Tribunal cancels service tax demand pre-2007, interest & penalties. Penalty under Section 77 waived. Appellant-assessee wins appeal.

The Tribunal set aside the demand of service tax under construction of complex service for the period prior to 01/06/2007. The demand of interest and penalties were also set aside. The penalty under Section 77 was found unsustainable due to a reasonable cause for not timely registration. The appeal by the appellant-assessee was allowed with consequential relief. The impugned order was set aside, and the appeal was allowed on 15.07.2016.

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Issues Involved:
1. Whether the demand is correct for the period between 16/06/2005 to 31/12/2006 under taxable service of construction of complex for the indivisible works contract which merits classification under the category works contract service.
2. Whether the facts of this case invoking extended period of limitation is correct.

Detailed Analysis:

Issue 1: Classification and Taxability of Services
The appellants argued that their services fall under the category of "works contract," which was introduced as a taxable service only from 01/06/2007. The demand pertains to a period prior to this date, making the demand erroneous. They cited the Hon'ble Supreme Court's decision in CCE & Cus, Cochin vs. Larsen and Toubro Ltd., which held that prior to 01/06/2007, there was no machinery to levy service tax on works contracts. The Tribunal noted that the contract in question was an indivisible contract involving both transfer of property and services, and appropriate sales tax/VAT was paid for the value of goods involved. The Tribunal found that the legislature clarified that activities involving both transfer of property in goods and construction services should be classifiable as "works contract services."

The Tribunal referred to the Supreme Court's judgment in Commissioner of Central Excise and Customs, Kerala Vs. Larsen and Toubro Ltd., which stated that prior to 01/06/2007, service tax could not be imposed on works contract services. The Tribunal concluded that the demand under construction of complex services for the period in question was not sustainable.

Issue 2: Invocation of Extended Period of Limitation
The Tribunal examined whether the invocation of the extended period of limitation was correct. It was noted that the issue of whether the activity of construction of complex would fall under construction service or works contract service had always been under dispute. The Tribunal found that there was a reasonable cause for not taking registration within the prescribed time limit due to the conflicting views prevalent on the issue. The Tribunal concluded that there was no suppression, fraud, or contravention with an intention to evade payment of tax, thus failing the invocation of the extended period of limitation.

Conclusion:
The Tribunal set aside the demand of service tax under construction of complex service for the period prior to 01/06/2007. Consequently, the demand of interest under Section 75 and penalty under Sections 76 and 78 of the Finance Act, 1994, were also set aside. The Tribunal found the penalty under Section 77 unsustainable due to the reasonable cause for not taking registration within the prescribed time limit. The appeal filed by the appellant-assessee was allowed with consequential relief, if any.

Operative Part:
The impugned order was set aside, and the appeal was allowed with consequential relief. The operative part of the order was pronounced in open court on 15.07.2016.

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