2017 (9) TMI 232 - AT - Service Tax

Maintenance and repair services - subcontractors - non-payment of service tax - appellant contested their liability to pay service tax only on the ground that the main contractor paid service tax on the full value which included the part of the consideration they received for the sub-contracted work - Held that - the decision in the case of FOTO FLASH Versus COMMISSIONER OF SERVICE TAX 2007 (10) TMI 133 - CESTAT BANGALORE relied upon where it was held that If the main contractor discharges the service tax liability there is no need for sub-contractor to pay the service tax - the appellants produced various certificates and correspondents from their main clients like BHEL NTPC etc to the effect that service tax was not charged for sub-contracted work - demand upheld. Extended period of limitation - Held that - The clarifications issued and decisions of the Tribunal did give room for bonafide belief for non-tax liability of a subcontractor - the demand of service tax is to be restricted to normal period with no liability to penalties. Appeal allowed - decided partly in favor of appellant.

Issues:
1. Service Tax liability of subcontractors for maintenance and repair services provided to main contractors.
2. Applicability of penalties under Section 78 and Section 77 of the Finance Act, 1994.
3. Interpretation of clarifications issued by the Board and field formations regarding Service Tax liability.
4. Justifiability of demand for an extended period and imposition of penalties.

Analysis:
1. The case involved a dispute regarding the Service Tax liability of subcontractors providing maintenance and repair services to main contractors like BHEL and ALSTOM. The appellants contested the demand for non-payment of Service Tax during the period from 01.07.2003 to 31.03.2007. The original authority confirmed the Service Tax liability and imposed penalties under Section 78 and Section 77 of the Finance Act, 1994.

2. The appellant's counsel argued that based on clarifications issued by the Board and field formations, they believed that if the main contractor paid Service Tax on the entire contract value, subcontractors were not required to pay tax again. They registered for Service Tax when they became regular contractors and started discharging tax accordingly. The appellant pleaded that there was no intention to evade tax, and therefore, penalties should not be imposed.

3. The Assistant Commissioner reiterated the findings of the original authority, stating that every person providing taxable services should pay tax, regardless of the main contractor's actions. He emphasized that the tax liability arises automatically when there is a service provider, service recipient, and a taxable service category, as per the Cenvat Credit Rules.

4. Upon hearing both sides and examining the appeal records, the Tribunal noted that while the appellants were providing taxable services, the issue at hand was the application of the limitation period for the demand confirmed in the impugned order. The Tribunal found that certain clarifications issued by the Board and field formations created a bonafide belief among subcontractors regarding non-liability of tax when the main contractor paid Service Tax on the entire contract value. The Tribunal referred to previous decisions and certificates from main clients supporting the appellant's claim. The demand for an extended period was deemed unjustified, and the penalties were waived based on the bonafide belief created by the clarifications and decisions of the Tribunal.

5. Consequently, the Tribunal partially allowed the appeal, restricting the demand for Service Tax to the normal period without imposing penalties. The judgment was pronounced on 03.08.2017 by the Tribunal comprising Mr. S.K. Mohanty, Member (Judicial), and Mr. B. Ravichandran, Member (Technical).

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