Tribunal upholds service tax classification, denies pre-01.06.2007 exemption. Free issue material included in taxable value.

The Tribunal upheld the classification and taxability of services prior to 01.06.2007 under specific service categories, rejecting the appellant's claim that these services were not taxable before this date. It was determined that free issue material should have been included in the taxable value of services provided. The appellant's availing of CENVAT Credit disqualified them from claiming the benefit of Notification No.1/2006-ST. Despite acknowledging the appellant's financial hardship, the Tribunal required a partial pre-deposit of Rs.4.5 crores, granting a stay against the recovery of the balance amounts upon deposit within eight weeks.

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Issues Involved:
1. Classification and Taxability of Services Prior to 01.06.2007
2. Inclusion of Free Issue Material in the Gross Value for Taxable Services
3. Availment of CENVAT Credit and Benefit of Notification No.1/2006-ST
4. Financial Hardship and Requirement of Pre-deposit

Detailed Analysis:

1. Classification and Taxability of Services Prior to 01.06.2007:
The appellants argued that the services provided were works contract services, which became taxable only from 01.06.2007. They relied on several decisions, including the Board's circular dated 06.07.2009, to support that free issue material should not be added to the gross value charged for works contract services before 07.07.2009. However, the Tribunal referenced the decision in the case of Instrumentation Limited, which stated that services covered under specific service headings prior to 01.06.2007 were taxable even if they later fell under works contract services. The Tribunal held that the appellant's services were correctly classified and taxable under other heads before 01.06.2007, rejecting the claim that these services were not taxable prior to this date.

2. Inclusion of Free Issue Material in the Gross Value for Taxable Services:
The appellant had not included the value of site materials used in providing erection, installation & commissioning services, commercial or industrial construction services, and works contract services, leading to under-valuation. The Tribunal found that the appellant had wrongly included the cost of these materials in the cost of wind energy converters, which were exempt from excise duty. It was determined that these materials should have been included in the taxable value of the services provided, as they were essential for the installation of wind mills.

3. Availment of CENVAT Credit and Benefit of Notification No.1/2006-ST:
The Tribunal noted that the appellant had availed CENVAT Credit on input services, which disqualified them from claiming the benefit of Notification No.1/2006-ST. The appellant's argument that CENVAT Credit reversed is as good as not availed was not accepted. The Tribunal upheld the charge that the appellant wrongly utilized the CENVAT Credit balance for payment of service tax on GTA services.

4. Financial Hardship and Requirement of Pre-deposit:
Regarding financial hardship, the appellant submitted an affidavit stating that their factory was closed due to a strike, affecting cash flow and resulting in delayed salaries. The Tribunal considered this affidavit and the financial difficulties but still required the appellant to deposit Rs.4.5 crores, which was less than 10% of the total service tax demand and less than 5% of the total amount demanded, including interest and penalty. The Tribunal granted a stay against the recovery of the balance amounts, subject to the deposit being made within eight weeks.

Conclusion:
The Tribunal concluded that the appellant did not make a prima facie case for complete waiver and required a partial pre-deposit. The classification of services prior to 01.06.2007 was upheld under specific service categories, and the inclusion of free issue material in the taxable value was mandated. The appellant's financial hardship was acknowledged but did not exempt them from making a partial pre-deposit.

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