THIS article is in the context of the recent decision of the CESTAT, New Delhi in the case of CCE V/s. BSBK Pvt. Ltd (2006-TIOL-1538-CESTAT-DEL).

It was held by the Tribunal that when separate invoice was issued in terms of a comprehensive contract for supply + service, there was no need for any vivisection as such, and the service element was thus subject to Service Tax. The Tribunal also examined the meaning of the terms "vivisection" and "dissection", in the context it was required in the facts and circumstances of the said case.

With all due respect to the Bench, the author feels that the said decision is per incurium. The ratio in the case of Daelim Indus (2003-TIOL-110-CESTAT-DEL) was presented to the bench so as to mean that it was only because the contract was so composite in nature in the said case that the Tribunal took the view that it could not be artificially vivisected so as to levy Service Tax on the service element involved therein.

In the view of the author, such a restrictive reading of the ratio in the case of Daelim Indus. will not meet the ends of justice. In order to levy Service Tax on any activity, proper sanction from the constitution of India is required. This concept was elaborately discussed by the Tribunal in the case of CCE, Vadodara V/s. L & T Ltd. & Anr (2006-TIOL-490-CESTAT-MUM), wherein after examining the various judicial pronouncements on the subject of levy of sales tax on composite contracts and the scope of 46 th Amendment to the Constitution, more particularly in terms of Article 366(29A), it was held that in case of composite contract, the levy of sales tax was proper post 46 th amendment, but Service Tax could not be levied. It is also pertinent to note that in the said case of L & T Ltd, the service element was clearly mentioned in the contract and even separate bills were raised to that effect, just as in the case of BSBK Pvt. Ltd.

Moreover, the test of "dominant aspect of the contract" is also crucial for determining the taxability of an activity. It is apparent from the facts of BSBK Pvt. Ltd. that only a marginal aspect was of designing etc. and the majority element was of supply of goods, the service element being incidental to such supply. Under the circumstances, the Consitution of India does not permit levy of Service Tax on such composite work.

It is seen that under such contracts, generally composite contract tax (sales tax) is paid at fixed rate, on the total value of such contract (i.e. service + supply portion). It would be wholly improper to recover Service Tax on that portion of the contract, on which sales tax is already paid. This also finds support from the decision of the Apex court in the case of BSNL Ltd ( 2006-TIOL-15-SC-CT-LB) .

In a nutshell, the recent decision of the Tribunal in the case of BSBK Pvt. Ltd., being passed without considering the legal position qua levy of Service Tax on composite contracts, even if the service element can be ascertained from the contract/incidence of contract, appears to be per incurium. The author feels that if the decision in the case of L & T Ltd.(supra) was brought to the notice of the Bench passing the order, perhaps the decision would have been different. However, the revenue authorities are sure to rely upon this decision in order to confirm Service Tax levy on similarly situated assesses. One hopes that the Supreme Court will put an end to this agony and decides the above issue in the appeal of the Department against L & T Ltd.(Supra).