2018 (8) TMI 2028 - AT - Service Tax

Alleged default in payment of service tax - service tax liability for the services was not paid by the appellant as a subcontractor - Commercial or Industrial Construction Services - Maintenance or Repair Service - Erection Fabrication Commissioning service - Transport of Goods by Road service - demand of interest and penalty as well - invocation of extended period of limitation - HELD THAT - By a Circular No.96/7/2007-S.T. dated 23.08.2007, with reference to Code 999.03/23.08.2007, it is clarified that a subcontractor is essentially a taxable service provider. The fact that services provided by such subcontractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the subcontractor - Services provided by the subcontractors are in the nature of input services. Service tax is therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a subcontractor and whether or not such services are used as input services. The fact that a given taxable service is intended for use as input service by another service provider does not alter the taxability of the service provided - As the position was clarified by the revenue vide Circular No. 96/7/2007-S.T. dated 23.08.2007 that a subcontractor is obliged to pay service tax, irrespective of whether the main contractor has paid. It is categorically held that appellant will be liable to pay service tax as the subcontractor w.e.f. 23.08.2007. Extended period of limitation - penalty - suppression of facts or not - HELD THAT - It is noticed that the respondent by letter dated 29.12.2008, had informed the department the entire facts. The law was clarified by the Board vide Circular dated 23.08.2007. The Circular dated 23.08.2007 was issued taking into consideration the report submitted by Shri T.R.Rustagi and the views and suggestions received from the trade and industry associations, departmental officers and other stakeholders, it is proposed to codify and issue a comprehensive circular on the technical issues. Thus, there is no suppression of facts with intent to evade payment of tax and therefore, extended period of limitation cannot be invoked. Similarly, the imposition of penalty under Section 78 is also not sustainable. The demand of service tax along with interest for the normal period of limitation and imposition of penalty under Section 76 is upheld - demand of service tax for the extended period of limitation and penalty under Section 78 of the Act are set aside - matter is remanded to the Adjudicating Authority to determine the quantum of demand, interest and penalty under Section 76 to the Act for the normal period of limitation in accordance with law - appeal allowed in part by way of remand.

Summary

Issues:
- Interpretation of service tax liability for subcontractors
- Applicability of Circulars issued by the Board
- Invocation of extended period of limitation for tax payment
- Imposition of penalty under Section 78 of the Finance Act, 1994

Interpretation of service tax liability for subcontractors:
The appellant, a subcontractor, was alleged to have not paid service tax liability for services provided during the financial year 2006-2007. The dispute arose regarding whether the subcontractor is required to pay tax if the main contractor has already paid. The appellant argued that a previous Circular exempted subcontractors from paying tax if the main contractor paid. However, a subsequent Circular clarified that subcontractors are taxable service providers regardless of the main contractor's payment. The Tribunal held that subcontractors are liable to pay service tax, even if the main contractor has paid, as clarified by the Circular issued on 23.08.2007.

Applicability of Circulars issued by the Board:
The appellant relied on earlier Circulars to support their position that they were not required to pay service tax. However, the Tribunal emphasized the importance of the Circular issued on 23.08.2007, which established the liability of subcontractors to pay service tax irrespective of the main contractor's payment. The Tribunal noted that the law was clarified by the Board through this Circular, and the appellant's reliance on previous Circulars was not sufficient to avoid the service tax liability as a subcontractor.

Invocation of extended period of limitation for tax payment:
The appellant argued that there was no suppression of facts as the main contractor had paid the service tax, and therefore, the extended period of limitation for tax payment should not be invoked. The Tribunal agreed with the appellant, stating that since the appellant had informed the department of the facts and there was no intent to evade tax payment, the extended period of limitation was not applicable. The Tribunal also highlighted that the imposition of penalty under Section 78 was not sustainable in this case.

Imposition of penalty under Section 78 of the Finance Act, 1994:
Regarding the imposition of penalty under Section 78, the Tribunal held that since there was no suppression of facts with the intent to evade tax payment, the penalty under Section 78 was not sustainable. The Tribunal upheld the demand for service tax along with interest for the normal period of limitation and the penalty under Section 76. However, the demand for service tax for the extended period of limitation and the penalty under Section 78 were set aside. The matter was remanded to the Adjudicating Authority for determining the quantum of demand, interest, and penalty under Section 76 for the normal period of limitation in accordance with the law.

In conclusion, the appeal filed by the appellant was partly allowed by the Tribunal, with the judgment pronounced on 10.08.2018.