Supreme Court of India· 06 August 2026
Under the Finance Act, 1994, could the Revenue tax a notional percentage of a composite contract's consideration as "commissioning or installation" without an express charging provision authorising the split?
COMMISSIONER OF SERVICE TAX, CHENNAI v. M/S DIEBOLD SYSTEMS (P) LTD
2026 INSC 808
Coram: Prashant Kumar Mishra; Shree Chandrashekhar
Answer
No. A tax charge must flow from the charging provision itself; Sections 66 and 67 of the Finance Act, 1994 supplied no authority to vivisect an indivisible composite contract and tax one constituent activity in isolation, so the Revenue's 33% attribution had no statutory foundation.
Headnote
Finance Act, 1994 — s.65(105)(zzd) — s.66 — s.67 — Commissioning or installation — Indivisible turnkey contracts — Vivisection of composite consideration —
Finance Act, 1994 — Charging provision — Machinery cannot enlarge the charge —
Held: A tax charge must flow from the charging provision itself, not machinery or valuation. Sections 66 and 67 of the Finance Act, 1994 could not together manufacture a taxable event the statute itself did not create. (¶20, 21)
Finance Act, 1994 — s.65(105)(zzd) — Indivisible turnkey contracts — No power to vivisect pre-2007 —
Held further: During the relevant period, the Finance Act, 1994 had no provision letting an indivisible turnkey contract be split so one activity could be taxed in isolation. That power arrived only with the "works contract service" entry inserted from 01.06.2007. (¶22, 28, 30)
Finance Act, 1994 — s.65(105)(zzd) — ATM supply contracts — Composite consideration not separable —
Held further: The respondent's turnkey contracts for supplying, installing and commissioning ATMs carried one composite consideration, with no separate bargain for installation or commissioning. Revenue's attribution of 33% of that consideration to "commissioning or installation" therefore had no statutory foundation. Appeals dismissed. (¶23, 32, 34, 41)
In the Court's own words
Paragraph 20The answer to the aforesaid question, in our considered view, must necessarily be found in the statutory framework governing the levy of service tax during the relevant period. It is a settled principle of fiscal jurisprudence that the liability to tax must flow from the charging statute itself. A taxing statute admits of neither intendment nor equity. The existence, extent and incidence of a tax must be discernible from the language employed by the legislature, and no tax can be imposed by implication or by an expansive construction of the charging provision. Equally well settled is the principle that machinery or valuation provisions facilitate the computation of a tax validly imposed and they do not create or enlarge the charge itself. The charging provision and the machinery provisions must therefore be construed harmoniously, but the latter cannot be employed to supply what the former does not enact. [See: Shiv Steels vs. State of Assam and Others[^3]]
Paragraph 22The legislative distinction between the charging provision and the machinery for valuation assumes particular significance in the context of composite commercial transactions involving both the transfer of property in goods and the rendition of services. While the Finance Act, 1994 undoubtedly authorised the levy of service tax on specified taxable services, the statute, during the period relevant to the present appeal, did not contain any express provision authorising the dissection or vivisection of an indivisible composite turnkey contract so as to extract and tax one of its constituent elements in isolation. Unless the charging provisions themselves contemplated such an exercise, the Revenue could not, by adopting a method of valuation or by attributing a notional percentage of the total consideration to a particular activity, create a taxable event which the statute itself had not recognised.
Paragraph 34We also find no statutory foundation for the Revenue's attribution of 33% of the gross contractual consideration as representing the value of "commissioning or installation". The determination of such percentage does not emerge from the charging provisions of the Finance Act, 1994. Nor does the statute, as it stood during the relevant period, prescribe any machinery for isolating the service element of an indivisible turnkey contract by allocating a fixed percentage of the composite consideration thereto. The absence of a legislatively sanctioned mechanism for such segregation assumes particular significance in the field of taxation, where both the charge and the measure of tax must have clear statutory authority. A fiscal liability as held in Shiv Steels (supra) cannot rest upon a notional or assumed apportionment unsupported by the charging enactment. Unless the Finance Act, 1994 authorised the segregation of the service element embedded in an indivisible composite contract, no percentage, however scientifically determined, could confer jurisdiction upon the Revenue to levy service tax. The existence of a valid charging provision must precede the determination of value and it cannot be derived from the valuation exercise itself. In this regard, the observations of this Court in Larsen and Toubro Limited (supra) that the Finance Act, 1994, prior to 01.06.2007, contained neither the charge nor the machinery to levy and assess service tax on indivisible composite works contracts apply with full force to the controversy before us.
Acts & Sections
s.65(105)(zzd) Finance Act, 1994s.66 Finance Act, 1994s.67 Finance Act, 1994s.65(105)(zzzza) Finance Act, 1994Article 366(29A)(b) Constitution of IndiaOne judgment a day. That's the whole habit.
Read the full text of COMMISSIONER OF SERVICE TAX, CHENNAI v. M/S DIEBOLD SYSTEMS (P) LTD — and get the Supreme Court's output as a five-minute daily read, with plain-language headnotes and the questions each judgment settles.
Create my free accountFree forever plan · 30 seconds · data stays in India
Open the full judgment →