2016 (7) TMI 782 - HC - Service Tax

Levy of service tax on sub-contractor - It was submitted that, invoice would indicate that service tax was levied on the bill raised by the petitioner on the 3rd respondent. Therefore the petitioner took a stand that no service tax need be levied on the bill raised by the 4th respondent on the petitioner. - Held that - This court is of the considered opinion that in view of the specific clarifications regarding input service rendered by the sub-contractor, which is used by the main service provider for completion of the work, it cannot be held that the sub contractor is not liable to pay service tax for the services provided by him. However it is for the adjudicating authority to decide on verification of records regarding the discharge of liability of service tax and to decide with respect to the credit relating to the input service . Necessary decision has to be taken by the 1st respondent considering the claim for the credit based on remittance of the entire tax liability by the 1st respondent. - In view of the interim order continued during pendency of this writ petition, no demand can be enforced against the 4th respondent for payment of service tax with respect to the contract in question, till the adjudication is finalised. - Decided partly in favor of petitioner.

Summary

Issues:
Levy of service tax on subcontracted works under a civil contract.

Analysis:

1. The petitioner company was awarded a civil contract work and subcontracted part of the work to another party. The issue revolves around the levy of service tax on the subcontracted works. The petitioner contended that since service tax was already levied on the bill raised by them, the subcontractor should not be liable to pay service tax. The clarification provided by the authorities stated that service tax is applicable irrespective of whether the services are provided by a subcontractor or not. The petitioner challenged this clarification and sought direction to restrain the authorities from directing the subcontractor to charge service tax. The petitioner relied on a decision of the Appellate Tribunal which indicated that the liability of tax should be on the principal contractor.

2. The contention was raised that since the majority of the work was subcontracted, the recipient of the service should be considered as the awarder of the work, and not the subcontractor. The Standing Counsel for CBEC argued that the subcontractor's service falls under the category of 'input service' as defined by the statute. The Circular provided by the Board authorized the levy of tax on such services. The court opined that the subcontractor cannot be exempted from the tax liability as the service provided by them is crucial for the completion of the main service.

3. The court concluded that the subcontractor is liable to pay service tax for the services provided by them, considering the 'input service' rendered by them for the main service provider. However, the adjudicating authority needs to verify the records regarding the discharge of tax liability and decide on the credit related to the 'input service'. The court directed the authorities to conduct an adjudication to determine the tax liability and credit based on the returns filed by both the petitioner and the subcontractor.

4. The writ petition was disposed of by directing the competent authority to conduct an adjudication and decide on the tax liability. The interim order stayed the enforcement of any demand for service tax against the subcontractor until the adjudication is finalized. The subcontractor was also protected from any penalty or penal consequences during this period.