2017 (12) TMI 386 - AT - Service Tax

Non-payment of service tax - consideration received on mobilization advance - rendering of construction service as sub-contractor - Held that - The mobilization advance is liable to be service tax, as the provisions of Section 67 are clear to the effect that any money received for the taxable service to be provided is to be taxed at the time of receipt itself. The appellants, though claimed to have discharged the service tax later, subject to verification of the same, the liability for the interest on the late payment will arise - matter on remand. Rendering of construction service as sub-contractor - non-payment of service tax on the belief that main contractor already paid the service tax on the whole value - Held that - the same depends on the actual classification service during the material time. Further, the fact of payment of tax on full value by the main contractor and connected issues are required to be examined afresh after correct classification of the tax liability - matter on remand. Appeal allowed by way of remand.

Summary

Issues:
1. Applicability of service tax on mobilization advance.
2. Tax liability as a sub-contractor and the impact of main contractor's payment.

Analysis:
The judgment by the Appellate Tribunal CESTAT NEW DELHI involved two appeals concerning service tax demands on construction activities for the period 2006-07 to 2010-2011. The first issue addressed was the non-discharge of service tax on mobilization advance and certain construction work executed as a sub-contractor. The Lower Authority had confirmed the service tax liabilities and imposed penalties. The appellants argued that the mobilization advances were adjusted in the running account, and full service tax liability was paid later, thus no short payment occurred. They also claimed that the main contractor had already paid the service tax on the entire value of the work executed as a sub-contractor, relieving them of any additional tax liability.

The Appellate Tribunal considered the legal classification of the tax liability based on the nature of work executed, citing the decision of the Hon'ble Supreme Court in Larsen & Toubro Ltd. The Tribunal noted that if the work was rightly classifiable as a work contract service, no tax liability would arise before 1.6.2007. The judgment emphasized that mobilization advances are liable to service tax at the time of receipt, even if later adjusted, attracting interest for belated payment. The Tribunal decided to remand the matter to the Original Authority for a fresh decision, emphasizing the need to verify the correct classification of the tax liability and the payment of tax by the main contractor in the case of work executed as a sub-contractor.

In conclusion, the appeals were allowed by way of remand, providing the appellant with an opportunity to present their case before the Original Authority for a fresh decision. The judgment highlighted the importance of verifying the tax liabilities, interest on late payments, and correct classification of services to determine the final tax obligations in accordance with legal principles and precedents.