2017 (11) TMI 300 - AT - Service Tax

Erection, commissioning and installation service - sub-contract - the appellants are doing the work in the nature of sub-contracting and the main contractor has paid taxes on the entire value - case of appellant is that service tax cannot be demanded from the appellants as it would result I double levy of service tax - services provided within the SEZ - revenue loss or revenue neutrality situation. Held that - it is apparent if the main contractor was availing of this notification he could not have availed of the credit of the tax paid by the appellant. Thus in those circumstances the situation would not be revenue neutral. Moreover the main contractor has been granted abatement from the value only for the reason that the credit of the duty paid on the inputs and input services (by the sub contractors) has not been allowed, and also for the reason that the sub contractors have already paid duty on the value of inputs and input services. If the appellants contention is accepted it would result in defeating the very purpose of the notification and will also result in loss of revenue to the government - For provision of any output service numerous inputs services are required. For example, a consultant providing consultancy would receives input services in nature of (i) renting of immovable property service (ii) Air Travel services (iii) Business Support Service (iv) Manpower supply service (v) renting a cab services and so on. If the consultant is paying tax on the entire value of service provided by him, then would all services provider listed become exempt from paying service tax as sub-contractor. If the argument of the appellant is accepted then every provision of services to another taxable service provider would not be liable to payment of service. This situation can only lead to chaos. The appellants are involved in providing services to the main contractor which they claimed to be a sub-contract. The appellants are providing services to the main contractor and not the owner of the land. Moreover the nature of services provided by the appellants to the main contractor is not the same as those provided by the main contractor to its client. A perusal of the above circular clearly indicates that the services in respect of which the clarification has been issued relates to the services where the exercise is revenue neutral. In all these cases the main provider of service is put to tax on full value and in those circumstances if the sub-contractor/input service provider pays any service tax, the same is available as credit to the main service provider. It is apparent that these circulars were intended to reduce un-necessary work and not to provide exemption or give away revenue. In the instant case however, the main contractor is not entitled to the credit of service tax paid by sub-contractor if he is availing notification No.01/2006. Thus any service tax paid by the subcontractor would come as revenue to the Government and no credit of same would be available to the main contractor - the appellants are liable to pay service tax even when they are providing service to other contractor. Provision of services in SEZ - denial of N/N. 19/2003-ST or 1/2006-ST - denial on the ground that the appellants had failed to produce necessary documents - Held that - The appellants have claimed that the commissioner has not given any reasons for denying the benefit. We do not understand what documents are needed in support of the claim made by the appellants. The commissioner should have identified the documents which he needs and only thereafter decided the issue. In absence of such identification and failure of appellants to produce the said documents the order cannot be sustained - matter remanded to the original adjudicating authority to identify the documents required and quantify the demand afresh. Appeal allowed by way of remand.

Issues Involved:
1. Double levy of service tax on sub-contractors.
2. Provision of services within Special Economic Zone (SEZ).
3. Classification of services provided by the appellant.
4. Denial of benefits under Notification No. 1/2006-ST and 19/2003-ST.
5. Revenue neutrality and suppression of facts.

Issue-wise Detailed Analysis:

1. Double Levy of Service Tax on Sub-contractors:
The appellant argued that they were sub-contractors and the main contractor had already paid service tax on the entire value, hence, demanding service tax from them would result in double levy. They relied on the Tribunal's decision in Akruti Projects, asserting that once the main contractor has paid service tax, the same cannot be demanded from the sub-contractor. The Tribunal, however, referred to the case of Sunil Hi-Tech Engineers Ltd., where it was held that each sub-contractor is independently liable for service tax, irrespective of the main contractor’s tax payments. The Tribunal emphasized that the scheme of Cenvat is designed to ensure no double taxation and no cascading effect of tax, and every service provider is liable to pay service tax.

2. Provision of Services within Special Economic Zone (SEZ):
The appellant contended that part of the services was provided within the SEZ, and thus, no service tax should be levied on such services. Although this point was not raised before the Commissioner, it was argued that it could be raised at the Tribunal stage. The Tribunal did not provide a specific ruling on this issue but remanded the matter to the original adjudicating authority for further examination.

3. Classification of Services Provided by the Appellant:
The appellant claimed that the services provided were not "erection, commissioning, and installation" but rather "manpower supply service." However, they failed to provide any evidence to support this assertion. The Tribunal noted that the nature of work involved activities such as shifting of material, pre-assembly, erection, alignment, bolting, welding, testing, scrap removal, commissioning, and handing over boiler structure to customers, which could be classified as input services rather than manpower supply.

4. Denial of Benefits under Notification No. 1/2006-ST and 19/2003-ST:
The appellant argued that the benefits of these notifications were denied summarily without proper examination. The Tribunal acknowledged that the Commissioner had denied the benefits without specifying the necessary documents required to support the appellant’s claims. Consequently, the Tribunal set aside the impugned order and remanded the matter to the original adjudicating authority to identify the required documents and re-examine the claims.

5. Revenue Neutrality and Suppression of Facts:
The Tribunal examined whether the situation was revenue neutral and if there was any revenue loss to the government. It was found that if the main contractor availed the benefit of Notification No. 1/2006-ST, they could not take credit of the tax paid by the sub-contractor, thus, making the situation non-revenue neutral. The Tribunal also addressed the issue of suppression of facts, noting that failure to disclose the position in conformity with the balance sheet in ST-3 returns amounts to suppression.

Conclusion:
The Tribunal concluded that the appellants are liable to pay service tax even when providing services to other contractors. The matter was remanded to the original adjudicating authority to identify the necessary documents and re-quantify the demand after examining the appellant's claims in light of the observations made in the judgment. The appeal was allowed by way of remand on these terms.

← Previous Next →