Works contract composition scheme: prima facie benefit recognised, but normal-rate tax remained payable before departmental receipt of the option.

The works contract composition scheme for service tax was treated as prima facie available where the project had commenced before 1-6-2007 but the option and payments were received after the scheme came into force. The Department's acknowledgment of the option supported the assessee's claim to the concessional rate, yet the option was regarded as effective only from receipt by the Department, so tax at the normal rate remained payable for the prior period. No financial hardship was shown. Partial stay relief was granted, with a deposit directed and the balance demand and penalty stayed during the appeal.

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Issues: Whether the appellant was entitled, at the stay stage, to the benefit of the works contract composition scheme for service tax and consequent waiver of pre-deposit.

Analysis: The appellant had entered into the projects before 1-6-2007 and had expressed its intention to pay service tax at the concessional rate under the works contract composition scheme. The Department acknowledged the option on 10-9-2007, and the record showed that payments were received from August 2007 onwards. In the light of the circular clarifying the scheme's applicability to services commenced before 1-6-2007 where payment was received after the scheme came into force, the benefit could not prima facie be denied altogether. At the same time, the option was treated as effective only on receipt by the Department, so tax at the normal rate remained payable for the period before that date. No financial hardship was shown.

Conclusion: The appellant was granted partial waiver. It was directed to deposit Rs. 20,00,000, with the balance of the service tax and penalty stayed during the pendency of the appeal.

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