Tribunal upholds service tax demand against appellant for construction services, orders pre-deposit.

The tribunal confirmed a service tax demand against the appellant for the period 6/2006 to 3/2008 under commercial or industrial construction service, totaling &8377; 3,82,30,870. The demand was upheld due to non-inclusion of the value of free supply material, Cenvat credit on input services, and discrepancies in the amount recovered and deposited towards service tax. The tribunal ordered a pre-deposit of &8377; 1.5 crores with interest within six weeks to continue the appeal process, staying the recovery of the remaining liability pending compliance.

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Issues:
Service tax demand under commercial or industrial construction service, denial of benefit of Notification No. 1/2006-ST, inclusion of value of free supply material, Cenvat credit on input services, recovery and deposit of service tax amount, denial of 67% abatement, validity of demand calculation, compliance with pre-deposit requirements.

Analysis:
The appellant filed a stay application and appeal against a service tax demand confirmed for the period 6/2006 to 3/2008, totaling &8377; 3,82,30,870, under commercial or industrial construction service. The demand was based on non-inclusion of the value of free supply material and taking Cenvat credit on input services, resulting in short payment of &8377; 3,11,96,509. Additionally, a component of &8377; 70,34,361 was confirmed due to discrepancies in the amount recovered and deposited towards service tax.

The appellant contended that service was provided under works contract service and that no service tax was leviable up to 31.5.2007 based on a Supreme Court judgment. The appellant also argued for the benefit of 67% abatement citing a CESTAT judgment. The respondent raised concerns about the denial of Notification No. 1/2006-ST benefit and the lack of linkage between the deposited amount and the demand.

The tribunal acknowledged that no service tax was payable before 1.6.2007 for works contracts and that the appellant had recovered the amount deposited during that period from customers. The tribunal upheld the denial of 67% abatement due to Cenvat credit on input services. It noted the appellant's shift to the Composition Scheme post-1.6.2007, allowing Cenvat credit. The tribunal also addressed the discrepancy in the recovered and deposited service tax amount, concluding that the appellant retained an excess amount.

Considering the analysis, the tribunal ordered a pre-deposit of &8377; 1.5 crores along with interest to meet legal requirements. Compliance was mandated within six weeks, failing which the appeal would be dismissed. The tribunal stayed recovery of the remaining liability during the appeal's pendency, subject to the pre-deposit compliance by the specified date.

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