Supreme Court of India· 06 August 2026

Why could the Revenue not sustain its levy merely because the respondent-assessee in fact undertook installation and commissioning activities under the turnkey contracts?

COMMISSIONER OF SERVICE TAX, CHENNAI v. M/S DIEBOLD SYSTEMS (P) LTD

2026 INSC 808
Coram: Prashant Kumar Mishra; Shree Chandrashekhar

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Answer

Because the determinative question was not whether such activities occurred but whether they were rendered as an independent taxable service under a separate service contract or were merely integral, inseparable obligations within an indivisible turnkey contract; once found composite, the Revenue could not isolate one obligation for taxation absent a charging provision authorising such vivisection.

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 39The Revenue has consistently urged that since the respondent-assessee admittedly undertook the installation and commissioning of ATMs, the contracts necessarily fall within the taxable category of "commissioning or installation". We are unable to accede to the said submission. The controversy does not turn upon the mere existence of installation and commissioning activities. Rather, the determinative question is whether such activities were rendered as an independent taxable service under a separate service contract or merely constituted integral and inseparable obligations undertaken in the course of executing an indivisible turnkey contract. Once it is found, as we have held, that the respondent's contracts were indivisible composite contracts executed for a single consolidated consideration, the Revenue cannot isolate one constituent obligation thereof and subject it to service tax in the absence of a charging provision authorising such vivisection. This conclusion is wholly consistent with the law declared by this Court in Larsen and Toubro Limited (supra), which held that the pre-01.06.2007 taxable entries contemplated service contracts simpliciter and not indivisible composite works contracts.

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 India

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Also decided in this judgment

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?When did the Finance Act, 1994 first acquire a charging provision and machinery to tax the service element of an indivisible composite works contract?What did the Constitution (Forty-sixth Amendment) Act, 1982 change about the taxation of composite works contracts?What is the legal distinction between a contract for a taxable service simpliciter and an indivisible composite contract, for service tax purposes?In Commissioner, Central Excise and Customs, Kerala v. Larsen and Toubro Limited, did the pre-01.06.2007 taxable entries under the Finance Act, 1994 cover indivisible composite works contracts?

Plain-language answer prepared by the LexStreak Editorial Desk — verify against the judgment. Source: Supreme Court of India. Corrections