Service tax demand on construction works before June 2007 cannot be sustained as services became chargeable only from that date

CESTAT New Delhi-AT partially allowed appeal in service tax case involving construction services. The tribunal held that service tax demand for works contracts executed prior to 1.6.2007 under commercial/industrial construction service head cannot be sustained, as such services became chargeable only from 1.6.2007. For post-2007 period, demands from three organizations were barred by limitation. The tribunal confirmed demand for normal limitation period allowing abatement under composition scheme, ruling that service tax cannot be charged on entire gross amounts including goods value. Demand on free materials supplied by clients was set aside following SC precedent that such supplies cannot be included in taxable value.

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Issues Involved:
1. Demand for service tax under different categories.
2. Invocation of extended period of limitation.
3. Imposition of penalties.

Summary:

1. Demand for Service Tax under Different Categories:
- The appellant was accused of not paying service tax on various services before and after registration, including 'commercial and industrial construction service' and 'works contract service'.
- The Tribunal held that demand for service tax on works contracts executed prior to 1.6.2007 under 'commercial or industrial construction service' cannot be sustained as there was no charge of service tax on such contracts before this date.
- Post 1.6.2007, the appellant was registered under 'Works Contract Service' and paid service tax accordingly. The appellant's claim for exemption on services rendered to certain charitable organizations was dismissed, but the demand was time-barred.

2. Invocation of Extended Period of Limitation:
- The Tribunal found that the extended period of limitation u/s 73 was wrongly invoked. The reasons cited for invoking the extended period, such as failure to register before 11.6.2007 and non-disclosure of gross amounts, were not justified as the appellant was not liable to service tax on works contracts before 1.6.2007.
- The Tribunal concluded that the demand for the period prior to October 2009 was time-barred and cannot be sustained.

3. Imposition of Penalties:
- The penalties imposed on the appellant were set aside. The Tribunal found that the appellant's failure to opt for the Works Contract (Composition) scheme in writing did not justify denying the benefit of the scheme.
- The Tribunal also held that the value of free supplies by the client cannot be included in the taxable value for calculating service tax, following the precedent in Bhayana Builders (P) Ltd. vs Commissioner.

Conclusion:
- The demand under 'commercial and industrial construction service' for the period before 1.6.2007 is set aside.
- Demands beyond the normal period of limitation are set aside.
- For demands within the normal period, the appellant is entitled to the Works Contract (composition) scheme, and the value of free materials supplied by the client cannot be included in the taxable value.
- The matter is remanded to the original authority for recalculating the service tax accordingly.
- All penalties are set aside, and the appellant is eligible for consequential relief.

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