Appeals Allowed, Impugned Order Set Aside, Service Tax Demand Not Sustainable

The appeals were allowed, and the impugned order was set aside. The tribunal found that the demand of service tax of Rs. 1,03,22,449 was not sustainable as the appellants were eligible to utilize the Cenvat credit availed on inputs/input services prior to 01.03.2006. Additionally, the tribunal concluded that the contracts were composite contracts and not leviable to service tax before 01.06.2007, and the demand for service tax after 01.06.2007 could not be confirmed. The issue of limitation was not addressed as the appeals were decided on merits.

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Issues Involved:
1. Whether the demand of service tax of Rs. 1,03,22,449 on the full amount received towards provision of services is justified by denying the benefit of Notification 1/2006-ST dated 01.03.2006.
2. Whether the appellant is a service provider rendering services of "construction of residential complexes" in terms of Section 65(30)(a) of the Finance Act, 1994 read with Section 65(105)(zzzh) and whether the demand of Service Tax of Rs. 6,79,14,900 for the period from 16.06.2005 to 30.09.2007 is tenable.
3. Whether the show cause notice is time-barred.

Issue-wise Detailed Analysis:

1. Demand of Service Tax of Rs. 1,03,22,449:
The tribunal examined whether the denial of abatement under Notification No.1/2006-ST and the consequent demand of Service Tax on the full amount is justified. The appellants argued that the restriction on taking Cenvat credit of service tax on input services commenced only from 01.03.2006 and that Cenvat credit availed on input services under Rule 3(1) of the Cenvat Credit Rules, 2004 till 28.02.2006 does not lapse. The tribunal referred to the case of Shapoorji Pallonji & Co Ltd Vs CCE, where it was held that the Cenvat credit availed for services rendered before 01.03.2006 cannot be faulted. The tribunal concluded that there is no provision under Notifications 1/2006 or 15/2004 that such credit legally availed prior to 01.03.2006 would lapse. Therefore, the appellants are eligible to utilize the Cenvat credit availed on inputs/input services prior to 01.03.2006, and the demand to that extent is not sustainable.

2. Demand of Service Tax of Rs. 6,79,14,900:
The tribunal assessed whether the appellant is a service provider rendering services of "construction of residential complexes" and liable to pay service tax for the period from 16.06.2005 to 30.09.2007. The adjudicating authority had relied on a tripartite agreement and concluded that the appellant was rendering service to the ultimate buyers and, therefore, liable for service tax. However, the tribunal referred to the Supreme Court's decision in the appellant's own case, which held that works contracts are not chargeable to service tax before 01.06.2007. The tribunal further referred to the case of Ashwini Apartments, which concluded that services involving composite works contracts cannot be taxed under commercial or industrial construction service or construction of complex service. The tribunal found that the contracts in question were composite contracts and not leviable to service tax before 01.06.2007. The tribunal also noted that the show-cause notice proposed to demand service tax on construction of residential complexes service after 01.06.2007, even though they were works contracts. Therefore, the demand for service tax after 01.06.2007 also could not be confirmed. The tribunal concluded that the department cannot traverse beyond the show-cause notice, and the case laws cited by the department were not applicable.

3. Time-barred Show Cause Notice:
The tribunal noted that the appellants argued the entire demand was barred by limitation as all facts were known to the department during the audit in 2007. The department contended that the show-cause notice was issued within five years after the facts became known, relying on the Supreme Court's judgment in Mehta and Company. However, since the tribunal decided the issue on merits, it did not record findings on the issue of limitation.

Conclusion:
The appeals were allowed, and the impugned order was set aside. The tribunal found that the demand of service tax of Rs. 1,03,22,449 was not sustainable as the appellants were eligible to utilize the Cenvat credit availed on inputs/input services prior to 01.03.2006. The tribunal also concluded that the contracts were composite contracts and not leviable to service tax before 01.06.2007, and the demand for service tax after 01.06.2007 could not be confirmed. The tribunal did not address the issue of limitation as the appeals were decided on merits.

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