Composite construction agreements lacked a valuation mechanism before July 2010, defeating service tax and consequential penalties.

Composite construction and sale agreements for residential flats substantially undertaken before 1 July 2010 could not be subjected to service tax on composite consideration where no statutory mechanism existed to segregate goods and service components. Construction for individual purchasers' personal use was also described as falling outside the meaning of a residential complex under the applicable exclusion and departmental clarification. The extended limitation period was not available where the assessee was registered, filed returns, and the dispute involved an unsettled interpretational issue without deliberate suppression or wilful misstatement. Consequently, the service-tax demand, interest and penalties were stated to be unsustainable, subject to verification and adjustment of any late fee paid.

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Issues: (i) Whether service tax was leviable on construction and sale of residential flats, substantially undertaken before 01.07.2010, under Construction of Residential Complex Service; (ii) Whether the extended limitation period, interest and penalties could be sustained.

Issue (i): Whether service tax was leviable on construction and sale of residential flats, substantially undertaken before 01.07.2010, under Construction of Residential Complex Service.

Analysis: Composite construction agreements did not contain a statutory mechanism for segregating goods and service components during the relevant period. The settled position concerning builders' construction for prospective purchasers before 01.07.2010 did not permit the proposed levy on composite consideration. The construction was also for individual purchasers' personal use, attracting the exclusion from the meaning of residential complex, supported by the applicable departmental clarification.

Conclusion: The service-tax demand on the construction activity was unsustainable, in favour of the assessee.

Issue (ii): Whether the extended limitation period, interest and penalties could be sustained.

Analysis: The assessee was registered and filed statutory returns, while the dispute arose from an unsettled and interpretational question concerning the taxable entry and departmental clarification. Mere non-payment in those circumstances did not establish deliberate suppression or wilful misstatement with intent to evade tax. As the substantive demand failed, consequential interest and penalties could not survive; the bona fide interpretational dispute also warranted the statutory penalty protection.

Conclusion: Invocation of the extended period was invalid, and the consequential interest and penalties were unsustainable, in favour of the assessee.

Final Conclusion: The confirmed service-tax liability and its consequential fiscal imposts were annulled; payment of the late fee is to be verified and adjusted if established.

Ratio Decidendi: A composite pre-01.07.2010 construction transaction cannot be subjected to the proposed service-tax levy where the legal framework did not provide for segregation of goods and service value; an interpretational dispute without deliberate suppression cannot justify the extended limitation period or penalties.

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