Pre-deposit waiver in service tax dispute: free-supply material issue favoured assessee, but partial deposit was still required.

In a service tax and CENVAT credit dispute, the free-supply materials issue was treated as covered by the Larger Bench view in Bhayana Builders, giving the appellant a strong prima facie case on inclusion of such value in the taxable base. By contrast, the issues concerning the nature of the construction activity for 2004-05 and eligibility of CENVAT credit on input services used for taxable and exempt outputs required factual examination and did not justify total waiver at that stage. Complete waiver of pre-deposit was therefore declined, and conditional stay was granted on deposit of Rs. 5 lakh, with the balance waived pending appeal.

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Issues: Whether the appellant was entitled to complete waiver of pre-deposit and stay of recovery in a service tax and CENVAT credit dispute.

Analysis: The demand relating to inclusion of the value of free issue materials in the taxable value was covered by the Larger Bench view in Bhayana Builders and therefore disclosed a strong prima facie case for the appellant. The demand relating to the nature of the construction activity for the period 2004-05, and the dispute concerning availment of CENVAT credit on input services used for taxable and exempted outputs, required examination of evidence and did not justify total waiver at that stage.

Conclusion: Complete waiver of pre-deposit was declined. The appellant was directed to deposit Rs. 5 lakh, and upon such deposit the balance dues would remain waived and recovery stayed during the pendency of the appeal.

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