2023 (12) TMI 952 - AT - Service Tax

Issuance of second SCN invoking extended period of limitation - Recovery of service tax alongwith interest and penalty - Manpower Recruitment or Supply Agency Service - HELD THAT - The present SCN dt. 22.4.2013 has been issued for the very same period. The work sheet enclosed along with SCN in page 51 of the paper book shows that the figures for the present demand under MRSA service have also been obtained from ST-3 returns of the very same period filed by the appellant. It is brought out from these returns, that in the returns the appellant had declared exempted services for certain amounts. The present demand is raised under MRSA services and not WCS on the basis that these amounts shown as exempted are taxable under MRSA services as it involves supply of labour. The work orders issued by M/s.Comtech, M/s.Espee Tech M/s.D.R Associates show that the work orders are for executing welding, fabrication works at site - the department would have come across the figures declared as exempted services , while perusing the ST-3 returns for issuing earlier SCN by invoking extended period. Therefore all information when available before the department a second show cause notice alleging suppression of facts cannot sustain. The department when equipped with all facts as declared in the ST-3 returns ought to have initiated proceedings on all grounds in the first SCN itself. In regard to work order issued by M/s.Comtech to the appellant for whom welding, fabrication for ship building works were carried out a letter dt. 03.07.2008 is issued by M/s.L T Ltd. (customer) stating that the activity does not involve rendering of services and would fall under manufacture as under Section 2(f) of Central Excise Act, 1994. So also, on perusal of the work orders, the activity rendered by the appellant for the other two customers appears to be identical - The appellant is a sub-contractor of M/s.Comtech, M/s.DR Associates and M/s.Espee Tech. The issue as to whether sub-contractor is liable to discharge service tax was under litigation. During the relevant period, The Board vide its Circular No.23/3/97-ST dt. 13.10.1997, TRU letter F.No.341/18/2004-(pt) dt. 17.12.2004 had clarified that sub contractor is not required to pay service tax. The second show cause notice issued invoking extended period on the basis of very same ST-3 returns filed by appellant cannot sustain and requires to be set aside - the SCN is time barred. The impugned order is set aside - Appeal allowed.

Summary

Issues Involved:
1. Legality and propriety of invoking the extended period for issuing a second show cause notice.
2. Classification of activities under 'Manpower Recruitment or Supply Agency Service' versus 'Works Contract Service'.
3. Determination of liability for service tax on sub-contractors when the main contractor has discharged the tax liability.

Summary:

1. Legality and Propriety of Invoking Extended Period:
The appellant argued that the second show cause notice (SCN) dated 22.04.2013, invoking the extended period, is not sustainable since an earlier SCN dated 17.10.2012 was issued for the same period (August 2007 to March 2011) under 'Works Contract Service' (WCS). The appellant had already approached the Settlement Commission and paid the service tax liability along with interest for the earlier SCN. The present SCN, based on the same ST-3 returns, alleges suppression of facts, which the appellant contends is not valid as the department was already aware of the facts from the earlier SCN. The Tribunal agreed, citing the Supreme Court's decision in Nizam Sugar Factory, which held that a second SCN on the same facts invoking the extended period is not sustainable.

2. Classification of Activities:
The appellant contended that the activities performed under work orders from M/s. Comtech, M/s. Espee Tech, and M/s. D.R. Associates involved fabrication and welding, which fall under 'manufacture' as per Section 2(f) of the Central Excise Act, 1944, and not under 'Manpower Recruitment or Supply Agency Service' (MRSA). The Tribunal noted that the activities were indeed fabrication and welding for shipbuilding and other projects, which had been treated as manufacturing activities by the main contractors and the appellant. The Tribunal referred to the case of Plus Tech Fabricators Pvt. Ltd., which held that such activities are 'manufacture' and not service.

3. Liability for Service Tax on Sub-Contractors:
The appellant argued that the main contractor, M/s. Comtech, had already discharged the service tax liability, and as per the Board's Circulars and the decision in Melange Developers Pvt. Ltd., the sub-contractor is not required to pay service tax if the main contractor has already done so. The Tribunal acknowledged the contradictory circulars and ongoing litigations during the relevant period and concluded that the appellant had a bona fide belief that they were not liable to pay service tax.

Conclusion:
The Tribunal held that the second SCN invoking the extended period based on the same ST-3 returns is time-barred and not sustainable. The impugned order was set aside, and the appeal was allowed with consequential relief.