Prospective works contract valuation amendment excludes pre-07.07.2009 contracts and payments from expanded taxable value.

An amendment to the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, made effective from 07.07.2009, expanded gross value to include all goods used in execution of a works contract, including free-supply goods and goods received under other contracts. The stated effect was prospective only: it did not apply to contracts already commenced or to payments already made on or before 07.07.2009. Accordingly, for projects falling within that earlier period, the value of goods was not includible in the taxable value under the composition scheme, and the related service tax demand, interest and penalties could not be sustained.

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Issues: Whether the value of goods supplied under works contract had to be included in the taxable value for service tax under the composition scheme, particularly for contracts entered into or payments made prior to 07.07.2009.

Analysis: The amendment to the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 by Notification No. 23/2009-ST, effective from 07.07.2009, introduced an explanation bringing within the gross value all goods used in relation to execution of the works contract, including goods received free of cost or under other contracts. The amendment, as explained by the CBEC, was intended to cure a loophole and was not to operate against contracts already commenced or payments already made on or before 07.07.2009. The earlier decision in the appellant's own case was followed. On the facts, 13 projects were covered by pre-07.07.2009 commencement or payment, and the 14th project showed no positive tax demand.

Conclusion: The value of goods was not required to be included for the relevant contracts, and the service tax demand, together with interest and penalties, could not survive.

Ratio Decidendi: An amendment expanding the taxable value under the works contract composition scheme applies prospectively and does not govern contracts already commenced or payments already made before the amendment date.

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