2017 (5) TMI 961 - AT - Service Tax

Sub-contract - service tax liability - Held that - the Circular dated 23/08/2007 issued by the Board clarified the decision regarding the service tax liability of the sub-contractors. However, for the periods prior to that the situation as clarified by the Ministry and followed in various decisions of the Tribunal as well as High Courts that when the full service tax liability on the whole contract has been discharged by the main contractor there is no liability on the sub-contractor who executed part of said main contract. This position remained valid till the introduction of Cenvat Credit Scheme and issue of Master Circular dated 23/08/2007 - the matter is remanded back to the Original Authority for re-verification of the service tax payments made by the main contractor and in case the service tax liability has been clearly discharged by the main contractor for the whole contract and the appellant s liability as a sub-contractor is part and parcel of that main contract then the service tax liability again cannot be put on the appellant - appeal allowed by way of remand.

Issues:
Service tax liability of sub-contractor for work carried out with main contractor.

Analysis:
The appeal was against an order of the Commissioner (Appeals) regarding service tax liability for work carried out by the appellants as sub-contractors with the main contractor. The main issue was whether the appellants, who executed part of the work order, were liable for service tax when the main contractor had already discharged the tax liability for the entire contract. The lower authorities confirmed the service tax liability of the appellants along with penalties, although the penalty under Section 77 was reduced on appeal.

The appellant argued that the main contractor had paid service tax for the whole contract and submitted evidence to support this claim. They provided a detailed certificate from the main contractor stating that they never raised any service tax bill and that the main contractor had discharged the service tax liability for the entire contract. On the other hand, the Authorized Representative contended that it was not clear from the records whether the nature of work done by the appellants fell under the same category as that of the main contractor, and whether the appellants' duty liability was part of the service tax paid by the main contractor.

After hearing both sides and examining the evidence, the Tribunal found that the Circular dated 23/08/2007 clarified the service tax liability of sub-contractors. However, for periods before that, the Tribunal and High Courts had held that if the main contractor had already paid the full service tax liability for the entire contract, the sub-contractor would not be liable. Citing relevant decisions, the Tribunal concluded that the impugned order could not be sustained. Therefore, the matter was remanded back to the Original Authority for re-verification of the service tax payments made by the main contractor. If it was established that the main contractor had indeed discharged the service tax liability for the whole contract, then the liability could not be imposed on the sub-contractor. However, if such evidence was not forthcoming, the question of applying time limits for the demand needed to be considered based on the understanding at that time regarding the liability of sub-contractors for service tax.

In conclusion, the appeal was allowed by way of remand, giving the appellant an opportunity to submit all supporting evidence before a decision was made. The Adjudicating Authority was directed to verify with the Jurisdictional Service Tax Authorities of the main contractor to ensure the correctness of the appellant's claim.

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