2025 (3) TMI 267 - AT - Service Tax

Liability of sub-contractor to pay service tax when the main contractor has already discharged the service tax liability on the entire contract value - Commercial or Industrial Construction Service - Retrospective applicability of the Circular - invocation of extended period of limitation - interest and penalties - HELD THAT - Even if the main contractor pays Service Tax on the full amount the sub-contractor shall be liable to pay Service Tax for the services rendered by them to the main contractor. It is found that during period under dispute Trade Notice. No.53-C.E (service Tax) /97 dated 04.07.1997 was in existence which clarified that the sub contractor is not liable to pay service tax when the main contractor discharges service tax on the entire value. Thus the appellant cannot be held responsible for non payment of service tax for the period under dispute. Retrospective applicability of the Circular - HELD THAT - The circular is oppressive in nature in-as-much-as it has taken a diagonally opposite view that has been taken in the Trade Notice. This circular has put the burden of discharging the liability of service tax to the sub- contractor. It has been held in the case of Commissioner of Central Excise Bangalore Vs. Mysore Electrical Industries Ltd. 2006 (11) TMI 202 - SUPREME COURT and also in the case of Suchitra Components Ltd Vs Commissioner of C. Ex Guntur 2007 (1) TMI 4 - SUPREME COURT that a beneficial circular has to be applied retrospectively while an oppressive circular has to be applied prospectively. Thus the said Circular cannot be applied retrospectively. Invocation of extended period of limitation - HELD THAT - The appellant have not suppressed any information from the department. The appellant has followed the clarification issued in the Trade Notice. No.53-C.E (service Tax) /97 dated 04.07.1997. They have regularly filed ST-3 returns and declared in the ST- 3 returns that they have not paid service tax as a sub-contractor as the principal contractor paid service tax. The departmental audit conducted on February 20 2008 has not issued any objection for non-payment of service tax as a sub-contractor - the extended period of limitation was not applicable due to the absence of suppression or misstatement by the appellant. Interest and penalties - HELD THAT - Since the demand of service tax is not sustained there is no question of demanding interest and imposing penalties. Conclusion - 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 as well as interest and penalties set aside. The impugned order set aside - appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered was whether a sub-contractor is liable to pay service tax when the main contractor has already discharged the service tax liability on the entire contract value. Additionally, the tribunal examined the classification of services rendered by the appellant and the applicability of the extended period of limitation for demanding service tax.

ISSUE-WISE DETAILED ANALYSIS

1. Liability of Sub-Contractor for Service Tax

Relevant Legal Framework and Precedents: The tribunal considered the legal position under Section 68 of the Finance Act, 1994, which mandates that every person providing taxable service must pay service tax. The Board's Circular No. 96/7/2007-ST dated 23.08.2007 clarified that sub-contractors are liable for service tax even if the main contractor has already paid it. The tribunal also referred to the Larger Bench decision in Commissioner of ST, New Delhi V. M/s. Melange Developers Pvt. Ltd, which confirmed the liability of sub-contractors.

Court's Interpretation and Reasoning: The tribunal noted that the sub-contractor is a taxable service provider and must discharge service tax liability irrespective of the main contractor's payment. This interpretation aligns with the statutory framework and the Larger Bench's ruling.

Key Evidence and Findings: The tribunal acknowledged the existence of conflicting tribunal decisions and the subsequent resolution by the Larger Bench, which overruled previous contrary views.

Application of Law to Facts: The tribunal applied the statutory requirement for service tax payment to the sub-contractor, affirming the legal obligation despite the main contractor's tax discharge.

Treatment of Competing Arguments: The appellant's reliance on Trade Notice No. 53-C.E (service Tax) /97 was considered, but the tribunal emphasized the subsequent Board Circular and Larger Bench decision, which clarified the sub-contractor's liability.

Conclusions: The tribunal concluded that the sub-contractor is liable to pay service tax, but due to the appellant's reliance on the earlier Trade Notice and lack of suppression, the demand was not sustained for the disputed period.

2. Classification of Services

Relevant Legal Framework and Precedents: The tribunal referred to Section 65(105)(zzzza) of the Finance Act, 1994, and the Supreme Court's decision in Commissioner of Central Excise & Customs Vs. Larsen & Toubro Ltd., which clarified the classification of services with materials under 'Works Contract Service'.

Court's Interpretation and Reasoning: The tribunal found that the services provided by the appellant, being composite in nature, were classifiable under 'Works Contract Service' post-June 01, 2007.

Key Evidence and Findings: The tribunal relied on documentary evidence showing that the appellant provided services with materials, satisfying the conditions for classification under 'Works Contract Service'.

Application of Law to Facts: The tribunal determined that no service tax was payable prior to June 01, 2007, as the services were rendered with materials. Post-June 01, 2007, the demand could only be made under 'Works Contract Service', which was not proposed by the Revenue.

Treatment of Competing Arguments: The tribunal considered the appellant's argument regarding the abatement benefit and classification, aligning with the Supreme Court's precedent.

Conclusions: The tribunal concluded that the appellant was not liable for service tax under 'Commercial or Industrial Construction Services' for the disputed period.

3. Invocation of Extended Period of Limitation

Relevant Legal Framework and Precedents: The tribunal examined the conditions under which the extended period of limitation could be invoked, focusing on the absence of wilful misstatement or suppression of facts.

Court's Interpretation and Reasoning: The tribunal found that the appellant had regularly filed returns and disclosed non-payment of service tax as a sub-contractor. The department's prior audits did not object to this practice.

Key Evidence and Findings: The tribunal noted the appellant's compliance with the earlier Trade Notice and the department's knowledge of the facts.

Application of Law to Facts: The tribunal held that the extended period of limitation was not applicable due to the absence of suppression or misstatement by the appellant.

Treatment of Competing Arguments: The tribunal considered the department's reliance on the Board Circular but emphasized the appellant's adherence to previous guidance.

Conclusions: The tribunal concluded that the invocation of the extended period of limitation was not justified.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "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."

Core Principles Established: The tribunal reinforced the principle that sub-contractors are liable for service tax irrespective of the main contractor's payment, aligning with statutory provisions and judicial precedents.

Final Determinations on Each Issue: The tribunal set aside the demand for service tax, interest, and penalties due to the appellant's reliance on earlier guidance and the absence of suppression. The appeal was allowed with consequential relief, if any, as per law.