Contract Service and demanding differential tax was legally untenable.
The appellant/assessee, M/s. 3M India Limited was engaged in providing erection, commissioning, installation, maintenance, and repair services. During the period July 2010 to September 2010, the company executed a project for the Commonwealth Games in Delhi involving installation of retro-reflective road signages under a consortium agreement with other entities.
The Department alleged that the services should have been classified under Works Contract Service, attracting service tax at 4% under the composition scheme. Since the assessee had paid tax at a lower rate, a demand for differential tax was raised.
The assessee contended that it had correctly classified the services under “Erection, Commissioning or Installation Service” and had paid service tax only on the service portion of the contract, which constituted 20% of the total invoice value. The remaining 80% represented the value of goods, on which VAT was duly paid.
It was argued that the benefit of Notification No. 12/2003-ST was rightly availed, allowing exclusion of material value from the taxable base. Therefore, the allegation that tax was paid under the Works Contract Composition Scheme was based on a misreading of invoices.
The assessee further submitted that there was no suppression or mala fide intent, as all details were disclosed in ST-3 returns, making penalty unsustainable.
The Tribunal observed that the Department had wrongly interpreted the nature of the transaction and the invoices on record. It noted that the assessee had clearly segregated the value of goods and services in its invoices. VAT had been paid on the material portion, while service tax was discharged on the service portion at the applicable rate. The Department did not dispute the admissibility of Notification No. 12/2003-ST or allege violation of its conditions.
The Tribunal emphasized that sale of goods and provision of services are mutually exclusive components, and where VAT is paid on the goods portion and service tax on the service portion, the same transaction cannot be artificially taxed again under the Works Contract category without proper legal basis.
Setting aside the impugned order, the Tribunal allowed the appeal filed by M/s. 3M India Limited and quashed the demand of differential service tax along with interest and penalty. Consequential relief was also granted to the assessee.
Case Details
Case Title: M/s. 3 M India Limited Versus Commissioner of Central Excise (LTU)
Citation: JURISHOUR-996-CES-2026(BANG)
Case No.: Service Tax Appeal No. 27724 of 2013
Date: 24.04.2026
Counsel For Appellant: M.S. Nagaraja, Advocate
Counsel For Respondent: M.A. Jithendra, Assistant Commissioner (AR)
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