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2024 (7) TMI 480 - AT - Service TaxLiability of the subcontractor to pay service tax - sub-contractor or not - exempton from service tax or not - Appellant submits that the Appellant is directly providing the services to SEZ units and is not a sub-contractor and hence the Appellant is entitled to the benefit of exemption - interest - penalty - extended period of limitation. HELD THAT - It is found that usually, for the services transaction takes place between two parties, i.e. Service provider and Service receiver but in the present case there are three parties to the transaction. If sub-contractor is providing services to the main contractor for completion of main contract, then service tax is not leviable on the services provided by such sub-contractor. Unequivocally, Appellant qua sub-contractor had provided services exclusively to SEZ units and also wholly consumed by the SEZ units, hence not liable to service tax. The conjoint reading of Section 26(1)(e) of SEZ Act with Rule 31 of SEZ Rules would show that the only condition required for availing exemption from payment of service tax by developer/entrepreneur/ unit is that the taxable services should be used for carrying on the authorized operations by the Developer/Entrepreneurs/Unit. The location of the service provider or the place of service is entirely irrelevant for this exemption. The issue involved in the present case is in respect of the liability of the subcontractor to pay service tax. The issue as such was highly debatable and clearly an issue involving interpretation of complex provisions of law. It is also not in dispute that the issue in respect to liability of subcontractors to pay service tax has been decided by the larger bench of tribunal in case of COMMISSIONER OF SERVICE TAX VERSUS MELANGE DEVELOPERS PVT. LTD. 2019 (6) TMI 518 - CESTAT NEW DELHI-LB . Larger Bench has in the said case observed 'A sub-contractor would be liable to pay Service Tax even if the main contractor has discharged Service Tax liability on the activity undertaken by the sub-contractor in pursuance of the contract.' Extended period of limitation - HELD THAT - An extended period of limitation could not have been invoked for making this demand. Entire demand is barred by limitation. Interest - penalty - HELD THAT - There are no merits in the impugned order confirming the demand by invoking extended period of limitation. As the demand of service tax is set aside, the demand for interest and penalty imposed is also set aside. Appeal allowed.
Issues Involved:
1. Whether the Appellant is eligible for exemption from service tax under the SEZ Act. 2. Whether the Appellant is a sub-contractor and thus not eligible for the exemption. 3. Whether the conditions prescribed in various Notifications override the exemption provided in the SEZ Act. 4. Whether the extended period of limitation is applicable for demanding service tax from the Appellant. Detailed Analysis: 1. Eligibility for Exemption from Service Tax under the SEZ Act: The Appellant argued that they provided services directly to SEZ units, thus qualifying for exemption under Section 26(1)(e) of the SEZ Act. The Appellant contended that the services were consumed within SEZ units, and all invoices were raised directly to these units. The Tribunal found that the Appellant provided services directly to SEZ units, and the services were wholly consumed by these units. Therefore, the Appellant was entitled to the exemption, as supported by Section 26(1)(e) of the SEZ Act and Rule 31 of the SEZ Rules. 2. Status as a Sub-contractor: The Department alleged that the Appellant was a sub-contractor to M/s Larsen & Toubro (L&T), and therefore, the services were not provided directly to SEZ units. The Appellant countered this by providing evidence that L&T acted merely as an intermediary, and all billings and payments were directly between the Appellant and SEZ units. The Tribunal agreed with the Appellant, finding that the services were indeed provided directly to SEZ units, and the involvement of L&T did not negate the direct provision of services to SEZ units. 3. Conditions Prescribed in Notifications vs. SEZ Act: The Appellant argued that the conditions in Notifications No. 04/2004-ST, 09/2009-ST, and 15/2009-ST could not override the exemption provided by the SEZ Act, which has an overriding effect by virtue of Section 51. The Tribunal upheld this view, stating that the SEZ Act, being a substantive law with an overriding clause, cannot be restricted by notifications or delegated legislation. The Tribunal noted that the SEZ Act was enacted after the Finance Act, and the exemption under the SEZ Act takes precedence. 4. Extended Period of Limitation: The Department invoked the extended period of limitation under Section 73(1) of the Finance Act, 1994, alleging willful suppression of facts by the Appellant. The Tribunal, however, found that the issue involved complex legal interpretations, and there was no evidence of mala fide intention or willful suppression by the Appellant. The Tribunal referred to various judgments, including the Larger Bench decision in Melange Developers Pvt Ltd, which held that in cases involving complex legal interpretations, the extended period of limitation is not applicable. Consequently, the Tribunal ruled that the demand for service tax was barred by limitation. Conclusion: The Tribunal concluded that the Appellant was eligible for exemption from service tax under the SEZ Act, the conditions in the Notifications could not override the SEZ Act, and the extended period of limitation was not applicable. The demand for service tax, interest, and penalties was set aside, and the appeal was allowed with consequential relief.
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