Appeals allowed on works contract service classification. Extended period demand not applicable. Penalties waived due to genuine belief.

The appeals were allowed in favor of the appellants regarding the classification of services as works contract service from 01/6/2007. The extended period for demand from April 2001 to 31/06/2007 was not applicable due to the appellants' belief about non-payment of tax before 01/6/2007. Penalties were not imposed as the appellants had a genuine belief. No show cause notice was issued for demanding duty post 01/6/2007. The appeals by the appellants were allowed, while those by the Revenue were dismissed, and the Cross Objection was disposed of accordingly.

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Issues: Classification of services provided, applicability of abatement, imposition of penalties, demand of service tax pre and post 01/6/2007, benefit of Section 80 of the Finance Act, 1994, and issuance of show cause notice.

The main issue in the appeals was the classification of activities undertaken by the appellants as either Erection, Commissioning or Installation Service (ECIS) or works contract service. The period of dispute was from 1/5/2006 to 17/3/2008. The argument was made that no service tax was payable before 01/6/2007 as works contract service was introduced only from that date. However, it was held that works contract service was carved out of earlier services that were subject to service tax even before 01/6/2007. The activities of works contract undertaken by the appellants were classified as works contract service w.e.f. 01/6/2007.

Regarding the demand period from April 2001 to 31/06/2007, the extended period was deemed not applicable due to the appellants' bonafide belief that no service tax was payable on works contract activities before 01/6/2007. The value of free supplies made by the service recipient was not required to be added while discharging service tax, as per a precedent by the CESTAT Larger Bench. The matter was remanded to the Adjudicating Authority for quantification of the duty demand based on these observations.

Imposition of penalties was considered, and it was concluded that as the extended period was not applicable and the appellants had a bonafide belief regarding the non-payment of tax before 01/6/2007, no penalties under Section 76, 77, and 78 were imposable.

For the demand of service tax post 01/6/2007, it was noted that no show cause notice was issued to the appellants for demanding duty under works contract service. Therefore, the appeals filed by the appellants for this period were required to be allowed.

In conclusion, the appeals filed by the appellants were allowed to the extent indicated, while the appeals filed by the Revenue were dismissed. The Cross Objection filed by another party was also disposed of accordingly.

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