2025 (1) TMI 1443 - AT - Service Tax

Addition of TDS on the gross amount to arrive at the taxable value - Service Tax demand on exempted services - denial of Abatement under N/N.1/2006 - liability of sub-contractors to pay service tax. Addition of TDS on the gross amount to arrive at the taxable value - HELD THAT - It is found from Annexure-II attached to the show cause notice that in order to arrive at the taxable value TDS amount is added to the Gross amount of the contract value whereas in the Form 16A enclosed with the appeal it is found that the TDS amount is deducted from the amount paid to the appellant and hence the amount paid is itself the gross amount. Therefore adding TDS amount once again has resulted in arriving at the inflated taxable value. TDS is always deducted from the amount payable and it is not any other consideration. Therefore the demand on this score cannot sustain and hence the impugned order to this extent is set aside. Service Tax demand on exempted services - denial of Abatement under N/N.1/2006 - HELD THAT - Construction of (a) Toilets at TNEB office (b) Construction of Security Protection wall (i) in and around LMHEP Barrage unit (ii) right side of Dam Power House (iii) in and around of central stores and raising of compound wall of the central stores are exempt in terms of Letter F. No. B2/8/2004 TRU dt.10.09.2004 - Similarly Laying of underground power cable at Lower Mettur Hydro Electric Projects at Chekkanur Barrage Nerinjipettai Barrage and Kuthiraikkalmedu Barrage are exempt from tax in terms of Board s Clarification in C. No. 123/5/2010-TRU dt. 24.05.2010 (F. No. 332/5/2010 - TRU) and Circular No. 62/11/2003 ST - dated 21.8.2003 (F. No. B3/7/2003-TRU) - Wiring and rewiring at quarters/town quarters and LMHEP quarters at Kuthiraikkalmedu is also exempt from service tax vide Board s Circular No. 62/11/2003-S.T. dated 21-8-2003 F. No. B3/7/2003-TRU - Providing WBM and Black topping over existing path in Thokkanampatti camp area and inside barrage -II at Nerinjipettai is exempt from service tax as per Section 65(25b) of the Finance Act 1994 in terms of Para 2(i) of Board s Circular No.123/5/2010 TRU dated 24.05.2010 in F.No.332/5/2010-TRU. The demand made in the impugned order on this score also cannot sustain and hence the impugned order to this extent stands set aside. Liability of sub-contractors to pay service tax - HELD THAT - The Larger Bench in the case of COMMR. OF S.T. NEW DELHI vs MELANGE DEVELOPERS PRIVATE LIMITED 2019 (6) TMI 518 - CESTAT NEW DELHI-LB held that in the scheme of Service Tax the concept of Cenvat credit enables every service provider in a supply chain to take input credit of the tax paid by him which can be utilized for the purpose of discharge of taxes on his output service. The conditions for allowing Cenvat credit have been provided for in Rule 4. The mechanism under the Cenvat Credit Rules also ensures that there is no scope for double taxation . Suppression of facts - penalty - HELD THAT - The suppression cannot be alleged and hence consequent penalty is not imposable. Conclusion - i) The demand of service tax confirmed in the impugned order except sub-contractors are set aside. ii) The demand of service tax on sub-contractors is sustained only for normal period and the other demand confirmed in the OIO by invoking extended period is set-aside. iii) The matter is remanded for the limited purpose of determining of tax liability for the normal period along with applicable interest but however there shall be no penalty on such determination of tax and interest. Appeal allowed by way of remand.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the addition of TDS on the gross amount to determine the taxable value was justified.
• Whether the appellant was liable for service tax on services claimed to be exempt or entitled to abatement under Notification No. 1/2006.
• The liability of sub-contractors for service tax when the main contractor has already paid the tax.
• The applicability of the extended period for demand and the imposition of penalties.

ISSUE-WISE DETAILED ANALYSIS

1. Addition of TDS on the Gross Amount

• Legal Framework and Precedents: The issue revolves around the interpretation of Section 67 of the Finance Act, 1994, concerning the determination of the taxable value for service tax purposes.
• Court's Interpretation and Reasoning: The Tribunal found that TDS is deducted from the amount payable and not an additional consideration. Adding TDS to the gross amount results in an inflated taxable value.
• Conclusion: The demand based on the addition of TDS to the gross amount was not sustainable, and the order was set aside to this extent.

2. Service Tax Demand on Exempted Services and Denial of Abatement

• Relevant Legal Framework and Precedents: The appellant relied on various Board Circulars and the decision in Commissioner of Service Tax vs Bhayana Builders (P) Ltd.
• Court's Interpretation and Reasoning: The Tribunal examined the nature of the contracts with Mettur Municipality and TNEB. It found that certain services were exempt based on Board Circulars, and the denial of abatement was unjustified due to the absence of evidence for free supply of materials.
• Key Evidence and Findings: The Tribunal noted that the appellant had submitted necessary documents, and the Board's Clarifications supported the exemption claims.
• Application of Law to Facts: The Tribunal applied the principles from the Bhayana Builders case to conclude that the value of free materials should not be included in the taxable value.
• Conclusion: The demand for service tax on these services was set aside.

3. Liability of Sub-Contractors

• Relevant Legal Framework and Precedents: The Tribunal considered the decision of the Larger Bench in COMMR. OF S.T., NEW DELHI vs MELANGE DEVELOPERS PRIVATE LIMITED.
• Court's Interpretation and Reasoning: The Tribunal upheld the liability of sub-contractors to pay service tax, as clarified by the Larger Bench, which emphasized the Cenvat Credit Rules to prevent double taxation.
• Competing Arguments: The appellant argued that service tax was already paid by the main contractor, and demanding it again would result in double taxation.
• Conclusion: The Tribunal upheld the demand for service tax on sub-contractors for the normal period but set aside the demand for the extended period due to the lack of suppression.

4. Applicability of Extended Period and Penalties

• Relevant Legal Framework and Precedents: The Tribunal referred to various decisions that addressed the issue of suppression and the applicability of penalties.
• Court's Interpretation and Reasoning: The Tribunal found that the issue of sub-contractor liability was contentious and subject to varying interpretations at the time, negating the allegation of suppression.
• Conclusion: The Tribunal ruled that penalties were not imposable due to the absence of suppression.

SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal established that the addition of TDS to the gross amount for determining taxable value is incorrect, and exemptions and abatements must be granted based on established clarifications and precedents.
• Final Determinations:
• The demand of service tax based on the addition of TDS is set aside.
• The demand on exempted services and denial of abatement is set aside.
• The liability of sub-contractors is upheld for the normal period, but the extended period demand is set aside.
• Penalties are not imposable due to the absence of suppression.
• The matter is remanded for determining tax liability for the normal period, without penalties.