Works contract valuation must exclude goods and VAT/WCT; extended limitation fails without proven suppression or fraud.

In works contract service, taxable value must be recomputed under Rule 2A(i) by excluding the value of goods and VAT/WCT from the gross amount charged; the matter was remanded for verification of records and fresh quantification. The decision also states that the extended period of limitation could not be invoked where the assessee was registered, filed ST-3 returns regularly, and there was no allegation or finding of suppression, fraud, or wilful misstatement. On that basis, the demand beyond the normal limitation period was set aside and penalty was negated on the surviving demand, if any.

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Issues: (i) Whether the taxable value of works contract service was required to be determined under Rule 2A(i) by excluding the value of goods and VAT/WCT from the gross amount charged. (ii) Whether the demand confirmed beyond the normal period of limitation and the consequential penalty could be sustained.

Issue (i): Whether the taxable value of works contract service was required to be determined under Rule 2A(i) by excluding the value of goods and VAT/WCT from the gross amount charged.

Analysis: The appellant's liability arose from works contract activity. Once the concessional composition route was not available for procedural reasons, the valuation still had to follow the statutory method applicable to works contract service. The value of services could not be determined by including the value of goods used in execution of the contract. The relevant valuation rule required exclusion of the value of goods and VAT/WCT from the gross amount charged, and the records furnished by the appellant, including the chartered accountant's certificate, required verification by the adjudicating authority.

Conclusion: The taxable value has to be recomputed under Rule 2A(i) by excluding the value of goods and VAT/WCT, and the matter was remanded for verification and fresh quantification.

Issue (ii): Whether the demand confirmed beyond the normal period of limitation and the consequential penalty could be sustained.

Analysis: The appellant was a registered assessee, had filed ST-3 returns regularly, and had disclosed payment of service tax on the basis adopted by it. There was no specific allegation or finding of suppression, fraud, or wilful misstatement in the notice or the impugned order. In the absence of such foundational facts, invocation of the extended period was not justified. Since suppression with intent to evade tax was not established, penalty could not survive on the demand for the normal period either.

Conclusion: The demand beyond the normal period of 18 months was barred by limitation, and no penalty was imposable on the surviving demand, if any.

Final Conclusion: The appeal was disposed of by remand for recomputation of liability within the normal limitation period, with the extended demand set aside and penalty negated.

Ratio Decidendi: In works contract service, valuation must be made under the prescribed valuation rule by excluding the value of goods and VAT/WCT, and the extended period of limitation cannot be invoked without proof of suppression or fraud with intent to evade tax.

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