2018 (2) TMI 84 - AT - Service Tax

Cargo Handling Services - sub-contract - the appellant did not discharge the Service Tax on the consideration received by them on the ground that the entire value is already included by the main contractor, M/s DARCL, for payment of service tax by them - Held that - once the main contractor is paying service tax, the sub-contractor, whose entire value of service is sub-sumed in the value on which the Service Tax is paid by the main contractor, is not required to pay service tax separately - the service rendered is covered by the definition of Cargo Handling Services and consequently, the liability for payment of Service Tax has arisen on the part of the appellant - The services provided by the sub-contract and used by the main service provider is liable for payment of Service Tax in the hands of sub-contractor. Extended period of limitation - Held that - the department is not justified in invoking the extended time limit to demand service tax from the appellant. Moreover, the entire details of amount has already been recorded in the books of account of the appellant and the same has been noticed only during the period of audit by the department - extended period not invocable. For quantifying the demand, as above, the matter is remanded to the adjudicating authority - issue of penalty also to be redetermined - appeal allowed in part by way of remand.

Summary

Issues:
1. Liability of sub-contractor to pay Service Tax.
2. Invocation of extended time limit for demanding Service Tax.
3. Interpretation of circular regarding Service Tax liability of sub-contractor.

Analysis:
1. The appeal involved a dispute regarding the liability of the appellant, a sub-contractor providing Cargo Handling Services, to pay Service Tax. The appellant argued that since the main contractor had undertaken to pay the Service Tax on the entire amount received, they believed they were not liable to pay any Service Tax separately. The appellant referred to a letter and a clarification issued by the DGST in support of their position. The Department contended that a sub-contractor is also a service provider and must discharge Service Tax. The Tribunal noted that the appellant's services fell under the definition of Cargo Handling Services and that the CBEC circular clarified that services provided by sub-contractors, even if used by the main service provider, are taxable. The Tribunal held that the appellant was liable to pay Service Tax on the services provided.

2. The Department had invoked the extended time limit under the proviso to Section 73 of the Finance Act, 1994, to demand Service Tax from the appellant. However, the Tribunal found that the appellant had notified the Jurisdictional Range Superintendent in a letter dated 29.12.2008 about their understanding that the main contractor was paying the Service Tax. The Tribunal considered this communication, along with the DGST clarification from 2003, and concluded that the Department was not justified in invoking the extended time limit. The Tribunal limited the demand for Service Tax to within the normal time limit.

3. The Tribunal referred to a CBEC circular from 2007, which clarified that services provided by sub-contractors, even if used by the main service provider, are subject to Service Tax. This circular emphasized that the taxability of the service provided by a sub-contractor remains unchanged, regardless of whether the service is used as an input service. The Tribunal relied on this circular to support its decision regarding the appellant's liability to pay Service Tax as a sub-contractor.

In conclusion, the Tribunal partially allowed the appeal, restricting the demand for Service Tax to within the normal time limit and remanding the matter to the adjudicating authority for quantification of the demand and finalization of the penalty issue.