Exemption coverage and absence of suppression defeated service tax demand and made extended limitation inapplicable.

Disputed service tax demand was held unsustainable because the underlying contracts fell within applicable exemptions, including the small scale exemption for school building activity and the exemption for road construction and irrigation-related works. On the facts, the turnover was predominantly exempt, so the demand could not survive on merits once the contract nature and exemption coverage were accepted. The extended period of limitation was also found inapplicable because the assessee maintained books, filed returns and used banking channels, and the record did not show fraud, suppression or misstatement.

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Issues: (i) Whether the demand could survive when the services in dispute were covered by exemption notifications, including the small scale exemption and the exemption for road and irrigation works; and (ii) whether invocation of the extended period of limitation was justified in the absence of fraud, misstatement or suppression.

Issue (i): Whether the demand could survive when the services in dispute were covered by exemption notifications, including the small scale exemption and the exemption for road and irrigation works.

Analysis: The turnover attributable to the assessee was found to be overwhelmingly exempt. The school building activity fell within the small scale exemption, while the road construction and irrigation related works were treated as exempt under the relevant service tax exemption notification. On the facts, the demand could not be sustained on merit once the nature of the contracts and the applicable exemptions were accepted.

Conclusion: The demand on the disputed works was not sustainable and the assessee was entitled to exemption.

Issue (ii): Whether invocation of the extended period of limitation was justified in the absence of fraud, misstatement or suppression.

Analysis: The assessee had maintained books of account, filed tax returns, and carried on the activities through banking channels. The record did not disclose any deliberate suppression, fraud, or misrepresentation warranting recourse to the extended limitation period. The notice invoking the extended period was therefore unsustainable.

Conclusion: The extended period of limitation was wrongly invoked.

Final Conclusion: The appeal succeeded, the adjudication was set aside, and the assessee obtained full relief in law.

Ratio Decidendi: Where the disputed services are covered by the applicable exemption notifications and the record does not establish fraud, suppression or misstatement, a service tax demand and invocation of the extended period cannot be sustained.

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