2018 (3) TMI 356 - AT - Service Tax

Liability of service tax on sub-contractor - Supply of skilled and unskilled labour for carrying out the work such as shifting, erection, pre-assembly, testing and commissioning activity - sub-contract - Extended period of limitation - it was argued that the main contractor has paid tax on the entire value and therefore no demand of service tax can be made against the sub-contractors - Availing credit while availing benefit of abatement - Held that - when a sub-contractor does construction work on a land, the propriety passes to the owner of the land immediately on construction. These are peculiar facts with reference to the works contract involving construction on land. This argument would not apply to the provision of service as there is no property transaction taking place which involves direct transfer from sub-contractor to the main recipient of service - In the instant case, the appellants are involved in providing services to the main contractor which they claimed to be a sub-contract. The appellants are providing services to the main contractor and not the owner of the land. Moreover the nature of services provided by the appellants to the main contractor is not the same as those provided by the main contractor to its client. Whether rent and access charges for providing junctions for mobile operation to cellular telephone operators by DOT will be subject to no service tax? - Held that - Cellular phone operators are realizing rent and access charges from their subscribers and as such when cellular companies pay service tax on the amounts received by them from their subscribers it includes rent and access charges and as such to charge again service tax on their charges by DOT will amount to double taxation. Board is of the view that no service tax is again chargeable on rent and access charges paid to DOT by cellular phone operators. It is apparent that these circulars were intended to reduce un-necessary work and not to provide exemption or give away revenue. In the instant case however, the main contractor is not entitled to the credit of service tax paid by sub-contractor if he is availing N/N. 01/2006. Thus any service tax paid by the subcontractor would come as revenue to the Government and no credit of same would be available to the main contractor. The matter is remanded to the original adjudicating authority - appeal allowed by way of remand.

Issues Involved:
1. Classification of the appellant’s services.
2. Liability of sub-contractors to pay service tax.
3. Inclusion of material cost in service tax demand.
4. Invocation of extended period of limitation.
5. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
6. Calculation of service tax on cum duty price basis.
7. Whether the activity amounts to manufacture under Section 2(f).

Detailed Analysis:

1. Classification of the appellant’s services:
The appellant, M/s. Anju Engineering Works, argued that their activities, which included the supply of skilled and unskilled labor for shifting, erection, pre-assembly, testing, and commissioning of pressure and non-pressure parts of boilers, did not fall under the category of erection, installation, or commissioning services as defined under the Finance Act, 1994. They contended that they were merely supplying labor under the supervision and control of the main contractor, M/s. Sunil Hi-Tech Engineers Ltd.

2. Liability of sub-contractors to pay service tax:
The appellant argued that since the main contractor had paid service tax on the entire contract value, no service tax demand should be made against the sub-contractors, citing several trade notices and the Tribunal decision in BBR India Ltd. Vs. CCE 2006 (4) STR 269. However, the Tribunal referenced the case of Peekayam Engineers (Order No. A/90344/17/STB dt. 30.10.2017), which held that the sub-contractor is also liable to pay service tax, and the service tax paid by the main contractor does not exempt the sub-contractor from this liability. The Tribunal emphasized that the scheme of Cenvat Credit ensures no double taxation and no cascading effect of tax, and the argument that sub-contractors are exempt if the main contractor pays the tax was rejected.

3. Inclusion of material cost in service tax demand:
The appellant argued that the demand included consideration for both materials supplied and services rendered, and no demand could be made for the consideration received for the supply of materials. The Tribunal did not specifically address this issue in detail in the judgment summary provided.

4. Invocation of extended period of limitation:
The appellant contended that the extended period of limitation was not invokable as there was no deliberate mis-declaration on their part. They cited the Hon’ble Apex Court decisions in Pushpam Pharmaceutical Vs. Collector C. Ex. Bombay 1995 (78) ELT 401 (SC) and Continental Foundation Vs.CCE 2007 (216) ELT 177 (SC). However, the Tribunal found that the appellant had not disclosed the relevant information in their half-yearly returns, which amounted to mis-declaration with the intention to evade service tax. Therefore, the invocation of the extended period of limitation was justified.

5. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The Tribunal noted that simultaneous penalties under Sections 76 and 78 could not be imposed, referencing the decision of the Hon’ble High Court of Punjab and Haryana in Commissioner of Central Excise Vs. First Flight Courier Ltd. 2011 (22) STR 622 (P & H). Consequently, the penalty under Section 76 was set aside, but the penalties under Sections 77 and 78 were upheld due to the mis-declaration and intent to evade tax.

6. Calculation of service tax on cum duty price basis:
The appellant sought the benefit of cum duty price in the calculation of service tax, relying on the decisions in Collector v. Srichakra Tyres Ltd. 2002 (142) ELT A279 (S.C.) and Maruti Udyog Ltd. 2002 (49) RLT 1 (SC). The Tribunal granted this benefit and remanded the matter to the original adjudicating authority to recalculate the demand and consequent penalties on this basis.

7. Whether the activity amounts to manufacture under Section 2(f):
The appellant argued that the fabrication of structural items at the site amounted to manufacture under Section 2(f) and thus no service tax could be demanded. They relied on the Larger Bench decision in Mahindra & Mahindra Ltd. 2005 (190) ELT 301 (T.-LB). The Tribunal did not specifically address this argument in the judgment summary provided.

Conclusion:
The appeal was partly allowed, with the Tribunal setting aside the penalty under Section 76 and granting the benefit of cum duty price for recalculating the service tax demand. The matter was remanded to the original adjudicating authority for revised calculations and consequent penalties. The Tribunal upheld the liability of sub-contractors to pay service tax and justified the invocation of the extended period of limitation due to mis-declaration by the appellant.

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