Abatement under service tax notification and works contract classification justified waiver of pre-deposit and stay of recovery.

The non-availment condition in Notification No. 1/2006-S.T. applies to inputs, not input services, so denial of 67% abatement on the basis of credit taken on input services was a misreading of the notification. Services rendered from 1-6-2007 were prima facie classifiable as works contract service under the then-applicable scheme, making the re-classification legally supportable at the stay stage. While eligibility for the composition scheme on continuing projects required further examination, the tax demand, interest and penalties were treated as prima facie vulnerable, and the allegations of suppression and wilful misstatement were weakened. On that basis, a case was made out for waiver of pre-deposit and stay of recovery pending appeal.

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Issues: Whether the appellant was entitled, at the stay stage, to waiver of pre-deposit and stay of recovery on the basis that the denial of 67% abatement under Notification No. 1/2006-S.T. was untenable and that the re-classification of the services as works contract service from 1-6-2007 was prima facie in accordance with law.

Analysis: The condition of non-availment of Cenvat credit under Notification No. 1/2006-S.T. applies to inputs and not to input services, so the denial of 67% abatement on the ground of credit availed on input services was a misreading of the notification. The service rendered from 1-6-2007 fell under works contract service under the then applicable classification, making the re-classification prima facie valid. Although the eligibility for the composition scheme for continuing projects required deeper examination, the tax demand, interest, and penalties were prima facie vulnerable, and the allegation of suppression and wilful misstatement was also weakened.

Conclusion: The appellant made out a good case for waiver of pre-deposit and for stay of recovery during pendency of the appeal.

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