Residential construction for individual buyers was not taxable before 1 July 2010 under the then-applicable service tax entry.

The appellant, a registered construction firm, faced a demand of Service Tax of ₹2,95,40,927, with interest and penalties, for April 2009 to March 2014.

The demand concerned residential construction for individual buyers, the landowners’ share in Project Hitha, construction for KVP School, Ms. Beena and M/s. Aavishkar, and site development for Shri T. Ramraj.

The adjudicating authority classified the activities under the relevant construction, works-contract and site-formation entries and confirmed the demand.

The appellant challenged taxability, valuation, limitation, penalties and rejection of its rectification application under Section 74 of the Finance Act, 1994.

1. Whether the construction and site-formation activities were wholly or partly liable to Service Tax during the relevant statutory periods.

2. If any activities were taxable, whether the surviving demand was correctly valued and whether the extended period, interest, penalties and rejection of the Section 74 application were sustainable.

Section 65(105)(zzzh) of the Finance Act, 1994, as it stood before 1 July 2010, did not include the later-added Explanation deeming certain builder-to-buyer construction taxable; that expansion operated prospectively from 1 July 2010.

From that date, the applicable construction and works-contract provisions governed, with works-contract service covered under Section 65(105)(zzzza) up to 30 June 2012 and the service portion of works contracts treated as a declared service under Section 66E(h) thereafter.

Rule 2A of the Service Tax (Determination of Value) Rules, 2006 and the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 governed valuation and composition respectively; Rule 3(3) required the composition option to be exercised before Service Tax was paid for the relevant contract.

The applicable abatement and valuation notifications, including the retrospective amendment to Rule 2A effective from 8 May 2013 where its conditions were met, had to be applied.

The extended period under the proviso to Section 73(1) required the statutory ingredients of suppression or wilful misstatement with intent to evade; Section 78 penalties depended on the corresponding statutory grounds, while Section 77 penalties concerned specified defaults.

Under Section 74, rectification is not a substitute for appeal, but the Tribunal’s appellate jurisdiction under Section 86 permits it to correct an unsustainable valuation.

The Tribunal also applied *Josh P. John*, *Krishna Homes* and *Maharashtra Chamber of Housing Industry* on the pre-1 July 2010 position, and *Nagarjuna Construction Co. Ltd. v. Union of India* on the composition-option requirement.

The Tribunal treated each activity according to the law applicable to its period.

It set aside the demand for residential construction for individual buyers before 1 July 2010 and for the landowners’ share in Project Hitha, completed in April 2010, because the later deeming provision could not be applied retrospectively.

It also set aside the KVP School demand because the adjudicator had not independently established that the building was primarily intended for commerce or industry; reliance on an “industry” finding under the Industrial Disputes Act was insufficient.

The Beena and Aavishkar construction, post-1 July 2010 residential construction otherwise meeting the statutory conditions, and Ramraj site formation survived for further determination, with site formation to be valued under its own applicable provisions.

For surviving works contracts, the adjudicator had to determine the taxable service portion under the applicable valuation rules and notifications, and assess the composition option contract by contract by checking whether Service Tax had actually been paid before 28 September 2015; earlier receipt of consideration alone did not bar the option.

Because the appellant was registered, had disclosed its construction activity and the dispute concerned statutory interpretation and valuation, the record did not establish the intent necessary to invoke the extended period or impose a Section 78 penalty.

The Section 74 rejection did not prevent the Tribunal from granting valuation relief on appeal.

The demands for pre-1 July 2010 residential construction for individual buyers, the pre-1 July 2010 landowners’ share in Project Hitha, and construction for KVP School were set aside.

The extended period and Section 78 penalty were also set aside; interest was to be recomputed on any tax ultimately found due, and Section 77 penalties reconsidered under the applicable law.

The surviving demand was remanded for project-wise and period-wise recomputation, including verification of the composition option, applicable valuation rules and notifications, relevant records, and credit for tax already paid.

The Tribunal’s findings on non-taxability, limitation and Section 78 were final and could not be reopened on remand.