Work contract tax applies only from 1.6.2007, and pre-levy differential demand, interest, and penalty could not survive.

Work contract service became taxable only from 1.6.2007, so no service tax liability arose on a contract entered in April 2007 before that date. The text also states that tax for the period after 1.6.2007 had already been discharged correctly under the composite scheme, leaving no basis for a differential demand. On that basis, the demand for tax, interest, and penalty was treated as unsustainable and set aside in favour of the assessee.

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Issues: Whether works contract entered into in April 2007 was taxable prior to 1.6.2007 and whether the differential demand, interest, and penalty could be sustained for that period.

Analysis: The work contract service was introduced as a taxable service only with effect from 1.6.2007. Prior to that date, works contract was not liable to service tax. The demand proceeded on the premise that the contract entered in April 2007 was already an ongoing construction service, but the governing legal position was that no service tax liability arose on works contract before the levy came into force. For the period after 1.6.2007, the appellant had already discharged tax correctly under the composite scheme, leaving no basis for any further demand. In these circumstances, the confirmation of differential tax, interest, and penalty could not stand.

Conclusion: The demand, interest, and penalty were unsustainable and were set aside in favour of the assessee.

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