2023 (4) TMI 351 - AT - Service Tax

Non-payment of service tax - Construction Services - sub-contractor - non-filing of ST3 returns with the Department - revenue neutrality - extended period of limitation - HELD THAT - The period of dispute is from the year 2007-08 to 2011-12. The issue is no longer res integra as the same has been decided by a Larger Bench in the case of COMMISSIONER OF SERVICE TAX VERSUS MELANGE DEVELOPERS PVT. LTD. 2019 (6) TMI 518 - CESTAT NEW DELHI where it was held that A sub-contractor would be liable to pay Service Tax even if the main contractor has discharged Service Tax liability on the activity undertaken by the sub-contractor in pursuance of the contract. Time Limitation - HELD THAT - It is noted that during the relevant period, the issue as to whether a sub-contractor has to pay service tax separately even when the main contractor had discharged service tax on the very same services was subject matter of litigation before several appellate fora. The Tribunal in its decisions in the case of SEMAC PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX, BANGALORE 2006 (8) TMI 24 - CESTAT, BANGALORE , COMMISSIONER OF CUSTOMS C. EX., INDORE VERSUS SHIVHARE ROADLINES 2009 (2) TMI 202 - CESTAT, NEW DELHI and URVI CONSTRUCTION VERSUS COMMISSIONER OF SERVICE TAX, AHMEDABAD 2009 (10) TMI 97 - CESTAT, AHMEDABAD , had held that sub-contractors are not liable to pay service tax. As there were conflicting views, the issue was referred to Larger Bench. In M/S MAX LOGISTICS LIMITED VERSUS CCE, JAIPUR 2016 (9) TMI 1024 - CESTAT NEW DELHI - The extended period of limitation could not, therefore, have been invoked. While holding that the appellants are liable to service tax for services rendered by them as sub contractors, the same can be confirmed only within the normal period of limitation - Appeal allowed in part.

Summary

Issues Involved:
1. Liability of sub-contractor to pay service tax.
2. Applicability of extended period of limitation.
3. Imposition of penalties under Sections 77 and 78 of the Finance Act, 1994.

Summary:

1. Liability of Sub-Contractor to Pay Service Tax:
The appellant, engaged in providing Construction Services as a sub-contractor, was issued a demand for service tax amounting to Rs. 19,48,077/- along with interest and penalties. The appellant contended that the principal contractors had already discharged the service tax liability on the entire contract value, thus the sub-contractor was not liable to pay service tax. However, the Tribunal referred to the Larger Bench decision in Commissioner of Service Tax, New Delhi vs. Melange Developers Private Limited [2022(33) G.S.T.L. 116(Tri.-LB)], which held that a sub-contractor is liable to pay service tax even if the main contractor has discharged the tax liability on the activity undertaken by the sub-contractor. The Tribunal emphasized that there is no provision granting exemption to a sub-contractor from paying service tax, and the mechanism under the CENVAT Credit Rules ensures no double taxation.

2. Applicability of Extended Period of Limitation:
The appellant argued that the extended period of limitation should not be invoked as they were under a bona fide belief that the services provided as a sub-contractor were not liable to tax. The Tribunal noted that during the relevant period, there were conflicting views on whether sub-contractors had to pay service tax separately. Referring to the decision in M/s. Max Logistics Ltd. v. Commissioner of Central Excise, Jaipur [2017 (47)STR 41 (Tri. - Del.)], the Tribunal held that in cases involving interpretation of law and bona fide belief, the extended period of limitation is not sustainable. Thus, the demand for service tax could only be confirmed within the normal period of limitation.

3. Imposition of Penalties:
The Tribunal considered the appellant's argument that there was no intention to evade tax and that the principal contractors had already paid the service tax, making the situation revenue neutral. The Tribunal held that while the appellant is liable to pay service tax, the penalties under Sections 77 and 78 should not be imposed due to the bona fide belief and the absence of revenue loss to the government.

Conclusion:
The appeal was disposed of by holding that the appellant is liable to pay service tax for services rendered as a sub-contractor, but the demand can only be confirmed within the normal period of limitation. The penalties under Sections 77 and 78 were not upheld due to the bona fide belief and revenue neutrality.