2017 (7) TMI 449 - AT - Service Tax

Sub-contract - taxability in hands of sub-contractor - penalty - the main submission of the appellant is that they being a sub-contractor to the main contractor, they are not liable to pay service tax - Held that - the main contractor are provider of construction service whereas the appellant is providing an independent service of excavation for which they are the main service provider and hence, they are not entitled for the benefit as a sub-contractor - the service provided by the appellant chargeable to service tax in their own hand - demand upheld. The appellant have rightly claimed the cum-tax benefit available in principle and the same is admissible to them - As regard the interest amount of admittedly paid by the appellant, the same is rightly adjustable against the total demand. Penalty u/s 78 - Held that - the substantial amount of service tax was paid by the appellant along with interest during the proceedings before the adjudicating authority - the penalty imposed u/s 78 is not legal and proper - penalty imposed u/s 78 invoking the provisions of Section 80 of the FA, 1994. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Whether the appellant is liable to pay service tax as a sub-contractor for providing excavation services.
2. Challenge regarding the quantification of demand and penalties.

Analysis:

Issue 1: Liability of Appellant as a Sub-contractor
The appellant argued that they acted as a sub-contractor and should not be liable to pay service tax as the main contractors were legally responsible. However, the Tribunal found that the appellant provided excavation services independently, not as a sub-contractor for construction services. As the appellant was the main service provider for excavation, they were not entitled to sub-contractor benefits. Therefore, the Tribunal held that the service provided by the appellant was chargeable to service tax.

Issue 2: Challenge Regarding Quantification and Penalties
The appellant challenged the quantification of demand, claiming errors in calculation and non-extension of cum-duty benefits. The Tribunal reviewed the calculations provided by the appellant and accepted the re-computation, adjusting the demand accordingly. Additionally, the Tribunal considered the penalty imposed under Section 78, noting that the demand amount had significantly reduced during adjudication. As the appellant had paid a substantial amount of service tax and interest, the Tribunal deemed the penalty under Section 78 as improper and set it aside invoking Section 80 of the Finance Act, 1994.

In conclusion, the Tribunal partially allowed the appeal, modifying the impugned order to reflect the adjustments in demand calculation and setting aside the penalty imposed under Section 78. The decision was pronounced on 3/01/2017 by the Tribunal members Ramesh Nair and Raju, with Shri J N Somaiya representing the appellant and Shri M P Damle representing the respondent.