Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(CESTAT) 481

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
P.A. Augustian, Judicial Member, Pullela Nageswara Rao, Technical Member
Ab Tek Constructions – Appellant
Versus
Commissioner of Central Excise, Customs and Service Tax, Cochin – Respondent
Service Tax Appeal No. 1764 of 2011 | Service Tax Appeal No. 26910 of 2013 | Service Tax Appeal No. 26911 of 2013

Advocates:
For the Appellants/Petitioners: Mr. Rishab J., Ms Dhanyatha R.
For the Respondents: Mr. M.A. Jithendra

Composite contracts involving both the transfer of goods and rendering of services are classifiable as 'Works Contract Services'. Furthermore, materials supplied 'free of cost' by service recipients are excluded from the 'gross amount charged' for service tax valuation, and assessees are entitled to statutory abatement on such composite services.

Headnote:(A) Finance Act, 1994 - Section 65(105)(zzzza), 65A, 67 - Works Contract Service - Classification - Held, contracts involving both transfer of property in goods and provision of services are correctly classifiable as 'Works Contract Services' and not as 'Commercial or Industrial Construction Service'. (Paras 5, 7, 10, 14)

(B) Notification No. 01/2006-ST - Abatement - The assessee is entitled to 67% abatement under the notification for composite contracts involving materials and services. (Para 16)

(C) Valuation - Free supply of materials - The value of cement and steel supplied 'free of cost' by the service recipient is not includible in the 'gross amount charged' for service tax purposes. (Paras 17, 18)

Facts of the case:
The appellant is a partnership firm providing works contract services. The authorities demanded service tax under the heads of 'Commercial or Industrial Construction Service' and 'Construction of Residential Complex' by rejecting the composition scheme and denying abatement and the exclusion of free-issue materials (cement and steel) from the taxable value.

Findings of Court:
The tribunal found that the contract was composite, involving both goods and services, and thus fell under 'Works Contract Service'. It reaffirmed that free-supplied materials are not to be added to the gross amount charged for service valuation, and that the appellant was entitled to abatement as per established case law.

Issues: Whether the activities performed by the appellant are classifiable under 'Works Contract Service', and whether the value of free-supplied materials is includible in the taxable gross amount.

Ratio Decidendi: The tribunal held that composite contracts are distinct species and must be classified as 'Works Contract Service'. Further, relying on precedents, it held that free supply materials do not form part of the 'gross amount charged' in Section 67 and that the appellant is entitled to the benefit of abatement under Notification No. 01/2006-ST.

Result: Appeals allowed.

Table of Content
1. factual overview of tax disputes and classification assessments. (Para 1 , 2 , 3 , 4)
2. legal classification of composite contracts as works contract services. (Para 5 , 6 , 7 , 8 , 9 , 10)
3. exclusion of works contract service from general construction categories. (Para 11 , 12 , 13 , 14 , 15)
4. abatement eligibility and exclusion of free-issue materials from valuation. (Para 16 , 17 , 18 , 19 , 20)
5. final judicial determination setting aside disputed order. (Para 22 , 23 , 24)

FINAL ORDER NOS. 20452 - 20454 / 2026

Date of Hearing: 25.03.2026

Date of Decision: 25.03.2026

Per: Pullela Nageswara Rao

These 3(three) appeals are filed against the respective Orders-in Original passed by the Commissioner of Central Excise, Customs & Service Tax, Cochin.

2. The details of the appeals are as under:

Sl. No.	Appeal No.	O-I-O No. & Date	Period involved	Amounts involved (Rs.)
1	ST/1764/2011	07/2011-ST dated 31.03.2011	10/2008 to 09/2009	Rs. 54,81,558/- a/w interest u/s 75 and penalty of Rs. 200/- per day u/s. 76 & Rs. 5000/- u/s. 77
2	ST/26910/2013	28 & 29/2013-ST dated 21.03.2013	04/2011 to 03/2012	Rs. 47,80,644/-(Works Contract) Rs. 11,05,937/-(Commercial Construction) along with interest u/s 75 and penalty of Rs. 200/- per day u/s 76 & Rs. 5,000/- u/s. 77
3	ST/26911/2013	28 & 29/2013-ST dated 21.03.2013	07/2010 to 03/2011	Rs. 34,62,213/- (Works Contract) Rs. 27,78,896/-(Commercial Construction) a/w interest u/s 75 and penalty of Rs. 200/- per day u/s. 76 & Rs. 5,000/- u/s. 77

3. Briefly stated, the facts of the present case are that the Appellant is a partnership firm engaged in providing works contract services and had obtained Service Tax registration under service categories of "Works Contract", "Construction of Commercial or Industrial and Civil Structures", and "Construction of Residential Complex". The Appellant during the relevant period filed ST-3 returns in respect of "Works Contract Service", "Construction of Commercial or Industrial and Civil Structures", and "Construction of Residential Complex and paid Service Tax accordingly for the amounts received during the said period. The Appellant during the relevant period has entered into contract agreements with prospective customers for providing works contract services involving provision of both goods and Services. As per the agreements entered with the majority of the customers, mostly, Cement and Steel are provided by the customers of the Appellant 'free of cost' and the Appellant was required to provide all other materials for the construction. The Appellant for all of the services, except works contract, since sale of goods was involved along with provision of services, claimed eligible abatement under Notification No. 01/2006-ST dated 01.03.2006 and discharged Service Tax on the same. Additionally, the Appellant opted for payment of Service Tax under composition scheme in respect of 'Works Contract service'. The Appellant, thus had been discharging their Service Tax liability on the 'Works Contract Service' provided under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 ("Composition Scheme") in respect of the ongoing projects commenced prior 01.06.2007. The Appellant also submitted a letter dated 18.02.2008 to the Respondent informing the Appellant's option to pay service tax under Composition Scheme. The Appellant during the relevant period also declared the turnover and paid tax under Kerala Value Added Tax ("Kerala VAT). The Appellant opted for payment of tax at compounded rate for the majority of the projects undertaken by them without bifurcation of the goods and service portion and paid at flat rate of 3% on the amount received.

4. The Department alleging that for the period October 2008 to September 2009, the Appellant is not eligible to opt for Composition scheme for payment of Service Tax since the conditions laid down under the Rules are not satisfied and therefore liable to pay Service Tax under the categ

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