2017 (3) TMI 614 - AT - Service Tax

Tax liability - sub-contract - whether the appellant who is a sub-contractor is liable to discharge the service tax in regard to the services which he has executed on behalf of the main contractor, when the main contractor has discharged service tax liability in respect of the very same services? - Held that - even though appellant furnished the details of the service tax paid by the main contractor, and even though both main contractor as well as the appellant belongs to the same tax division, the adjudicating authority and Commissioner (Appeals) did not take any effort to verify the same. They have blankly upheld the demand raised in the SCN - the main contractor has discharged the service tax liability and the same has been informed to the department by the appellant - demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of service tax demand, interest, and penalty imposed on a sub-contractor in relation to services executed for a main contractor who has already discharged the service tax liability for the same services.

Analysis:
1. The appeal questioned the liability of the sub-contractor to pay service tax when the main contractor had already settled the service tax obligation for the services rendered. The appellant provided evidence, including an audit objection report and a letter detailing the main contractor's payment of service tax on the contract value received. The appellant argued against double taxation, asserting that the main contractor had paid the service tax in full without deductions or abatements.

2. During the hearing, the Assistant Commissioner contended that the appellant failed to substantiate that the main contractor had indeed paid the service tax. However, the appellant's representative referenced the communication sent to the tax authorities, indicating the main contractor's service tax payments. The appellant enclosed detailed month-wise information on the service tax paid by the main contractor, emphasizing that demanding service tax from the sub-contractor again would result in double taxation.

3. Despite the appellant's submission of evidence and clarification that both the main contractor and the sub-contractor belonged to the same tax division, the adjudicating authority and Commissioner (Appeals) did not verify the information provided. The presiding Member noted that the main contractor had discharged the service tax liability and communicated this to the tax department, which was not duly considered by the lower authorities.

4. Relying on the precedent set in the case of Nanalal Suthar Vs CCE, Jaipur [2015-TIOL-2357-CESTAT-DEL], the presiding Member concluded that the demand on the sub-contractor was unsustainable. The judgment set aside the impugned order, allowing the appeal with any consequential reliefs. The decision emphasized the importance of verifying the payment of service tax by the main contractor before imposing obligations on the sub-contractor to avoid unjust double taxation.

This detailed analysis of the judgment highlights the key legal arguments, evidentiary submissions, and the ultimate decision rendered by the Appellate Tribunal CESTAT HYDERABAD regarding the service tax liability of a sub-contractor vis-a-vis the main contractor's payment of service tax.