Works contract tax, Cenvat reversal, and double demand principles were applied to remand the credit and abatement dispute.

For post-1.6.2007 contracts, the taxable activity fell under works contract service, and tax discharged under the composition scheme could not be demanded again merely because the contract documents were doubted; the matter was remitted for verification of the contracts. Reversal of Cenvat credit was treated as non-availment of credit, so abatement under Notification No. 1/2006-ST could not be denied on that basis. A further demand for credit actually utilized could not be confirmed in addition to a disallowance of the same credit, as that would create a double demand; the matter required fresh scrutiny of the credit records.

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Issues: (i) Whether service tax demand on contracts executed on or after 1.6.2007 could be sustained when the activity was taxable as works contract service and tax had already been discharged under the composition scheme; (ii) whether reversal of Cenvat credit would amount to non-availment of credit so as to preserve the abatement benefit under Notification No. 1/2006-ST; (iii) whether denial of Cenvat credit and a further demand of credit actually utilized could both be confirmed so as to result in a double demand.

Issue (i): Whether service tax demand on contracts executed on or after 1.6.2007 could be sustained when the activity was taxable as works contract service and tax had already been discharged under the composition scheme.

Analysis: The taxable activity for the relevant post-1.6.2007 contracts fell under works contract service. Once tax had been discharged under the composition scheme, the same liability could not be confirmed again merely because the adjudicating authority doubted the contract documents. The matter, however, required verification of the contracts before the adjudicating authority.

Conclusion: The demand was not sustainable on merits, and the issue was remitted for verification of the contracts.

Issue (ii): Whether reversal of Cenvat credit would amount to non-availment of credit so as to preserve the abatement benefit under Notification No. 1/2006-ST.

Analysis: The settled position applied by the Tribunal and the High Court was that reversal of Cenvat credit has the effect of non-availment of credit. On that basis, denial of abatement under Notification No. 1/2006-ST could not be justified where the credit had been reversed, and the adjudicating authority had not explained why the cited decisions were inapplicable.

Conclusion: The abatement benefit could not be denied if the credit was reversed.

Issue (iii): Whether denial of Cenvat credit and a further demand of credit actually utilized could both be confirmed so as to result in a double demand.

Analysis: The record showed inconsistencies in the quantum of credit allegedly availed and the amount actually utilized. Since the credit utilized was already embedded in the larger disallowance of credit availed, a second demand on the same amount could not stand. The impugned order therefore suffered from factual and accounting errors requiring fresh scrutiny.

Conclusion: The denial of credit and the additional demand of utilized credit were not sustainable together.

Final Conclusion: The appeal succeeded to the extent that the impugned order was set aside and the matter was remanded for fresh consideration, with directions to verify the contracts, credit availment, and credit reversals, and with clarification that reversal of credit would not defeat the abatement benefit.

Ratio Decidendi: Reversal of Cenvat credit is to be treated as non-availment of credit for the purpose of abatement, and the same credit cannot be subjected to a double demand as both disallowed credit and utilized credit.

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