Indivisible works contract service tax treatment before and after 1 June 2007, with penalties deleted and composition payment allowed.

An indivisible works contract was not liable to service tax for the period before 1 June 2007, so the demand for that earlier period could not stand. For the post-1 June 2007 period, the dispute was treated as a contentious interpretational issue, and the penalties were found unwarranted. The assessee was also permitted to discharge service tax under the composition scheme for the later period. The note therefore reflects that the pre-2007 demand failed, the post-2007 penalties were deleted, and composition-based payment was allowed.

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Issues: (i) Whether the demand of service tax for the period prior to 1.6.2007 was sustainable in respect of an indivisible works contract; (ii) Whether the penalties imposed for the period after 1.6.2007 were warranted and whether payment under the composition scheme could be permitted.

Issue (i): Whether the demand of service tax for the period prior to 1.6.2007 was sustainable in respect of an indivisible works contract.

Analysis: The period prior to 1.6.2007 was covered by the settled position that an indivisible works contract was not liable to service tax before that date. The demand for the earlier period therefore could not survive.

Conclusion: The demand for the period prior to 1.6.2007 was set aside.

Issue (ii): Whether the penalties imposed for the period after 1.6.2007 were warranted and whether payment under the composition scheme could be permitted.

Analysis: The dispute for the later period was treated as contentious and interpretational. In that backdrop, the penalties were found to be unwarranted. The request to allow payment of service tax under the composition scheme for the post-1.6.2007 period was also found reasonable.

Conclusion: The penalties for the period after 1.6.2007 were set aside and permission to pay under the composition scheme was allowed.

Final Conclusion: The demand for the pre-1.6.2007 period failed, the penalties for the later period were deleted, and the assessee was granted the benefit of payment under the composition scheme, resulting in a partial allowance of the appeal.

Ratio Decidendi: An indivisible works contract was not liable to service tax prior to 1.6.2007, and where the levy for the subsequent period involved a contentious interpretational dispute, penalties could be set aside and composition-based payment permitted.

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