2023 (3) TMI 14 - AT - Service Tax

Liability of appellant to pay service tax - works contract services - Commercial or Industrial construction service - appellant worked as sub-contractor and the principal contractor has paid the Service tax on such work - time limitation - suppression of facts or not - HELD THAT - There are force in argument of Ld. Counsel that since the works performed by the appellant was along with material the demand of service tax should have been raised under the taxable category of works contract services. The demand of service under the head of Commercial or Industrial construction service is not sustainable. It is noted that the appellant s activity of construction also involved supply of goods/ material. The Appellate Tribunal in the matter of M/S. ASWINI APARTMENTS VERSUS COMMISSIONER OF GST CENTRAL EXCISE CHENNAI SOUTH 2018 (10) TMI 404 - CESTAT CHENNAI had held that the composite contact involving supply of materials and rendition of services not taxable either prior to 1-6-2007 or w.e.f. 1-6-2007 under Commercial or Industrial Construction service. However, such composite contracts are taxable only w.e.f. 1-6-2007 under Works Contract service. Prior to 1-6-2007 or w.e.f. 1-6-2007, only those contracts which are purely for services, are taxable under Commercial or Industrial Construction service - the demand of service tax under commercial or industrial construction service in the present matter also not sustainable. Extended period of limitation - HELD THAT - There were contrary judgments on the issue that whether the sub-contractor is liable to service. Subsequently the matter was referred to Larger Bench. On the disputed issue, it is not only the larger bench decision which settled the law but there were contrary circular of the Board on the issue of payment of service tax by the sub-contractor. In view of this position, there is no suppression of facts or any mala fide intention to evade payment of service tax on the part of appellant. Further, the ground of bona fide belief can be invoked in the present case as the main contractor who entered into agreement with the ultimate client were charging such client along with service tax as claimed by the appellant. There is a reason for a bona fide belief in such arrangement regarding non-liability of sub-contractor when the main contractor is liable to discharge full service tax. Though the said principle is not applicable against the tax liability but the question of invoking extended period is to be answered in favour of the appellant - there is no case of fraud, misstatement etc. in the non-payment of tax on this activity by the appellant and, we hold that extended period of limitation is not attracted. Appeal allowed.

Summary

Issues:
Classification of service for tax liability, applicability of service tax demand, interpretation of law regarding sub-contractor's liability, validity of interest and penalties, limitation period for tax demand.

Analysis:
1. Classification of Service for Tax Liability:
The appellant argued that the demand of service tax should have been under works contract services, not commercial or industrial construction services. They cited the case of Real Value Promoters Pvt. Ltd. and emphasized that the demand for service tax was not applicable before 01.06.2007. The Tribunal agreed, stating that the demand under commercial or industrial construction service was not sustainable due to the nature of the appellant's work involving both material supply and services. They referenced the Aswini Apartments case and the Supreme Court's decision in Larsen & Toubro Ltd. to support their conclusion.

2. Interpretation of Law Regarding Sub-Contractor's Liability:
The appellant contended that the sub-contractor should not be liable for service tax if the main contractor has already paid it, citing various circulars and tribunal decisions. They argued that the issue was related to bona fide interpretation of the law and that the demand was time-barred. The Tribunal acknowledged the conflicting views on sub-contractor liability but noted the government's U-turn on the matter through a circular in 2007. They held that there was no suppression of facts or mala fide intention on the appellant's part, leading to the conclusion that the extended period of limitation did not apply.

3. Validity of Interest and Penalties:
The appellant argued that since the demand for service tax was not sustainable, there should be no interest or penalties imposed. They also relied on a decision of the Hon'ble Gujarat High Court to assert that penalties under both Section 76 and 78 simultaneously were not imposable. The Tribunal did not find the demand sustainable, leading to the setting aside of the impugned order and allowing the appeal with consequential reliefs.

4. Limitation Period for Tax Demand:
Regarding the limitation period for the tax demand, the appellant pointed out various circulars and trade notices clarifying that if the main service provider paid the service tax, a separate liability could not be imposed on the sub-contractor. The Tribunal cited multiple tribunal decisions supporting this view and ultimately held that the extended period of limitation was not applicable in this case due to the absence of fraud or misstatement by the appellant.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential reliefs in accordance with the law. The judgment highlighted the importance of proper classification for tax liability, the evolving interpretations of sub-contractor liability, and the limitations on interest and penalties in such cases.