Construction service tax demands require examination of exemption, valuation exclusion, and composition scheme before final assessment.

Service tax on construction-related activities cannot be assessed merely on the gross amount charged without examining the statutory reliefs applicable for the relevant period. For the period before 01.06.2007, the demand had to be tested against eligibility for Notification No. 1/2006-ST exemption and related abatement. For the period from 01.06.2007 onwards, the liability had to be reconsidered in light of classification as works contract service, exclusion of the value of goods under Rule 2A, and possible coverage under the composition scheme. The adjudication was therefore found unsustainable without fresh consideration of these statutory requirements.

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Issues: (i) Whether the demand for the period prior to 01.06.2007 could be sustained on the gross amount charged without examining entitlement to exemption under Notification No. 1/2006-ST dated 01.03.2006. (ii) Whether, for the period from 01.06.2007 onwards, the liability could be confirmed without considering classification as works contract service, exclusion of the value of goods under Rule 2A of the Service Tax Valuation Rules, and eligibility for the composition scheme under the Works Contract Service (Composition Scheme for Payment of Service Tax) Rules, 2007.

Issue (i): Whether the demand for the period prior to 01.06.2007 could be sustained on the gross amount charged without examining entitlement to exemption under Notification No. 1/2006-ST dated 01.03.2006.

Analysis: For the period prior to 01.06.2007, the activity was treated as commercial and industrial construction service. The demand had been confirmed on the entire gross amount charged, but the eligibility to the notification-based exemption and the resulting abatement was not examined.

Conclusion: The demand for the pre-01.06.2007 period could not be sustained without considering the assessee's eligibility to the exemption and abatement.

Issue (ii): Whether, for the period from 01.06.2007 onwards, the liability could be confirmed without considering classification as works contract service, exclusion of the value of goods under Rule 2A of the Service Tax Valuation Rules, and eligibility for the composition scheme under the Works Contract Service (Composition Scheme for Payment of Service Tax) Rules, 2007.

Analysis: From 01.06.2007 onwards, the activity fell to be considered as works contract service. The value of goods on which VAT or sales tax had been paid was required to be excluded under Rule 2A, and the eligibility for the composition scheme also required examination, but neither aspect had been properly addressed in the adjudication order.

Conclusion: The post-01.06.2007 demand required fresh consideration after examining classification, valuation under Rule 2A, and eligibility for the composition scheme.

Final Conclusion: The adjudication order was unsustainable and the matter required de novo adjudication on both periods with the relevant exemptions, valuation rules, and composition scheme to be considered afresh.

Ratio Decidendi: A demand for construction-related service tax cannot be sustained on the gross amount alone when statutory exemption, valuation exclusion, or composition-based assessment may apply; these matters must be examined before final adjudication.

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