2014 (5) TMI 764 - AT - Service Tax

Demand of service tax - Double taxation - sub-contractor - pre-Cenvat credit Rule 2004 era - Held that - as per various pronouncements of the Tribunal, if the service tax liability stand discharged on the full and complete value, the sub-contractor cannot be taxed again in respect of same services, on that part value in the services provided by them. Admittedly it would amount to double taxation in respect of same services, Tribunal in the case of M/s. Anand Sales Corpn and others vs CCE Kanpur 2014 (2) TMI 621 - CESTAT NEW DELHI has done a detailed discussion in the manner and has held that inasmuch as during the relevant period, the practice of payment of service tax on the full value was the general practice being adopted, the separate confirmation of service tax against the sub-contractor would not be justified, though the Cenvat credit Rules, requires separate payment of service tax on separate activities, which service tax would be available as credit to the main contractor. When the principle contractor has paid the service tax on the entire value, and keeping in view that exchequer cannot be enriched on account of double taxation and keeping in view that the Revenue has already earned its share of service tax whether coming from the pocket of main contractor or from the pocket of sub contractor and keeping in view the earlier Boards clarifications which were relevant during the period which stand relied upon the case of JAC Air services and keeping in view that concept of service tax are still not clear and keeping in view that there was a pattern in the industry for payment of service tax by the main contractor and keeping in view that entire situation is revenue neutral, I deem it fit to set aside the impugned order - Matter remanded back - Decided in favour of assessee.

Summary

Issues:
1. Whether the sub-contractor is liable to pay service tax when the main contractor has already paid the tax on the full construction value.
2. Interpretation of Cenvat credit Rules and relevant CBEC circulars.
3. Double taxation concern and revenue neutrality in service tax payment.

Analysis:

Issue 1:
The case involved sub-contractors of a service tax registered main contractor engaged in industrial or commercial construction services. The sub-contractors argued that since the main contractor had already paid the service tax on the entire construction value, taxing the sub-contractors for the same services would result in double taxation. The Tribunal referred to previous decisions and held that if the service tax liability is discharged on the full value by the main contractor, the sub-contractor cannot be taxed again for the same services. This would lead to unjust enrichment and double taxation, which is not permissible.

Issue 2:
The lower authorities did not consider the fact that the main contractor had paid the service tax in full. They relied on the Cenvat credit Rules to argue that the person providing services must be taxed, allowing the main contractor to avail Cenvat credit. However, the Tribunal found that during the relevant period, the industry practice was to pay service tax on the full value, and separate taxation of sub-contractors was not justified. The Tribunal also noted the relevance of CBEC circulars and previous decisions in interpreting the tax liability of sub-contractors in such cases.

Issue 3:
The Tribunal addressed concerns of double taxation and revenue neutrality in service tax payment. While the Jt. CDR argued that sub-contractors are responsible for paying service tax, the Tribunal emphasized that the main contractor had already contributed to the tax revenue. The Tribunal highlighted the need to avoid double taxation, especially when the main contractor had fulfilled the tax liability. Considering the industry practice, previous decisions, and the principle of revenue neutrality, the Tribunal set aside the lower order and allowed the appeals with consequential relief. The Tribunal also clarified that its decision was based on interpretation of existing rules and principles, not on introducing new legislative provisions.

In conclusion, the judgment focused on ensuring fairness in tax liability distribution between main contractors and sub-contractors, interpreting relevant rules and circulars, and upholding the principle of revenue neutrality in service tax payment.