Works contract taxation and Cenvat credit: pre-expansion construction services escaped tax, and technical invoice defects could not defeat credit.

Construction activity treated as works contract was not taxable for the period before 1.6.2007, and builder-developer services were also held not taxable before the statutory expansion effective 1.7.2010. The works contract compensation scheme was available where the option was exercised before payment under the scheme; exercising it before the tax due date was not required, so the assessee qualified for the scheme. Cenvat credit could not be denied for minor invoice defects, such as missing invoice number or date, when receipt and accounting of the input services were established and the credit related to services used during the relevant periods.

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Issues: (i) Whether service tax was payable on construction activities for the period prior to 1.6.2007 and for the period from 1.6.2007 to 1.7.2010; (ii) Whether the assessee was entitled to the benefit of the works contract compensation scheme from 1.7.2010; (iii) Whether Cenvat credit could be denied for alleged defects in invoices or on the ground that the credit had been availed in relation to services used during the disputed periods.

Issue (i): Whether service tax was payable on construction activities for the period prior to 1.6.2007 and for the period from 1.6.2007 to 1.7.2010

Analysis: The liability for the earlier period was negatived in view of the law declared by the Supreme Court on construction activity undertaken as works contract. For the later period up to 1.7.2010, the Board circulars and Tribunal decisions were accepted as supporting the view that builder-developer services were not taxable before the statutory expansion of the taxable entry with effect from 1.7.2010.

Conclusion: Service tax was not payable on the assessee for either period, and the issue was decided in favour of the assessee.

Issue (ii): Whether the assessee was entitled to the benefit of the works contract compensation scheme from 1.7.2010

Analysis: The denial was based only on the premise that the option under the scheme had not been exercised before the due date of payment of tax. Rule 3(3) required the option to be exercised before payment, and not before the due date. Payment under the scheme itself was treated as sufficient manifestation of the option, and the contrary view of the adjudicating authority was found unsustainable.

Conclusion: The assessee was entitled to the compensation scheme, and the issue was decided in favour of the assessee.

Issue (iii): Whether Cenvat credit could be denied for alleged defects in invoices or on the ground that the credit had been availed in relation to services used during the disputed periods

Analysis: The credit denials were held unsustainable because the services were found to have been received and accounted for, and the absence of invoice number or date was treated as a condonable defect under Rule 9(2). The credit demands were also negated where tax had in fact been paid during the relevant periods, following the principle that credit cannot be denied merely on such technical objections when substantive receipt and accounting are not disputed.

Conclusion: The Cenvat credit demands were set aside, and the issue was decided in favour of the assessee.

Final Conclusion: The assessee succeeded on all contested issues, and the departmental challenge to the reduced penalty did not survive.

Ratio Decidendi: Where the taxable entry had not yet been expanded to cover builder-developer construction activity, no service tax could be levied for the prior period; the option under the works contract compensation scheme was valid if exercised before payment under the scheme; and Cenvat credit cannot be denied for merely technical defects in documents when receipt and accounting of the input service are not in dispute.

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