2023 (6) TMI 847 - AT - Service Tax

Levy of Service Tax - liability of sub-contractor when the main contractor discharged the liability on the full contract value - invocation of extended period of limitation - revenue neutrality - HELD THAT - There cannot be any malafide in the facts of the present case for the reason that the main contractor discharged the entire service tax liability on the total value of the contract which includes the value of the service provided by the sub-contractor also. If the appellant being a sub-contractor would have discharged the service tax liability, then to that extent the liability of service tax on the main contractor would have reduced therefore, it is clearly a case of Revenue neutral. Moreover, on this issue the board had issued Circular No. 23/3/97-ST dated 13.10.1997, TRU letter F.No. 341/18/2004-TRU (Pt.) dated 17.12.2004 whereby the Board had clarified that when the main contractor has discharged the service tax on the total value of the contract, the sub-contractor need not to pay service tax. However, subsequently the board has reversed their view and by Circular No. 96/7/2007-ST dated 23.08.2007 clarified that sub-contractor is required to pay service tax. Besides this contradictory Circular, the matter was also under litigation before various forums and finally the Larger Bench of the Tribunal in the case of Melange Developers Pvt. Limited 2019 (6) TMI 518 - CESTAT NEW DELHI held that sub-contractor is required to pay service tax. The said judgment was delivered in 2020. Accordingly, the appellant had bonafide belief that there is no liability to pay service tax being a sub-contractor. The demand though on merit is sustainable but it is clearly hit by limitation and hence not sustainable - Appeal allowed.

Summary

Issues involved:
Whether the appellant is liable to pay service tax as a sub-contractor when the main contractor discharged the liability on the full contract value, and if the extended period of limitation can be invoked.

Issue 1: Liability to pay service tax as a sub-contractor and invocation of extended period of limitation

The appellant contended that the demand is not sustainable on limitation as it was beyond the normal period, citing bonafide belief based on circulars and legal precedents. The appellant argued that there was no revenue loss to the exchequer as the main contractor had already paid the service tax on the total contract value. The appellant relied on various judgments to support their position. On the contrary, the Revenue argued that the appellant's failure to obtain service tax registration during the relevant period indicated a malafide intention.

Issue 2: Interpretation of relevant circulars and legal precedents

The Tribunal analyzed the facts and legal framework, noting that the main contractor had already discharged the service tax liability on the total contract value, including the sub-contractor's services. The Tribunal highlighted the contradictory circulars issued by the Board over time, initially stating that sub-contractors need not pay service tax when the main contractor has already done so, but later reversing this stance. The Tribunal also referenced the decision of a Larger Bench in a specific case, which clarified the sub-contractor's liability to pay service tax. Considering these factors, the Tribunal found that the demand, though technically sustainable, was barred by limitation due to the appellant's bonafide belief based on legal precedents and circulars. Consequently, the impugned order was set aside, and the appeal was allowed.

Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.