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Issues: (i) Whether service tax could be demanded on amounts shown as receivables but not actually received; (ii) Whether the value of goods used in rendering the services and subjected to VAT could be excluded for the purpose of service tax and whether the activity could be treated as works contract; (iii) Whether the assessee was prima facie entitled to the benefit of Notification No. 12/2003-S.T. for the relevant period.
Issue (i): Whether service tax could be demanded on amounts shown as receivables but not actually received.
Analysis: The demand had been confirmed by treating receivables as service charges. The available material indicated that service tax is chargeable on amounts actually received and not on amounts merely receivable and not yet received. On the facts placed, the impugned demand suffered from this error.
Conclusion: The demand could not be sustained to the extent it was based on unrealised receivables.
Issue (ii): Whether the value of goods used in rendering the services and subjected to VAT could be excluded for the purpose of service tax and whether the activity could be treated as works contract.
Analysis: The assessee had executed composite orders involving substantial supply of goods, and VAT had been paid on goods of significant value. The complete disallowance of deduction for the value of goods was prima facie unsustainable. The Board's clarification of 22-5-2007 also supported treatment of a contract involving VAT-paid goods as a works contract for service tax purposes.
Conclusion: The assessee made out a prima facie case for exclusion of the value of goods and for treatment of the contracts as works contract.
Issue (iii): Whether the assessee was prima facie entitled to the benefit of Notification No. 12/2003-S.T. for the relevant period.
Analysis: For the period before 1-6-2007, the documents produced contained specifications and value details of material supplied or used in the rendering of services. On a prima facie view, the denial of the notification benefit was not justified.
Conclusion: The assessee was prima facie entitled to the benefit of Notification No. 12/2003-S.T.
Final Conclusion: The assessee established a prima facie case for complete waiver of the balance dues and protection against recovery during pendency of the appeal.
Ratio Decidendi: In a stay application, where the demand is based on unrealised receivables and the assessee shows prima facie entitlement to exclusion of goods value and notification benefit, pre-deposit may be waived and recovery stayed.
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