2024 (10) TMI 1345 - AT - Service Tax

Extended period of limitation - suppression of facts or not - liability of sub-contractor - to pay Service Tax on supply of labour services - manpower recruitment or supply agency service - revenue neutarlity - HELD THAT - The Circular No.96/7/2007-S.T. dated 23.08.2007 has been issued clarifying that sub-contractors are required to pay Service Tax even when the main contractor has paid Service Tax on the entire amount, since the sub-contractor will be eligible to take CENVAT Credit thereon. Accordingly, it is observed that after 23.08.2007, sub-contractors are liable to pay Service Tax even if the main contractor pays the Service Tax on the entire amount. There was confusion prevalent on this issue. The Board had also issued a clarification dated 14.09.1997 wherein it had been clarified that sub-contractors were not liable to pay Service Tax when the main-contractor had paid Service Tax on the entire amount as the issue involved is revenue neutral. Only after issue of the Circular dated 23.08.2007 by the Board, the doubt about the liability to Service Tax of the sub-contractor has been clarified. However, may service providers continue to adopt the old practice of non-payment of service tax treating the issue as revenue neutral. In the present case, it is observed that the Appellant had entered into the agreement in the year 2004 and the main contractor had been paying Service Tax. The Appellant has not paid service tax on the amount received by them as a sub-contractor and no objection was raised at any point of time - the suppression of facts with intention to evade the tax has not been established in this case. For the same reason, the penalty under Section 78 of the Finance Act, 1994 is not imposable on the Appellant. The demand of Service Tax by invoking the extended period of limitation is not sustainable. Accordingly, the impugned order is set aside and the matter remanded back to the adjudicating authority for the purpose of calculating the Service Tax liability for the normal period of limitation, if any. The Appellant is liable to pay service tax along with interest for the normal period of limitation. The demand raised by invoking the extended period of limitation is not sustainable. The demand of service tax, if any, along with interest is upheld for the normal period of limitation - matter is remanded back to the adjudicating authority for calculating the Service Tax liability for the normal period of limitation, if any - appeal allowed by way of remand.

Summary

Issues:
1. Liability of the Appellant to pay Service Tax on supply of labour services.
2. Contention regarding the demand on grounds of limitation.
3. Interpretation of Circulars regarding Service Tax liability of sub-contractors.
4. Allegation of suppression of facts by the Appellant.
5. Imposition of penalty under Section 78 of the Finance Act, 1994.

Analysis:

The Appellate Tribunal CESTAT Kolkata addressed the issue of the Appellant's liability to pay Service Tax on the supply of labour services to M/s. Prism Logistics Pvt. Ltd. The Appellant had entered into an agreement for providing labour services falling under the taxable category of 'manpower recruitment or supply agency service' as per Section 65(105)(k) of the Finance Act, 1994. The Tribunal acknowledged that the Appellant did not dispute the Service Tax liability but contested the demand based on the limitation clause, arguing they had not concealed any information from the Department.

Regarding the interpretation of Circulars, the Tribunal noted Circular No. 96/7/2007-S.T. clarified that sub-contractors must pay Service Tax even if the main contractor has already paid it, allowing sub-contractors to claim CENVAT Credit. The Tribunal highlighted the confusion surrounding this issue, as a previous clarification dated 14.09.1997 had suggested sub-contractors were not liable for Service Tax in revenue-neutral cases. The Tribunal emphasized that after August 23, 2007, sub-contractors were obligated to pay Service Tax regardless of the main contractor's payment.

The Tribunal found no evidence of intentional suppression of facts by the Appellant to evade tax. It noted that the Show Cause Notice was based on TDS certificates and that no objections were raised during scrutiny of documents. Consequently, the Tribunal concluded that the demand for Service Tax under the extended period of limitation was unsustainable and set aside the impugned order. The matter was remanded for calculating the Service Tax liability within the normal limitation period, with no penalty imposed on the Appellant.

In conclusion, the Tribunal disposed of the appeal by upholding the demand for Service Tax within the normal limitation period, remanding the matter for calculation, and determining that no penalty was applicable to the Appellant. The judgment was pronounced on October 24, 2024.