Works contract composition benefit upheld despite late option filing, with cum-tax treatment and penalty sustained.

Substantive entitlement to the works contract composition scheme under service tax could not be denied merely because the Rule 3(3) option was not filed in formal time, where the assessee's election was communicated to the department before payment and the scheme conditions were otherwise satisfied. The assessee was also held entitled to cum-tax treatment because the contract value was treated as inclusive of tax, and the penalty finding was sustained on the basis of delayed payment and suppression. The impugned order was affirmed and the departmental appeal failed.

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Issues: (i) Whether the assessee was entitled to the benefit of the composition scheme for works contract services notwithstanding the objection that the option under Rule 3(3) had not been filed in time; (ii) Whether the assessee was entitled to cum-tax benefit and whether penalty could be sustained.

Issue (i): Whether the assessee was entitled to the benefit of the composition scheme for works contract services notwithstanding the objection that the option under Rule 3(3) had not been filed in time.

Analysis: The services had already been accepted as works contract services. The record showed communication by the assessee to the department before discharge of liability under the composition scheme, and the option was treated as having been exercised before payment. The absence of a formal objection-free filing within the period was not regarded as a valid basis to deny the substantive benefit of the scheme.

Conclusion: The benefit of the composition scheme was rightly allowed to the assessee.

Issue (ii): Whether the assessee was entitled to cum-tax benefit and whether penalty could be sustained.

Analysis: No infirmity was found in the finding that the contract value was to be treated as inclusive of tax. The finding on penalty was also upheld, as the delayed payment aspect was considered with reference to suppression and the impugned order was found proper on that score.

Conclusion: The assessee was entitled to cum-tax benefit and the penalty finding was sustained.

Final Conclusion: The impugned order was affirmed in full and the departmental appeal failed.

Ratio Decidendi: Substantive entitlement to a composition scheme under service tax cannot be denied merely on a technical objection to the exercise of option where the assessee's election is evidenced before payment and the statutory benefit is otherwise satisfied.

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