Works contract service tax before 1 June 2007 stayed non-taxable; mistaken payment under another heading remained refundable.

Works contract services executed before 1 June 2007 were treated as outside the service tax net because the contracts involved both supply and execution elements and the law then did not tax such activity. Classification under another service heading, or payment after availing a composition-related notification, did not alter the true nature of the contract or make a non-taxable activity taxable. Tax paid under a mistaken view of law remained refundable, and the mistaken payment did not extinguish the refund claim. The department's alternative characterisation did not displace the finding that the activity was a works contract.

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Issues: Whether service tax was payable on works contract services executed before 1.6.2007, and whether tax paid under a different service heading on a mistaken view of law was refundable.

Analysis: The contracts were found to be works contracts involving supply and execution elements. Works contract was held not liable to service tax before 1.6.2007. The fact that tax had been paid under another service category or after availing a composition-related notification did not make an otherwise non-taxable activity taxable. Payment made under a mistaken notion of law did not extinguish the right to refund, and the departmental case did not displace the finding that the activity was a works contract.

Conclusion: Service tax was not payable on the works contract for the relevant period, and the tax paid was refundable to the assessee.

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