2023 (12) TMI 1305 - AT - Service Tax

Liability of appellant (sub-contractor) to pay service tax - service tax has been paid by the main contractor on the whole contract value - difference of opinion - HELD THAT - Section 65(7) of the Finance Act 1994 defines assessee as a person liable to pay the service tax and includes his agent. Rule 2(1)(d) of Service Tax Rules 1994 defines person liable for paying service tax . As per the said Rule, in respect of services other than in Rule (2)(1)(d)(i), it is the provider of service who is the person liable to pay service tax. When the law fixes the liability to pay tax on a particular person, the parties cannot mutually agree to absolve from liability or shift the liability to another. The activity of providing a taxable service being the taxable event, the subcontractor cannot escape the liability even though the main contractor has paid his part of the liability on the gross amount charged. As already stated as the main contractor being eligible to avail Cenvat Credit there is no situation of double taxation. The Tribunal in very recent decisions as pointed by the Department has followed the decision in the case of Melange Developers Ltd. 2019 (6) TMI 518 - CESTAT NEW DELHI-LB , to hold that the sub-contractor is liable to pay service tax even if the main contractor has discharged service tax on the contract value. Judicial propriety makes it binding to follow the Larger Bench decision in order to reduce conflict of decisions - the decision of Larger Bench in the case of Melange Developers Co. would apply. The view taken by brother Member (Technical) is agreed upon and it is held that the Appellant is liable to pay service tax on the value of sub-contract/work done inspite of the fact that the main contractor has discharged the service tax on the whole contract value. The reference is answered and the difference of opinion stands resolved - papers may be placed before the Division Bench for deciding the appeal.

Summary

Issues Involved:
1. Liability of sub-contractor to pay service tax when the main contractor has already discharged service tax on the whole contract value.

Summary:

Issue 1: Liability of Sub-Contractor to Pay Service Tax

The primary issue was whether the appellant/sub-contractor is liable to pay service tax when the main contractor has already paid service tax on the entire contract value. The appellant argued that once the main contractor has paid the service tax, the same cannot be taxed again in the hands of the sub-contractor as there is only one taxable event. The appellant relied on several judicial precedents, including the decision by the Jurisdictional High Court of Andhra Pradesh in the case of Larsen & Toubro Ltd., which was upheld by the Supreme Court, and other cases like CCE & ST, Panchkula Vs M/s Lone Star Engineers, and Hindustan DORR - Oliver Ltd., & Another Vs Union of India & Others.

The Department, represented by the Learned AR, contended that the decision in Larsen & Toubro Ltd. was rendered in the context of the APVAT Act and not under the Finance Act, 1994, which governs service tax. The Department argued that the main contractor is eligible to take credit on the service tax paid by the sub-contractor, as clarified by the Board's Circular No. 96/7/2007-ST. The Larger Bench of the Tribunal in the case of Melange Developers Ltd. had also held that the sub-contractor is liable to pay service tax even if the main contractor has paid tax on the gross amount charged.

The Tribunal, after considering the arguments, held that the decision of the Larger Bench in Melange Developers Ltd. is binding. It was noted that the service tax law is different from VAT law, and the taxable event in service tax is the activity of rendering the service, not the sale of goods. Therefore, the sub-contractor is liable to pay service tax on the consideration received from the main contractor, who can then avail of Cenvat Credit. The Tribunal concluded that there is no situation of double taxation as the main contractor can claim credit for the service tax paid by the sub-contractor.

In conclusion, the Tribunal resolved the difference of opinion by agreeing with the view that the appellant/sub-contractor is liable to pay service tax on the value of the sub-contract/work done, despite the main contractor having discharged the service tax on the whole contract value. The reference was answered accordingly, and the matter was placed before the Division Bench for deciding the appeal.