2015 (3) TMI 791 - HC - Service Tax

Liability of subcontractor for payment of service tax - discharge of service tax by the principal - Held that - A reading of the circulars (Appendix-I) show that there is substance in the submission of the counsel for the Assessee. However, it is not possible for us to finally decide this point as neither the AO nor the Tribunal has recorded any Finding whether the BHEL has paid the service tax for the period in question for the services rendered by the Assessee or not. - Tribunal has already remanded the matter back for re-decision; there appears to be substance in the submission of the counsel for the Asseesee; in view of the same, all the findings recorded by the Tribunal against the Assessee are set aside. The AO may again decide both the cases afresh in accordance with law, without being influenced by any observations made in the judgement of the Tribunal or in this order. - Matter remanded back - Decided in favour of assessee.

Summary

Issues:
1. Liability of sub contractor to pay service tax when main contractor pays.
2. Applicability of extended period for tax demands.
3. Possibility of making service tax demands for the same period twice.
4. Admissibility of credit on input service and capital goods.

Liability of Sub Contractor to Pay Service Tax:
The case revolved around whether a sub contractor, M/s. SEW Infrastructure Limited, was liable to pay service tax even if the main contractor, Bharat Heavy Electricals Limited (BHEL), had already paid the tax. The Adjudicating Officer (AO) initially demanded service tax from the sub contractor, leading to an appeal before the Tribunal. The Tribunal found the sub contractor liable to pay service tax, even if the main contractor had paid, and imposed penalties under section 78 of the Act. However, the Assessee argued that as per circulars and precedents, if the main contractor had paid the tax, the sub contractor was not obligated to do so. The High Court remanded the case back to the AO for fresh adjudication, emphasizing the need to determine whether BHEL had paid service tax for the services provided by the sub contractor.

Applicability of Extended Period for Tax Demands:
The Tribunal had invoked the extended period for tax demands against the Assessee. However, the High Court, while remanding the case, directed the AO to decide both cases afresh without being influenced by the Tribunal's previous findings. The Court highlighted the importance of determining whether service tax had been deposited by BHEL for the services provided by the Assessee during the relevant period.

Possibility of Making Service Tax Demands Twice:
Another issue raised was whether service tax demands could be made twice for the same period. The Assessee contended that if tax had been deposited by the main contractor, it was unnecessary for the sub contractor to pay again. Citing circulars and legal precedents, the Assessee argued against the imposition of penalties under section 78 of the Act if any tax was found payable, suggesting that Cenvat credit could be utilized for payment.

Admissibility of Credit on Input Service and Capital Goods:
The Assessee also questioned the admissibility of credit on input service and capital goods, emphasizing the binding nature of circulars issued by the Central Board of Excise and Customs. The Court considered various legal precedents and circulars to support the Assessee's stance that if the main contractor had already paid the tax, the sub contractor was not obligated to pay again. The High Court partially allowed both tax cases and remanded them back to the AO for fresh adjudication, instructing a reevaluation of the service tax payment by BHEL for the services provided by the Assessee.