Works contract classification and road construction exemption defeated service tax demands on composite construction activity.

Composite construction of residential complexes involving supply of material was treated as Works Contract Service, so service tax could not be sustained under Construction of Residential Complex Services for the period prior to 1-6-2007, particularly where the notice had not proposed taxation under the correct category. Road construction was also held exempt under Notification No. 17/2005-S.T., because the exemption was not confined to roads open to the general public. The demand on both counts was therefore set aside, and consequential relief followed.

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Issues: (i) Whether construction of residential complexes along with material was liable to service tax under the category of Construction of Residential Complex Services for the period prior to 1-6-2007. (ii) Whether construction of roads was exempt from service tax under Notification No. 17/2005-S.T. dated 7-6-2005.

Issue (i): Whether construction of residential complexes along with material was liable to service tax under the category of Construction of Residential Complex Services for the period prior to 1-6-2007.

Analysis: The activity was found to be a composite construction activity involving supply of material, which falls within Works Contract Service. For the period prior to 1-6-2007, no demand could be sustained under that category, and the notice had not proposed tax under Works Contract Service.

Conclusion: The demand under Construction of Residential Complex Services was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether construction of roads was exempt from service tax under Notification No. 17/2005-S.T. dated 7-6-2005.

Analysis: The activity was held to be road construction, and the notification did not make taxability depend on whether the road was open to the general public. The exemption was therefore applicable on the facts found.

Conclusion: No service tax was payable on the road construction activity and the demand was set aside in favour of the assessee.

Final Conclusion: The demand and impugned order were annulled, and the assessee obtained consequential relief.

Ratio Decidendi: A composite construction activity involving materials is to be classified as Works Contract Service, and where the notice does not propose that category, service tax cannot be sustained for the prior period; road construction is exempt when the applicable notification does not restrict exemption to roads open to the general public.

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