Works contract taxation begins from the statutory date; free supplies were excluded, but suppression sustained extended limitation and penalty.

A composite indivisible works contract for shopping mall construction could be taxed only under the works contract regime from 01.06.2007, so service tax was not sustainable for the earlier period under commercial or industrial construction service. Under the composition scheme, the value of free-supply materials was not includible for contracts commenced before 07.07.2009, so the demand on that component was set aside. Failure to obtain registration, file returns, or seek clarification amounted to suppression with intent to evade, justifying the extended limitation period and penalty under section 78, while the section 76 penalty was set aside. The matter was remanded for redetermination on the correct basis.

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Issues: (i) Whether the construction of a shopping mall was classifiable as commercial or industrial construction service or as works contract service, and from which date service tax could be levied; (ii) whether the value of free-supply materials was includible in the gross amount for service tax under the composition scheme; (iii) whether the extended period of limitation and consequential penalty were invokable.

Issue (i): Whether the construction of a shopping mall was classifiable as commercial or industrial construction service or as works contract service, and from which date service tax could be levied.

Analysis: The contract was a composite indivisible works contract involving supply of materials, labour, supervision and allied elements. Such contracts could not be vivisected and taxed as service contracts simpliciter for the period prior to 01.06.2007. The statutory regime for works contract service came into force only from 01.06.2007, and the levy could operate only from that date for such composite contracts.

Conclusion: The activity was taxable as works contract service only from 01.06.2007, and no service tax could be sustained for the prior period under commercial or industrial construction service.

Issue (ii): Whether the value of free-supply materials was includible in the gross amount for service tax under the composition scheme.

Analysis: The composition scheme initially used the expression gross amount charged, and the later explanation making free supplies includible took effect only from 07.07.2009. For contracts commenced before that date, the value of free supplies could not be added to the taxable value for composition levy. The appellant was otherwise eligible for the composition scheme, subject to redetermination of liability on the correct legal basis.

Conclusion: The value of free-supply steel was not includible for the period in question, and the demand on that count was set aside.

Issue (iii): Whether the extended period of limitation and consequential penalty were invokable.

Analysis: The appellant did not obtain timely registration, did not file returns and did not seek clarification despite undertaking the work and receiving consideration. These facts amounted to suppression with intent to evade duty, justifying invocation of the extended period and supporting penalty under section 78.

Conclusion: The extended period was rightly invoked and penalty under section 78 was sustainable, while penalty under section 76 was set aside in view of the section 78 penalty.

Final Conclusion: The matter required remand for redetermination of service tax liability and penalty on the basis of works contract composition rules, with partial relief to the appellant on taxability of the pre-07.07.2009 free-supply component and on penalty under section 76.

Ratio Decidendi: A composite indivisible works contract is taxable under the works contract regime only from 01.06.2007, and free supplies are not includible in the composition value for contracts commenced before the operative date of the relevant explanation.

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