Composite construction abatement cannot be denied for non-claim in return when eligibility is otherwise established.

A substantive abatement available for composite construction and works contract services cannot be denied merely because it was not claimed in the ST-3 return, where the underlying facts establish eligibility and the tax payable after abatement is lower than the tax already paid. On that basis, the confirmed service tax demand, interest, and the penalty linked to the demand were set aside. A separate penalty for failure to file ST-3 returns for the relevant years was treated as distinct from the abatement dispute and was upheld as a consequence of the admitted default.

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Issues: (i) Whether the assessee was entitled to 67% abatement under Notification No. 1/2006-ST dated 01.03.2006 in respect of construction and works contract services, despite not claiming the abatement in the ST-3 returns, and whether the confirmed service tax demand and related interest and penalty could survive; (ii) Whether the penalty imposed for failure to file ST-3 returns for 2011-12 and 2012-13 was sustainable.

Issue (i): Whether the assessee was entitled to 67% abatement under Notification No. 1/2006-ST dated 01.03.2006 in respect of construction and works contract services, despite not claiming the abatement in the ST-3 returns, and whether the confirmed service tax demand and related interest and penalty could survive.

Analysis: The services rendered were found to involve supply and use of materials and, therefore, fell within a composite construction/works contract arrangement for which the 67% abatement was otherwise available. The denial of abatement only because it was not claimed in the ST-3 returns was held to be unjustified. The record also showed that the tax payable after granting the abatement was less than the tax already paid during the relevant period, resulting in excess payment. In these circumstances, the confirmed demand of service tax and the interest thereon could not be sustained, and the penalty under Section 78, being dependent on the demand, also could not survive.

Conclusion: The assessee was held entitled to the abatement, and the confirmed service tax demand, interest, and penalty under Section 78 were set aside.

Issue (ii): Whether the penalty imposed for failure to file ST-3 returns for 2011-12 and 2012-13 was sustainable.

Analysis: The penalty under Section 77(2) read with Rule 7C remained distinct from the abatement dispute and was based on the admitted default in filing returns for the specified periods.

Conclusion: The penalty of Rs. 20,000 was upheld.

Final Conclusion: The appeal succeeded on the principal tax demand and related penalty, but the separate penalty for non-filing of ST-3 returns was maintained.

Ratio Decidendi: A substantive exemption or abatement available on the nature of the transaction cannot be denied merely because it was not claimed in the return, where the underlying facts establish eligibility and the tax already paid exceeds the tax otherwise payable.

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