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Issues: (i) Whether service tax was leviable on composite works contract for the period prior to 01.06.2007; (ii) Whether the assessee could be denied the benefit of the composition scheme for works contract service merely because the option had not been exercised in advance; (iii) Whether penalties were sustainable.
Issue (i): Whether service tax was leviable on composite works contract for the period prior to 01.06.2007.
Analysis: The contracts involved supply of goods as well as execution of works for setting up petrol pumps, bringing them within the nature of composite works contracts. In view of the settled legal position that such composite contracts were not liable to service tax before the introduction of works contract service on 01.06.2007, the pre-01.06.2007 demand could not survive.
Conclusion: The demand of service tax for the period prior to 01.06.2007 was not sustainable and was set aside in favour of the assessee.
Issue (ii): Whether the assessee could be denied the benefit of the composition scheme for works contract service merely because the option had not been exercised in advance.
Analysis: For the post-01.06.2007 period, the Tribunal held that the composition scheme could not be denied solely on the ground of non-exercise of prior option. The tax liability for works contract service had to be worked out on the applicable rate, including the composition rate, if the statutory conditions were otherwise satisfied.
Conclusion: The benefit of the composition scheme could not be refused only for want of prior option, and the post-01.06.2007 demand was required to be restricted accordingly, in favour of the assessee.
Issue (iii): Whether penalties were sustainable.
Analysis: Since the dispute involved a debatable tax liability on composite works contracts and the pre-01.06.2007 levy was held unsustainable, the penal provisions were held not to be attracted.
Conclusion: Penalties were set aside in favour of the assessee.
Final Conclusion: The assessee obtained relief against the pre-01.06.2007 demand, the post-01.06.2007 demand was confined to the legally sustainable extent, and the penalties were annulled; the Revenue's challenge failed.
Ratio Decidendi: Composite works contracts were not exigible to service tax before 01.06.2007, and the composition scheme for works contract service could not be denied merely because the option had not been exercised in advance when the statutory conditions were otherwise met.
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