2025 (1) TMI 143 - AT - Service Tax

Liability of sub-contractor to pay service tax even if the main contractor has already discharged the service tax liability on the entire value of the contract - extended period of limitation - HELD THAT - It is an admitted fact on record that the show cause notice dated 29.06.2012 had proposed for recovery of service tax from the appellant for the services provided during the period of 2007-08 to 2010-11 and for proposed effecting recovery, the proviso clause appended sub-section (1) of Section 73 ibid was invoked. Insofar as issuance of the show cause notice is concerned, the statute clearly mandates that the same should be issued within the normal period of one year from the relevant date. However, under exceptional circumstances, where there is involvement of fraud or collusion or willful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the Rules made there under with intent to evade payment of service tax, then in such cases instead of the normal period of 1 year, the show cause notice can be issued by invoking the extended period of limitation of 5 years. In the case in hand, it is an admitted fact that payment of service tax by sub-contractor was not free from doubt and thus, there were different views expressed by Co-ordinate Bench of the Tribunal, which are resulted in referral of matter to Larger Bench in COMMISSIONER OF SERVICE TAX VERSUS MELANGE DEVELOPERS PVT. LTD. 2019 (6) TMI 518 - CESTAT NEW DELHI-LB . Thus, under such circumstances, the service tax demand can only be raised within the normal period and since, the elements itemized in the proviso clause are absent, the extended period cannot be invoked. Conclusion - The sub-contractors are liable for service tax, even if the main contractor has paid it on the total contract value - The extended period of limitation under Section 73 can only be invoked when specific conditions are met, such as fraud or suppression of facts. The impugned order, to the extent it has confirmed the adjudged demands under the extended period of limitation is set aside - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment presented revolves around the following core issues:

• Whether a sub-contractor is liable to pay service tax even if the main contractor has already discharged the service tax liability on the entire value of the contract.
• Whether the extended period of limitation for issuing a show cause notice under Section 73 of the Finance Act, 1994, can be invoked in the absence of fraud, collusion, mis-statement, or suppression of facts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of Sub-contractor to Pay Service Tax

• Relevant Legal Framework and Precedents: The case refers to the decision of the Larger Bench in the matter of Commissioner of Service Tax, New Delhi Vs. Melange Developers Pvt. Ltd., which established that a sub-contractor is liable to pay service tax, irrespective of whether the main contractor has discharged such liability on the entire contract amount.
• Court's Interpretation and Reasoning: The court acknowledged the decision of the Larger Bench, which clarified the contentious issue of service tax liability of sub-contractors.
• Key Evidence and Findings: The appellant did not contest the service tax demand in light of the Larger Bench's decision.
• Application of Law to Facts: The court applied the legal precedent from the Larger Bench to affirm the sub-contractor's liability for service tax.
• Treatment of Competing Arguments: The appellant accepted the liability based on the established precedent, hence no competing arguments were presented on this issue.
• Conclusions: The court concluded that the sub-contractor is liable to pay service tax, aligning with the Larger Bench's decision.

Issue 2: Invocation of Extended Period of Limitation

• Relevant Legal Framework and Precedents: Section 73 of the Finance Act, 1994, allows for the invocation of an extended period of limitation (5 years) in cases involving fraud, collusion, willful mis-statement, or suppression of facts. The normal period for issuing a show cause notice is one year.
• Court's Interpretation and Reasoning: The court reasoned that the extended period is an exception and can only be applied when the specific conditions outlined in the statute are met. The court noted that the issue of service tax liability for sub-contractors was contentious and not free from doubt, as evidenced by differing opinions from various Tribunal Benches.
• Key Evidence and Findings: The court found no evidence of fraud, collusion, or willful mis-statement by the appellant. The issue's contentious nature led to its referral to a Larger Bench, indicating a lack of clarity rather than intentional evasion.
• Application of Law to Facts: The court applied the statutory provisions to conclude that the extended period of limitation was not applicable in this case due to the absence of the requisite conditions.
• Treatment of Competing Arguments: The appellant cited previous Tribunal decisions where appeals were allowed on the ground of limitation, supporting their argument against the invocation of the extended period.
• Conclusions: The court set aside the confirmation of demands under the extended period of limitation, allowing the appeal in favor of the appellant.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "Issuance of show cause notice within the normal period is the rule and the issuance of the same by invoking the extended period of limitation is the exception, such that exception clause would have the application only when the ingredients mentioned in the proviso clause to sub-section (1) of Section 73 ibid are satisfied."
• Core Principles Established: The court established that sub-contractors are liable for service tax, even if the main contractor has paid it on the total contract value. Additionally, the extended period of limitation under Section 73 can only be invoked when specific conditions are met, such as fraud or suppression of facts.
• Final Determinations on Each Issue: The court affirmed the sub-contractor's liability for service tax but set aside the demands confirmed under the extended period of limitation, ruling in favor of the appellant regarding the limitation issue.