Works contract composition scheme eligibility for pre-enactment composite contracts upheld, allowing composition benefit for ongoing projects.

Eligibility of an assessee to opt for the Works Contract Composition Scheme turned on whether composite contracts that commenced before the composition regime could be treated as non-taxable service simplicitor and thus admitted to the composition window. Applying the principle that pre-enactment composite contracts involving deemed transfer of goods were outside service tax (per the Larsen & Toubro ratio), the analysis accepts tribunal precedents that ongoing composite projects begun before the composition regime cannot be denied composition relief. The impugned demand and denial of composition benefit were set aside and the appeal allowed for the assessee with consequential reliefs to follow.

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Issues: Whether the appellant carrying out construction of residential complexes for agreements entered into prior to 01.06.2007 is eligible to avail benefit of the works contract composition scheme and whether denial of such benefit by the Commissioner was sustainable.

Analysis: The question turns on treatment of composite contracts and the scope of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, particularly Rule 3(1), read in the light of the Supreme Court decision in Commissioner of Central Excise and Customs v. Larsen & Toubro Ltd. (2015) which held that prior to 01.06.2007 only service simplicitor contracts (and not composite contracts involving deemed transfer of goods) were taxable. Subsequent tribunal decisions have applied that ratio to hold that ongoing projects which were composite in nature and began before 01.06.2007 cannot be denied the benefit of the composition scheme introduced for works contracts w.e.f. 01.06.2007. The Tribunal considered precedents including NCC Ltd. v. Commissioner of Central Tax and Mfar Construction Pvt. Ltd. v. C.C.E. & C.S.T., which conclude that denial of the composition scheme to assessees who opted for it for ongoing projects is not justified where the legal position following Larsen & Toubro is that such composite contracts were not taxable under previous service heads and the composition window was intended to facilitate compliance.

Conclusion: The impugned demand and denial of benefit of the composition scheme is set aside; the appeal is allowed in favour of the assessee and consequential reliefs, if any, are to follow in accordance with law.

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