2010 (10) TMI 363 - AT - Service Tax

Tax liability - whether the sub-contractor who provided service to the main contractor shall be exempted from levy of service tax - Held that - We do not find any provision in the Finance Act, 1994 to grant immunity to the sub-contractor from levy of service tax when undisputedly taxable services were provided by them. - there was non-compliance to the law by the sub-contractor appellant. - When we found that the appellant is made liable under Finance Act, 1994 and has paid taxes, cum-tax benefit cannot be denied. So also if there is benefit available towards Cenvat credit that shall not be deniable subject to scrutiny under the provisions of Cenvat law.

Summary

Issues:
1. Whether the sub-contractor providing services to the main contractor is exempt from service tax levy.
2. Whether the sub-contractor's belief in non-taxability of services provided justifies exemption from registration and filing returns.
3. Whether the sub-contractor is entitled to cum-tax benefit and Cenvat credit.
4. Whether penalty imposition is justified.
5. Whether the invocation of the extended period for scrutiny was valid.
6. Whether there is overlapping demand in the case.

Analysis:

Issue 1:
The main issue in this case was whether the sub-contractor providing services to the main contractor should be exempted from the levy of service tax. The appellant, being a sub-contractor of BHEL, executed work for the main contractor, and faced adjudication for not seeking registration or filing returns, resulting in a service tax demand, penalties, and interest under the Finance Act, 1994.

Issue 2:
The appellant argued that they believed in good faith that their services as a sub-contractor would not be taxable under the Finance Act, 1994 since the principal contractor paid service tax. However, the tribunal found no provision granting immunity to sub-contractors from service tax and held that the sub-contractor should be liable for service tax as per the law.

Issue 3:
Regarding cum-tax benefit and Cenvat credit, the tribunal held that if the sub-contractor had paid taxes and complied with the law, they should be entitled to such benefits, subject to scrutiny. The appellant was entitled to Cenvat credit unless otherwise disqualified.

Issue 4:
The tribunal ruled that there should be no concession in penalty as the appellant did not seek registration or file returns, but the appellant would be liable for service tax based on the services provided.

Issue 5:
The tribunal justified the invocation of the extended period for scrutiny due to non-compliance by the sub-contractor. The matter was remanded back to the Adjudicating Authority for further examination of entitlement to Cenvat credit and cum-tax benefit.

Issue 6:
Regarding the issue of overlapping demand in another appeal, the tribunal remanded the matter back to the Adjudicating Authority to ensure a fair opportunity for the appellant to present their case and to reconsider the overlapping demand and Cenvat credit disallowance.

In conclusion, the tribunal upheld the liability of the sub-contractor for service tax, allowed cum-tax benefit and Cenvat credit subject to scrutiny, imposed penalties as warranted by law, justified the extended period for scrutiny, and remanded the matter back for further examination of overlapping demand and Cenvat credit disallowance.