Abatement and works contract composition scheme rules: free supplies do not defeat abatement, but ongoing projects cannot switch schemes midstream.

Abatement under Notification No. 18/2005-ST and Notification No. 1/2006-ST could not be denied merely because the service recipient supplied goods free of cost, since such supplies were not required to be included in the assessable value; the benefit could be withdrawn only if cenvat credit on capital goods had actually been taken for the projects in dispute, which was not shown, so the denial-based demand failed. By contrast, the works contract composition scheme could not be applied from 01.06.2007 to projects already ongoing before that date, so that liability survived, but the matter was remanded for fresh quantification and reconsideration of interest and penalty.

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Issues: (i) Whether the assessee was entitled to 67% abatement under Notification No. 18/2005-ST and Notification No. 1/2006-ST despite free supplies by the service recipient and the allegation of cenvat credit on capital goods; (ii) Whether the assessee could avail the works contract composition scheme from 01.06.2007 for projects already ongoing before that date, and the consequential demand, interest and penalty liability.

Issue (i): Whether the assessee was entitled to 67% abatement under Notification No. 18/2005-ST and Notification No. 1/2006-ST despite free supplies by the service recipient and the allegation of cenvat credit on capital goods.

Analysis: The benefit of abatement could not be denied merely because the service recipient had supplied goods free of cost, since such free supplies were not required to be included in the assessable value. Denial of the notification benefit could arise only if cenvat credit on capital goods had actually been taken in relation to the projects to which the demand pertained. No prima facie material showed that credit on capital goods used for those projects had been availed. A bare possibility that such capital goods could have been used elsewhere was insufficient to deny the abatement.

Conclusion: The assessee was entitled to the 67% abatement, and the demand founded on denial of that benefit was unsustainable.

Issue (ii): Whether the assessee could avail the works contract composition scheme from 01.06.2007 for projects already ongoing before that date, and the consequential demand, interest and penalty liability.

Analysis: Switching over to the composition scheme from 01.06.2007 was not permissible for projects that were already ongoing before that date. The assessee accepted this position and had paid a differential amount during investigation, but the record did not establish the exact quantum attributable to this head. The remaining questions of computation, interest, limitation and penalty required reconsideration by the adjudicating authority.

Conclusion: The demand on this issue survived, but the matter required remand for recomputation and fresh adjudication of the related interest and penalty aspects.

Final Conclusion: The demand based on denial of abatement was set aside, while the liability arising from ineligible composition scheme usage survived and was sent back for fresh quantification and consequential adjudication.

Ratio Decidendi: Abatement under the relevant notifications cannot be denied without proof that cenvat credit on capital goods was taken for the very projects in dispute, and composition scheme benefits cannot be availed for works contract projects already ongoing before 01.06.2007.

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