Works contract taxability, limitation, and composition relief were narrowed by disclosure and procedural compliance principles.

Composite construction activity was treated as works contract service only from 01.06.2007, so service tax could not be demanded for the earlier period. Extended limitation was unavailable because the assessee was registered, filed ST-3 returns, and disclosed the nature and value of services, leaving no basis for suppression. Denial of the works contract composition scheme for failure to file the option was held unsustainable because the option requirement was procedural, not substantive, and the surviving demand had to be recalculated under the scheme with cum-tax benefit.

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Issues: (i) Whether the demand for service tax for the period prior to 01.06.2007 could survive when the construction activity was held to be classifiable as works contract service. (ii) Whether the demand beyond the normal period of limitation was barred by time. (iii) Whether denial of the benefit of the works contract composition scheme for non-filing of option was sustainable and whether cum-tax benefit was admissible.

Issue (i): Whether the demand for service tax for the period prior to 01.06.2007 could survive when the construction activity was held to be classifiable as works contract service.

Analysis: The activity was admittedly a composite construction activity involving supply of goods and services. The services were held to fall under works contract service only from 01.06.2007, and the legal position on levy of tax on composite works contracts was settled by the Supreme Court to operate from that date.

Conclusion: The demand for the period prior to 01.06.2007 was not sustainable.

Issue (ii): Whether the demand beyond the normal period of limitation was barred by time.

Analysis: The assessee was registered, filed ST-3 returns regularly, and disclosed the nature and value of services rendered. The department raised the works contract issue only on audit, and there was no basis to allege suppression. In these circumstances, extended limitation was not available.

Conclusion: The demand beyond the normal period of limitation was barred by time.

Issue (iii): Whether denial of the benefit of the works contract composition scheme for non-filing of option was sustainable and whether cum-tax benefit was admissible.

Analysis: Rule 3 of the composition rules required prior exercise of option, but that requirement was treated as procedural. Non-exercise of the option did not by itself justify denial of the substantive benefit of the composition scheme. Once the demand within limitation was to be recomputed under the scheme, the assessee was also entitled to cum-tax benefit.

Conclusion: Denial of the composition scheme was unsustainable, and recomputation with cum-tax benefit was required.

Final Conclusion: The appeal succeeded in part: the demand prior to 01.06.2007 and the demand beyond the normal limitation period were set aside, while the surviving demand within limitation was directed to be recalculated after extending the composition scheme and cum-tax benefit.

Ratio Decidendi: A composite works contract can be taxed only from 01.06.2007, extended limitation cannot be invoked absent suppression when returns and registration disclose the activity, and a procedural lapse in exercising the composition option cannot defeat the substantive benefit of the scheme.

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