Works contract not taxable before 1-6-2007, so service tax demand and penalties could not stand.

Execution of works contract was not liable to service tax for the period prior to 1-6-2007, so a demand based on that activity could not be sustained merely because abatement or valuation issues were raised. The materials showed that the underlying service was works contract, and the pre-1-6-2007 tax net did not cover it. Accordingly, the differential demand and the associated penalties were unsustainable, and the assessee obtained consequential relief against the confirmation of duty and penalties.

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Issues: Whether service tax demand and penalties could be sustained where the services were provided under works contract for the period prior to 1-6-2007.

Analysis: The dispute arose from the assessee's claim of abatement under the relevant exemption notifications, but the materials in the order showed that the underlying activity was execution of works contract. The binding declaration of law that works contract was not exigible to service tax prior to 1-6-2007 applied to the facts. Once the activity itself was outside the tax net for the relevant period, the differential demand could not survive, and the payment already made was not disputed.

Conclusion: The demand and penalties were unsustainable and were set aside in favour of the assessee.

Final Conclusion: The appeal succeeded, and the assessee obtained consequential relief against the impugned confirmation of duty and penalties.

Ratio Decidendi: Works contract was not taxable under service tax law for the period prior to 1-6-2007, and a demand founded on such non-taxable activity cannot be sustained merely because valuation or abatement issues were raised.

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