2018 (12) TMI 382 - AT - Service Tax

Liability of sub-contractor to pay service tax - It is the case of appellant that main contractor is already paying the service ax and the liability on him will amount to double taxation - Held that - In the instance case it has not been clarified in the certificate of M/s Furnace Fabrica (India) Ltd that whether service tax has been paid on the entire value of the service and if M/s Furnace Fabrica (India) Ltd was entitled to cenvat credit of the service tax paid by appellant. In these circumstances it cannot be said that liability of service tax on the appellant is amounting to double taxation. The argument that if service recipient is paying tax, such service provider would be exempt from payment of tax would destroy the entire structure of all the service tax law. Thus, the argument that no liability can be fixed for appellant because M/s Furnace Fabrica (India) Ltd has paid service tax it cannot be accepted. - demand upheld. Wroks contract service or not - the argument of the appellant is that the services provided by the appellant are in the nature of work contract, therefore, they cannot be any liability of service tax for the period prior to 01.06.2007 - Held that - From the work order placed to the appellant from M/s Furnace Fabrica (India) Ltd, it is seen that it is essentially work order for service. The question is that whether inclusion of the value of consumables in the service would convert all item of service into work contract? Consumption of goods by service provider during the provision of the service does not automatically convert the service into work contract. If the scope of work contract is extended to including consumables then there will be no service which can fall outside the purview of work contract. Even consultancy service provided by engineer or advocate involves consumable like Paper, Ink, Pen, etc., service provided which are inclusive all the value of consumable cannot be treated as work contract. Thus, the service provide by the appellant cannot be treated as work contract as claimed by appellant - demand upheld. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Liability of service tax on sub-contractor when main contractor has paid.
2. Nature of services provided by the appellant and applicability of service tax.

Analysis:
1. Liability of service tax on sub-contractor when main contractor has paid:
The appellant argued that since the main contractor had paid service tax, they were not liable to pay any service tax to avoid double taxation. The main contractor, M/s Furnace Fabrica (India) Ltd, provided a certificate stating they had paid service tax for services to Indian Oil Corporation Ltd. The tribunal noted that the Finance Act, 1994 places liability on each service provider independently. It was highlighted that Cenvat Credit Rules allow the recipient to use the tax paid by the service provider as credit. However, in this case, it was not clarified if the main contractor was entitled to cenvat credit of the service tax paid by the appellant. The tribunal emphasized that exempting a service provider from tax if the recipient pays would disrupt the service tax system. Therefore, the argument that no tax liability should be fixed on the appellant due to the main contractor's payment was rejected.

2. Nature of services provided and applicability of service tax:
The appellant claimed that the services provided were in the nature of work contracts, citing a decision by the Hon'ble Apex Court. However, the tribunal examined the work order and noted that the inclusion of consumables in the service does not automatically convert it into a work contract. It was highlighted that if consumables were to be included, almost all services could be considered work contracts. The tribunal explained that services involving consumables, like consultancy services, cannot be automatically classified as work contracts. Therefore, the tribunal concluded that the services provided by the appellant did not qualify as work contracts, and the appeal was dismissed on both grounds.

In conclusion, the tribunal upheld the demand for service tax, interest, and penalty against the appellant, ruling that the main contractor's payment did not exempt the appellant from tax liability and that the services provided did not fall under the category of work contracts. The appeal was dismissed on both accounts.