2023 (1) TMI 541 - AT - Service Tax

Liability of sub-contractor to pay service tax even if the main contractor had paid the service tax - invocation of extended period of limitation - HELD THAT - When the Commissioner had not decided the issue of limitation for the reason that the demand on merits was not being confirmed, in the normal course the Tribunal would have remanded the matter to the Commissioner to take a decision. However, in the present case it is noticed that the dispute relates to the period from 2006-07 to 2008-09; the show cause notice was issued on 22.10.2010; the Commissioner decided the matter on 27.11.2013; and the appeal was filed before the Tribunal in 2014. In such circumstances, it is considered appropriate to examine this issue instead of remitting the matter to the Commissioner for taking a decision. It cannot be disputed that prior to the issuance of the show cause notice and the Master Circular dated 23.08.2007, sub-contractors were not discharging their service tax liability because of decisions of the Tribunal and this fact has also been noticed by the Larger Bench while referring to the decision of this Tribunal in URVI CONSTRUCTION VERSUS COMMISSIONER OF SERVICE TAX, AHMEDABAD 2009 (10) TMI 97 - CESTAT, AHMEDABAD . The Larger Bench also referred to a number of decisions which had taken view that a sub-contractor was not required to discharge service tax liability if main contractor had discharged the liability. Such being the position, it is clearly a case where the sub-contractor was under a bona fide belief that he was not required to discharge service tax liability. In view of the decision of the Tribunal in Vinoth Shipping Services 2021 (8) TMI 1117 - CESTAT CHENNAI , it is clear that in such a situation the extended period of limitation could not have been invoked. The service tax demand for the aforesaid work performed by the sub-contractor, could not have been confirmed for the extended period of limitation. The appeal filed by the Department, therefore, deserves to be dismissed and is dismissed.

Summary

Issues:
1. Whether a sub-contractor is liable to pay service tax if the main contractor has already paid it.
2. Whether the extended period of limitation can be invoked in a case where the sub-contractor believed they were not liable to pay service tax due to past Tribunal decisions.

Analysis:

Issue 1: Liability of Sub-contractor for Service Tax Payment
The Department appealed against the Commissioner's decision dropping the demand for service tax on services rendered by a sub-contractor to main contractors. The Department argued, citing a Larger Bench decision, that a sub-contractor is liable to pay service tax even if the main contractor has paid it. The Tribunal agreed with the Department, stating that a sub-contractor is indeed liable to pay service tax, regardless of whether the main contractor has already paid it. The Commissioner's decision to drop the demand was set aside based on this legal principle.

Issue 2: Invocation of Extended Period of Limitation
The sub-contractor contended that the extended period of limitation should not have been invoked as they believed, based on past Tribunal decisions, that they were not required to pay service tax if the main contractor had already done so. The Tribunal acknowledged that prior to the issuance of the show cause notice and the relevant Master Circular, sub-contractors were not paying service tax due to Tribunal decisions. Considering the bona fide belief of the sub-contractor and the legal precedent cited, the Tribunal held that the extended period of limitation could not be invoked in this case. Consequently, the Tribunal dismissed the Department's appeal, ruling that the service tax demand for the work performed by the sub-contractor could not be confirmed for the extended period of limitation.

In conclusion, the Tribunal upheld the sub-contractor's position regarding the non-invocation of the extended period of limitation, leading to the dismissal of the Department's appeal. The judgment clarified the liability of sub-contractors for service tax payment and highlighted the significance of past legal precedents in determining the applicability of the extended period of limitation in tax matters.