2014 (10) TMI 524 - AT - Service Tax

Whether the sub-contractor of a main contractor is liable to discharge the service tax liability on the services provided by him - Applicability of old circulars - Denial of the benefit of exemption under Notification No. 12/2003-ST - Abatement of 67% under notification No.1/2006-ST - Penalties under sections 76, 77 and 78 - Held that - Service tax law has been extended to a large number of services from 2002 onwards and scheme of Cenvat Credit was extended to services, no such circular has been issued in respect of any of the services which became taxable in 2002 or afterwards. Even in respect of services which were taxable before 2002, the earlier circulars became redundant in view of the change in law. Appellant had no doubt about the provisions of law and the fact that his activity was chargeable to service tax. This is evident from the fact that the appellant was paying service tax before 1.3.2006. From 1.3.2006 the reason for stopping to make payment is only that the main contractor was specifically made ineligible to take credit of input services vide notification no. 1/2006. In my opinion if law specifically prohibits doing something, the same cannot be circumvented by stopping to pay duty and claiming benefit of circulars which were not issued even in respect of that service and was also prior to the law at the relevant time i.e. introduction of Cenvat credit scheme to services. Appellant had no doubt about the taxability of service and was in fact paying service tax till 28.2.2006 and stopped paying service tax w.e.f. 1.3.2006 due to changes in legal position relating to the main contractor, it is clearly a case of taking law into hands. The notification No. 1/2006 clearly prohibits taking the credit of service tax paid on input services for availing the abatement. By not paying the duty appellant is trying to subvert purpose of restriction imposed in the new notification. Clearly this is a willful act with clear intention to evade payment of duty. The appellant is liable to pay service tax on the taxable services rendered by him in the capacity of a sub-contractor. The appellant s eligibility to the benefits of Notification No. 12/2003-ST and 1/2006-ST shall be examined by the adjudicating authority in the light of the evidences already available on record or on the basis of documentary evidence which the appellant shall submit forthwith to the adjudicating authority. The service tax demands shall be re-computed thereafter in accordance with law. Extended period of time is invokable in the present case as the appellant has suppressed facts and consequently, the appellant is also liable to penalties under sections 76, 77 & 78 of the Finance Act, 1994 - Decided against assessee.

Issues Involved:

1. Eligibility for exemption under Notification No. 12/2003-ST.
2. Liability of sub-contractor to pay service tax when the main contractor has discharged the service tax liability.
3. Invocation of extended period of limitation for service tax demand and imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Eligibility for Exemption under Notification No. 12/2003-ST:

The appellant's claim for exemption under Notification No. 12/2003-ST, which allows exclusion of the cost of materials sold from the taxable value of services, was denied by the adjudicating authority due to the absence of documentary evidence. The appellant argued that all necessary documents were submitted to the department during the investigation, as indicated in the show cause notice, and requested an opportunity to resubmit these documents. The Tribunal found merit in the appellant's argument and directed the adjudicating authority to re-examine the issue with the provided documents. The adjudicating authority must consider the evidence and determine the eligibility for the exemption afresh.

2. Liability of Sub-contractor to Pay Service Tax:

The Tribunal addressed whether a sub-contractor is exempt from paying service tax when the main contractor has already discharged the tax liability. The appellant cited various circulars and Tribunal decisions suggesting that sub-contractors were not required to pay service tax if the main contractor had done so. However, the Tribunal referred to the Larger Bench decision in Vijay Sharma & Co. and the decision in Sew Construction Ltd., which clarified that sub-contractors are independently liable for service tax, irrespective of the main contractor's tax payments. The Tribunal rejected the appellant's contention, emphasizing that the CENVAT Credit Scheme ensures that tax paid at each stage is creditable, thus preventing double taxation. The Tribunal upheld that the sub-contractor must pay service tax, aligning with the statutory provisions of the Finance Act, 1994.

3. Invocation of Extended Period and Imposition of Penalties:

The appellant argued against the invocation of the extended period of limitation and the imposition of penalties, claiming a bona fide belief based on previous circulars and judicial pronouncements. The Tribunal found this argument unconvincing, noting that the appellant had deliberately stopped paying service tax from 1-3-2006 due to changes in Notification No. 1/2006-ST, which restricted CENVAT credit on input services. The Tribunal concluded that the appellant's actions were deliberate and constituted suppression of facts, justifying the invocation of the extended period. Consequently, penalties under sections 76, 77, and 78 of the Finance Act, 1994, were deemed appropriate. The Tribunal directed the adjudicating authority to re-compute the service tax demand and determine the quantum of penalties accordingly.

Separate Judgments:

The Tribunal members had differing opinions on certain issues. One member agreed with the findings on the first issue and directed the adjudicating authority to allow a 67% rebate for the material component. On the second issue, the member suggested that the appellant should be liable to pay service tax as a sub-contractor only from 23-08-2007, following the clarification in the master circular. Regarding penalties, the member argued against imposing penalties under sections 76 and 78, considering the appellant's payment of tax with interest before the show cause notice. However, the majority decision upheld the liability of the sub-contractor to pay service tax and the imposition of penalties under sections 76, 77, and 78, remanding the matter for re-determination of tax liability and penalties.

Conclusion:

The Tribunal concluded that the appellant is liable to pay service tax as a sub-contractor. The eligibility for exemptions under Notifications No. 12/2003-ST and 1/2006-ST will be re-examined by the adjudicating authority based on the provided documents. The extended period for service tax demand is justified, and penalties under sections 76, 77, and 78 are applicable. The matter is remanded back to the adjudicating authority for de novo consideration and re-computation of service tax demand and penalties.

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