Works Contract Composition Scheme held available for composite contracts despite earlier tax payment under a different classification.

A composite works contract was treated as eligible for the Works Contract Composition Scheme once works contract service came into force on 01.06.2007, and prior payment of service tax under a different classification did not bar that election. Where no prescribed form or mandatory mode existed for exercising the option, payment at the composition rate and disclosure in statutory returns were sufficient to evidence adoption of the scheme. The absence of input credit availed also supported eligibility, and credit of input services was not excluded by the scheme. On that basis, the objection to the composition scheme failed, and the demand and penalties could not be sustained.

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Issues: Whether the assessee was entitled to avail the Works Contract Composition Scheme for a composite contract despite payment of service tax under a different classification before 01.06.2007 and without filing a separate written option, and whether the objection to the composition scheme was sustainable.

Analysis: The contract was composite in nature and, following the settled position on works contracts, taxability arose only from 01.06.2007. Payment made prior to that date under a different classification could not bar the assessee from adopting the composition scheme once works contract service came into force. The assessee started paying tax at the composition rate from the date of introduction of the service and reflected that position in the statutory returns. In the absence of any prescribed form or mandatory mode for exercising the option, the conduct of paying tax under the composition scheme was sufficient to show election of the scheme. The fact that no input credit was availed also supported eligibility, and credit of input services was not barred by the scheme.

Conclusion: The assessee was entitled to the composition scheme, and the objection to its availment was not sustainable. The impugned demand and penalties could not survive on that ground.

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