Works contract service tax dispute: pre-deposit waived and recovery stayed on strong prima facie merits and limitation grounds.

Works contract activity connected with construction of a water reservoir was treated as having a strong prima facie case against service tax liability because works contracts entered the service tax net only from 1 June 2007, and the activity was also shown to fall outside the taxable entry relied on by the department. The Tribunal further noted that the same chain of work had earlier been held non-taxable for the principal contractor and that the appellants had registered as a works contract assessee, supporting both merits and limitation. Waiver of pre-deposit was therefore granted and recovery was stayed pending appeal.

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Issues: Whether the appellants were entitled to waiver of pre-deposit and stay of recovery of the service tax, interest and penalties demanded under sections 76, 77 and 78 of the Finance Act, 1994.

Analysis: The appellants produced material to show registration with the commercial tax authorities as a works contract assessee, and the disputed activity was shown to arise out of a sub-contract connected with construction of a water reservoir. The Tribunal noted that works contract activity was brought into the service tax net only from 1 June 2007, that the activity related to construction of a water reservoir stood excluded from the taxable entry relied upon by the department, and that the same chain of work had earlier been held not taxable in respect of the principal contractor. On these facts, the Tribunal found a strong prima facie case both on merits and on limitation.

Conclusion: Waiver of pre-deposit was granted and recovery of the adjudged dues was stayed pending disposal of the appeal.

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