Service Tax Liability Confirmed on Sub-Contractor Due to Independent Taxability of Services

Manoj Kumar Gupta Vs Commissioner (CESTAT Allahabad)

The appeal before the Tribunal arose from an Order-in-Appeal upholding a demand of ₹1,95,356 towards Service Tax for the financial year 2015–16, along with interest and penalties under Sections 77 and 78 of the Finance Act, 1994.

The appellant was registered for providing “Business Auxiliary Services.” Based on information received from the Income Tax Department, it was observed that the appellant had declared receipts of ₹13,47,285 in the Income Tax Return (ITR) but had neither paid Service Tax nor filed ST-3 returns for the relevant period. In the absence of ST-3 returns, the department treated the entire amount disclosed in the ITR as taxable and calculated Service Tax accordingly.

Despite being issued notices seeking clarification and supporting documents such as ITR, Form 26AS, agreements, and financial statements, the appellant initially failed to respond. A Show Cause Notice was issued alleging suppression of facts with intent to evade tax.

In response, the appellant later contended that:

• Services were provided as a sub-distributor of mutual funds and were exempt under Notification No. 30/2012-ST (as amended), with tax payable under reverse charge by the recipient.
• Certain services rendered to banks were in the nature of wages and not taxable.
• Non-payment of Service Tax was due to a bona fide belief based on advice from a Chartered Accountant.
• The demand was time-barred.

The authorities rejected these submissions on multiple grounds. It was observed that the appellant failed to produce adequate documentary evidence such as agreements, account statements, or records to substantiate the claim of exemption or reverse charge applicability. Mere assertions without supporting evidence were held insufficient to establish eligibility for exemption.

On merits, it was held that the appellant acted as a sub-distributor and not as a distributor of mutual funds. The benefit of reverse charge under the relevant notification applied only to distributors providing services to mutual funds, not to sub-distributors providing services to distributors. Accordingly, the appellant was liable to pay Service Tax.

The Tribunal further relied on settled legal principles that a sub-contractor or sub-service provider is independently liable to pay Service Tax on taxable services rendered, irrespective of whether the main contractor or recipient discharges tax liability. The availability of Cenvat credit ensures that such taxation does not result in impermissible double taxation.

With respect to services rendered to banks, the Tribunal found that no employment relationship or supporting documentation was produced to establish that the income constituted wages or salary. The amounts received were therefore treated as consideration for services and included in taxable value.

On limitation, the plea of bona fide belief was rejected. The Tribunal held that such belief must be supported by evidence and cannot be based on mere assertions. The fact that the appellant obtained registration only in the subsequent year and relied on advice obtained years later did not establish a bona fide belief for the relevant period. Suppression of taxable income and non-filing of returns justified invocation of the extended period of limitation.

Consequently, the demand of Service Tax, interest, and penalties under Sections 77 and 78 were upheld. The appeal was dismissed.

FULL TEXT OF THE CESTAT ALLAHABAD ORDER

This appeal is directed against the Order-in-Appeal No. 187-ST-APPL-ALLD-2025, dated -13.10.2025 passed by Commissioner (Appeals), CGST & Central Excise, Allahabad. By the impugned order Commissioner (Appeals) has upheld the Order-In-Original No.76/ST/DC/DIV-II/2023-24 dated 29.08.2023 holding as follows:-

ORDER

(i) I confirm the demand of Service Tax amounting to Rs.1,95,356/- (Rupees One Lakh Ninety-Five Thousand Three Hundred Fifty SixOnly) for the financial year 2015-16 under proviso to Section 73(1) of the Finance Act, 1994 read with sec. 174 of CGST Act, 2017.

ii. I confirm the due interest on the amount of Service Tax mentioned at (i) above should not be demanded and recovered from them under Section 75 of the

iii. Finance Act, 1994 read with sec. 174 of CGST Act, 2017. (iii) I impose penalty Rs.1,95,356/- (Rupees One Lakh Ninety-Five Thousand Three Hundred Fifty Six Only) upon them under Section 78 of the Finance Act 1994 read with sec. 174 of CGST Act, 2017 for failure to pay service tax & suppressing the facts and value of taxable service with intent to evade payment of service tax.

iv. I impose penalty of Rs. 10,000/- upon them under Section 77(1)(c) of the Finance Act, 1994 for not furnishing documents/ information called by a Central Excise Officer in accordance with the provisions of the Finance Act, 1994 or rules made thereunder read with sec. 174 of CGST Act, 2017.

v. I impose penalty 10,000/- upon them under Section 77(2) of the Finance Act, 1994 for not filing of ST-3 return for the financial year 2015-16 read with sec.174 of CGST Act, 2017.

2.1 The Appellant was holding Service Tax Registration No.AHVPG2258ESD001 for providing taxable services (Business Auxiliary Service) as defined by Section 65B(44) read along with Section 66B of the Finance Act, 1994.

2.2 Information was received from the Income Tax Department that for the PAN No. AHVPG2258E a gross amount of Rs.13,47,285/- was received towards sale of service as per Income Tax Return. It was observed that against the receipt of above amount, Appellant as not paid any Service Tax during the period 2015-16 and also had not filed any ST-3 Return. As no ST-3 Return was available, specific service against which this amount was received could not be ascertained.

2.3 Vide Letter dated 23.09.2020 appellant was asked to furnish the explanation/clarification regarding non-payment of Service Tax on the differential amount shown in ITR and the gross amount shown in their ST-3 Return. Appellant was also asked to provide copy of ITR, Form 26AS, Balance-sheet, work contracts, agreements and ST-3 Return for the said period The Appellant failed to respond.

2.4 Taking the entire amount reflected in ITR Return towards provisioning of service, the Service Tax short paid has been determined as in Table below:-

2.5 Alleging suppression with an intent to evade payment of tax a Show Cause Notice dated 29.12.2020 was issued to the Appellant asking them to show cause as to why:-

i. The Service Tax amounting to Rs.1,95,356/- (Rupees One Lakh Ninety-Five Thousand Three Hundred Fifty Six Only) including various applicable Cess for the financial year 2015-16 should not be demanded and recovered from them under proviso to Section 73(1) of the Finance Act, 1994 read with sec.174 of CGST Act, 2017.

ii.The due interest on the amount of Service Tax mentioned at (i) above should not be demanded and recovered from them under Section 75 of the Finance Act, 1994 read with sec. 174 of CGST Act, 2017.

iii. Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994 read with sec.174 of CGST Act, 2017 for failure to pay service tax & suppressing the facts and value of taxable service with intent to evade payment of service tax.

iv. Penalty should not be imposed upon them under Section 77(1)(c) of the Finance Act, 1994 for not furnishing documents/ information called by a Central Excise Officer in accordance with the provisions of the Finance Act, 1994 or rules made thereunder read with sec. 174 of CGST Act, 2017.

v. Penalty should not be imposed upon them under Section 77(2) of the Finance Act, 1994 for not filing of ST-3 return for the financial year 2015-16 read with sec.174 of CGST Act, 2017.

2.6 The Appellant responded with reply dated 27.01.2021 & 24.03.2022. However, nobody appeared for personal hearing fixed on 07.12.2021, 08.02.2021, 21.03.2021, 25.07.2022 and 02.02.2023.

2.7 Show Cause Notice has been adjudicated as per Order-In-Original referred in Para 1 above. Aggrieved Appellant filed appeal before Commissioner (Appeals) which has been dismissed as per the impugned order.

2.8 Hence this appeal.

3.1 I have heard Shri Abhinav Mishra, Advocate for the Appellant and Shri Santosh Kumar, Authorized Representative for the Revenue.

3.2 Arguing for the Appellant, learned Counsel submits that,-

• they have provided services as sub-distributor of distributor of mutual funds.
• They were exempt from payment of Service Tax in respect of these services by Notification No.30/2012-ST dated 20.06.2012 as amended by Notification No.07/2015-ST dated 01.03.2015. The Service Tax was to be paid by the recipient of service under reverse charge mechanism.
• They were at the relevant time informed by the Chartered Accountant that no Service Tax is required to be paid by them.
• They also provided certain services to UCO Bank and Brahmavart Commercial Cooperative Bank against which as agent for recovery for account opening. The amount received by them were referred to as wage and hence could not have been subjected to Service Tax.
• As they entertained a bona fide belief to the effect that no Service Tax was payable by them they did not took registration and paid the Service Tax during the period from 2015-16 demanded is barred by limitation.

3.3 Learned Authorized Representative for the Revenue reiterates the findings recorded in the impugned Order-In-Appeal.

4.1 I have considered the impugned order along with the submissions made in the appeal and during the course of argument.

4.2 The impugned order records as under:-

5.8 Now coming to the merit of the case, I see that the Adjudicating Authority has observed that the appellant could not produce adequate documentary evidence which could establish that they have provided services which is exempted from the purview of service tax. On the other hand, the appellant has submitted that they have provided services to the NJ India Invest Pvt Ltd., UCO Bank and Brahmavart Commercial Cooperative Bank to the tune of Rs. 1033624.54, 134738/- and 139959/- respectively in lieu of Mutual Fund Commission, Employment and as Recovery Agent Fees against which there is no service tax on the appellant, as the same shifted 100% on the service recipient.

5.9 After going through the records, observations made by the Adjudicating Authority and the defence taken by the appellant, I find that there is no dispute regarding the taxability on the services provided by the appellant. The appellant has themselves conceded to this fact, however he maintains that they are not liability to pay service tax due to the effect of reverse charge. In support the appellant have submitted the copy of registered deed of land and an affidavit. I find the above documents irrelevant and insufficient in order to evaluate the applicability of service tax on the services rendered by the appellant.

5.10 I find that the documents provided by the appellant are not adequate to extend any relief sought by them. The appellant has placed reliance only on the registered land deed and an affidavit. In this regard the relevant documents could have been the account statement, copy of agreement/ registration etc which could have established the fact that the appellant had derived income from NJ India Invest Pvt Ltd., UCO Bank and Brahmavart Commercial Cooperative Bank to the tune of Rs. 1033624.54, 134738/-and 139959/-respectively in lieu of Mutual Fund Commission, Employment and as Recovery Agent Fees. I do find the same to be sufficient and adequate to exempt the services provided by the appellant.

5.6 I further note that it is undisputed that the appellant had provided taxable services for which they were liable to pay service tax on the taxable value. The appellant has sought relief by relying on the Notification No. 30/2012-ST dated 20.06.2012, as amended from time to time, however, I am of the view that no relief can be extended in the absence of adequate documentary evidences. The case of U G Sugar &Industries Ltd. v/s CCE, Meerut [2011 (266) ELT 339 Tri – Del] is relatable to the current case where the Hon’ble CESTAT held that ‘once the defence was raised by the appellants it was essential for the appellants to lead necessary evidence in that record. Mere raising of plea in answer to the show cause notice does not itself mean the proof of correctness of such plea. When the plea relates to certain factual aspect, it is absolutely necessary for the person raising such plea to make the same good by producing sufficient evidence in support of such plea. Undisputedly the appellants did not produce any such evidence in support of such plea.

5.7 Thus, I conclude that the service tax was quantified by the Adjudicating Authority as per records and evidences available in the case file. Since the exemptions from service tax (e.g., under notifications issued by the Central Government or specific provisions) are conditional and require strict compliance with the stipulated conditions, the onus lies on the assessee to prove eligibility for the exemption through clear, cogent, and admissible documentary evidences. This is in line with general principles of taxation law, where exemptions are construed strictly, and the burden of proof lies with the claimant.

4.3 The Order-In-Original dated 29.08.2023 records as follows:-

14. Briefly stated, instant Show Cause Notice has been issued to the party on the basis of third-party data (ITR data and STR data), containing the details, that during the financial year 2015-16 the party has declared an amount of Rs. 13,47,285/- in their ITR on account of “Sales of Services” but Service Tax return not filed during this period. In response to letters issued by the Superintendent, CGST & Central Excise, Range-X, Division-II, Kanpur the party did not submit any explanation/reply regarding differential income of Rs. 13,47,285/-. Hence on the basis of third party data Show Cause Notice involving service tax of Rs 1,95,356/- along with interest and penalty has been issued to them.

The noticee in their defense reply has stated that in FY 2015-16, Total amount of Income received against Sale of Services as shown in the Income Tax Return of that particular period is tabulated below:

From the above reply of the noticee, I observe that the notice has submitted details of income during the financial year 2015-16 is Rs.14,08,321.54/= whereas the data received from the income tax department, the total income as per ITR is Rs.13,47,285/-.Hence, the total value of Services provided by the notice does not match with data provided by the party. I am of the view that the value shown in ITR of Rs.13,47,285/- is taxable during the financial year 2015-16. No documents/evidence has been provided by the noticee which proves that the amount/income received against the particulars as they claimed. Hence, it is not possible to ascertain and correlate the amount received in F.Y. 2015-16 are of the same nature and period as they claimed.

17. The noticee has not submitted any documents/evidence for the previous financial year 2014-15 to ascertain their aggregate taxable value that does not exceed Rs.10 Lakh for availing the exemption under Notf.no.33/2012-Service Tax dated 20.06.2012. Hence, I am of the opinion that the noticee is liable to pay service tax for the financial year 2015-16.

18. I find that in this case, the party has suppressed the taxable income of Rs. 13,47,285/-received by them during 2015-16, from the department with intent to evade payment of service tax, in as much as they neither declared this income in the service tax return nor paid any service tax on this amount. Hence, Service Tax of Rs. 1,95,356/- is demandable/recoverable from them, under proviso to Section 73(1) of the Finance Act, 1994, alongwith interest under Section 75 of the Finance Act 1994.

19. So far as penalties proposed in the Show Cause Notice is concerned, I find that in this case Service Tax of Rs. 1,95,356/- has not been paid by the party by way of suppressing the taxable income of Rs. 13,47,285/- hence, they are liable for penalty under Section 78 of the Finance Act 1994. Further, during the course of enquiry, the party did not furnish the documents/information called by the Superintendent, CGST & Central Excise, Range-XI, Division-II, Kanpur, rendering themselves liable for penalty under Section 77(1)(c) of the Finance Act, 1994.

4.4 I find that the Appellant is not a distributor of mutual fund but is sub-distributor of the distributor of mutual funds. It is a settled principal in law that liability to pay the tax is to be determined on the basis of the status of the personal providing the services. Similarly admissibility of exemption needs to be determined accordingly. Notification No.30/2012-ST dated 20.06.2012 as amended by Notification No.07/2015-ST dated 01.03.2015 shifts the liability of Service Tax required to be paid by the distributor on reverse charge basis to the mutual fund and not the liability of the sub-distributor of the distributor. It is a fact that the Appellant was not providing any services to the mutual fund but was providing ‘Business Auxiliary Service’ to the distributor of the mutual fund and Service Tax on these services was required to be paid by the sub-distributor.

4.5 The Counsel for the Appellant has referred to the decision of Kotak Mutual fund which is not appliable to the facts of the present case as the issue for consideration in that case was with regards to the liability of the distributor post amendment made by Notification No.7/2015. The Principal Bench of the Tribunal have already decided this issue. In the case of Om Sai Fabricators [(2023) 6 Centax 208 (Tri.-Bom)] the Bombay Bench of the Tribunal has held as follows:-

“4.3 On merits we find that issue has been decided by larger bench of tribunal in the case of Melange Developers Private Limited [2020 (33) G.S.T.L. 116 (Tri. – LB) wherein larger bench has held as follows:

“12. It is true that prior to 2007, various Service Tax, Trade Notices/ Instructions/ Circulars/ Communications had been issued exempting certain category of persons from payment of Service Tax. A sub-contracting Customs House Agent was exempted from payment of Service Tax on the bills raised on the main Customs House Agent. When an architect or interior decorator sub-contracted part/whole of its work to another architect or interior decorator, then no Service Tax was required to be paid by the sub­contractor, provided the principal architect or interior decorator had paid the Service Tax. However, all these Trade Notices/Instructions/Circulars/ Communications were superseded by the Master Circular dated 23 August, 2007 issued by the Government of India, Ministry of Finance. The Circular noticed that when Service Tax was introduced in the year 1994 there were only three taxable services, but later 100 services had been specified as taxable services and that since the introduction of Service Tax, number of clarifications had been issued, but it had become necessary to take a comprehensive review of all the clarifications keeping in view the changes that had been made in the statutory provisions, judicial pronouncements and other relevant factors. The relevant portion of the Master Circular, insofar as it relates to sub­contractors, is reproduced below :

13. The Master Circular clarifies that the services provided by sub-contractors are in the nature of input services and since a sub-contractor is a essentially taxable service provider, Service Tax would be leviable on the taxable services provided. It has also been clarified that even if a taxable service is intended for use as an input service by another service provider, it would still continue to be a taxable service.

14. It can be used that if a main contractor has paid Service Tax on the entire amount of the main contract out of which a portion has been given to a sub-contractor, then if a subcontractor is required to pay Service Tax, it may amount to ‘Double Taxation’, but this issue has to be examined in the light of the credit mechanism earlier introduced through Service Tax Credit Rules, 2002 granting benefit of tax paid on input services if the input services and the output services fell under the same taxable services and the subsequent amendment made on 14 May, 2003 granting benefit of tax paid on input services even if the input service and the output service belonged to different taxable categories. The aforesaid Service Tax Credit Rules were later superseded on 10 September, 2004 by Cenvat Credit Rules, 2004. Rule 3 of these Rules provides that a manufacturer or producer of final product or a provider of output service shall be allowed to take credit (known as ‘Cenvat Credit’) of various duties under the Excise Act, including the Service Tax leviable under sections 66, 66A and 66B of the Act. Rule 3(4) further provides that Cenvat credit may be utilized for payment of Service Tax on any output service. It is for this reason that the Master Circular dated 23 August, 2007 was issued superseding all the earlier Circulars, Clarifications and Communications.

15. It is not in dispute that a sub-contractor renders a taxable service to a main contractor. Section 68 of the Act provides that every person, which would include a sub-contractor, providing taxable service to any person shall pay Service Tax at the rate specified. Therefore, in the absence of any exemption granted, a sub-contractor has to discharge the tax liability. The service recipient i.e. the main contractor can, however, avail the benefit of the provisions of the Cenvat Rules. When such a mechanism has been provided under the Act and the Rules framed thereunder, there is no reason as to why a sub-contractor should not pay Service Tax merely because the main contractor has discharged the tax liability. As noticed above, there can be no possibility of double taxation because the Cenvat Rules allow a provider of output service to take credit of the Service Tax paid at the preceding stage.

16. It is in this light that the main contention of Learned Counsel for the Respondent that if a sub­contractor is required to pay Service Tax when the main contractor has actually discharged Service Tax liability, it would amount to ‘Double Taxation’, has to be examined. For this contention, reliance has been placed by the Learned Counsel for the Respondent on the following decisions of this Tribunal :

i. Urvi Construction v. Commissioner of Service Tax, Ahmedabad, reported in 2010 (17) S.T.R. 302 (Tri. – Ahmd.);

ii. BCC Developers and Promoters Pvt. Ltd. v. Commissioner of Central Excise, Jaipur, reported in 2017 (52) S.T.R. 22 (Tri. -Del.);

iii. M/s. Dhaneshra Engineering Works v. Commissioner of Central Excise, Allahabad, reported in 2018 (2) TMI 788 -CESTAT – Allahabad;

iv. Power Mech Projects Ltd. v. Commissioner of Customs, Guntur, reported in 2017 (48) S.T.R. 165 (Tri.- Hyd.); and

(v) M/s. Edac Engg. Ltd. v. CST, Chennai, reported in 2017 (6) TMI 685 CESTAT Chennai.

18. In Urvi Construction a Learned Member of the Tribunal observed :

“2. . Further the learned advocate also submits that in the Master Circular issued by the Board vide Circular No. 96/7/2007-S.T., dated 23-8­2007, a stand has been taken that there is no exemption to a sub-contractor from payment of service tax merely because the contractor pays the tax. However, he submits that for the period circular issued late by the Board in 1997 was applicable and according to this Circular where the services have been provided by the sub-contractors such sub-contractors are not liable to pay service tax and service tax liability is on the main contractor. Taking note of the fact of the contention that main contractor has paid the service tax and charging service tax on the sub-contractor again would amount to taxing the same service twice and also taking note of the circular cited by the learned advocate and the decisions of the Tribunal cited, I find that if the appellant is required to pay the service tax it would amount to taxing the same service twice and the circular and the Tribunal’s decision are squarely applicable to the facts of this case and accordingly appeal is allowed with consequential relief to the appellant.”

18. In BCC Developers and Promoters Pvt. Ltd. it was observed :

“6.1 We agree with the submission of the Ld. Counsel that no double taxation is permissible under the law. The Constitution (Article 265) provides to take the exact amount of tax i.e. neither more nor less. In the instant case, if the principal has already paid the Service Tax, then the same cannot be demanded from the appellant. As per the clarification of the Board’s Circular dated 23-8-2007 as well as dated 7­10-1998, if the principal had not paid the Service Tax then the same can be charged. If the Service Tax has already been paid by the principal, then the same cannot be demanded again.”

19. M/s. Dhaneshra Engineering Works followed the aforesaid decision in BCC Developers and Promoters Pvt. Ltd.

20. In M/s. Edac Engg. Ltd., the Division Bench, after placing reliance upon the decision of the Tribunal in Urvi Construction, observed :

“6.2 We are therefore of the considered opinion that these case laws are distinguishable from the decision taken by this very Bench in the case of the present appellants Edac Engineering Ltd. in Final order dated 19-12-2016. We also find that the very same Board’s Circular No. 97/8/2007-S.T., dated 23-8-2007, relied upon by the Ld. AR has been taken note of by the Tribunal in Urvi Construction (supra). This being so, we have no hesitation in ruling that when Service Tax has been paid by the main contractor, charging the subcontractor again will amount to taxing the same service twice. In the circumstances, the issue at hand also requires to be remanded to the adjudicating authority to verify whether the service rendered by the appellant has suffered tax in the hands of the principal contracts. If that aspect is able to be proved by the appellants, no tax liability will accrue to them. Towards this end, the adjudicating authority will give suitable opportunity to the appellants to present their case. Appellants are also produce all evidence and documents to establish their claim that the tax liability required to be discharged by them has already been paid up by the main contractor. If that is provided, their will obviously be no demand for interest unless such demands have been made belatedly. Once this aspect is also able to be proved by the appellant, imposition of penalty will also not arise.”

21. The aforesaid decisions do not take into consideration the impact of the Cenvat Rules. It would, therefore, not be correct to conclude that double taxation would result if a sub-contractor is required to discharge the Service Tax liability even if the main contractor has discharged the tax liability.

22. The decisions of the Tribunal holding that double taxation will not result if a sub-contractor discharges the tax liability because of the Cenvat Rules, now need to be referred to.

23. In Max Tech Oil & Gas Services Pvt. Ltd. v. Commissioner of Service Tax, Delhi, reported in 2017 (52) S.T.R. 508 (Tri. – Del.), the Division Bench has held :

“6. Regarding the contention of the appellant that they have acted only as a sub-contractor and demanding service tax from them will amount to double taxation as the main contractor also is rendering similar service to ONGC, we find no legal basis for the contention of the appellant. The service tax leviable at the hands of each service provider is decided by nature of activities undertaken by them. If the same is covered by scope of the taxable entry under Finance Act, 1994 tax liability arises. The said service becomes part of final service rendered by main contractor is of no consequence to determine the tax liability of each and every service provider. If at all, the service tax paid by a sub-contractor which becomes part of service further provided by the main contractor, the scheme of credit as envisaged by the Cenvat Credit Rules, 2004 will come into play subject to fulfilment of conditions therein. It is nobody’s case that the sub contractors per se are not liable to service tax even if they rendered taxable service ” [Emphasis Supplied]

24. The same view was taken by the Division Bench of the Tribunal in CCE & S.T., Raipur v. M/s. J.K. Transport, reported in 2017 (9) TMI 993 – CESTAT New Delhi. The relevant paragraph is reproduced below :

“5. We find that the CBEC vide Circular dated 23-8-2007 has clarified that the services provided by the sub-contractor is a taxable service, even if the same is used for completion of the work by the main service provider. Thus, for providing the taxable service, the sub-contractor is liable for payment of service tax on provision of such service…….. “

25. Similar views were taken by the Tribunal in (i) Max Logistics Ltd. v. Commissioner of Central Excise, Raipur, reported in 2017 (47) S.T.R. 41 (Tri. – Del.); (ii) Hargovind Electric Decorators v. Commissioner of Central Excise, Jaipur-I, reported in 2016 (43) S.T.R. 619 (Tri. – Del.); and (iii) Sew Construction Ltd. v. Commissioner of Central Excise, Raipur, reported in 2011 (22) S.T.R. 666 (Tri. – Del.).

26. At this stage, it would also be useful to refer to a Larger Bench decision of the Tribunal in Vijay Sharma & Company v. CCE, Chandigarh, reported in 2010 (20) S.T.R. 309 (Tri. – LB). The issue that arose before the Larger Bench was as to whether service provided by a sub-broker are covered under the ambit of Service Tax and taxable or not. After noticing that a subcontractor is liable to pay Service Tax, the Larger Bench examined as to whether this would result in double taxation if the main contractor has also paid Service Tax and observed that if service tax is paid by a sub-broker in respect of same taxable service provided by the stock broker, the stock broker is entitled to the credit of the tax so paid in view of the provisions of the Cenvat Credit Rules. The relevant paragraph 9 is reproduced below :

“9. It is true that there is no provision under Finance Act, 1994 for double taxation. The scheme of service tax law suggest that it is a single point tax law without being a multiple taxation legislation. In absence of any statutory provision to the contrary, providing of service being event of levy, self same service provided shall not be doubly taxable. If Service tax is paid by a sub-broker in respect of same taxable service provided by the stock­broker, the stock broker is entitled to the credit of the tax so paid on such service if entire chain of identity of sub-broker and stock broker is established and transactions are provided to be one and the same. In other words, if the main stock broker is subjected to levy of service tax on the self same taxable service provided by sub-broker to the stock broker and the sub-broker has paid service tax on such service, the stock broker shall be entitled to the credit of service tax. Such a proposition finds support from the basic rule of Cenvat credit and service of a sub-broker may be input service provided for a stock-broker if there is integrity between the services. Therefore, tax paid by a sub-broker may not be denied to be set off against ultimate service tax liability of the stock broker if the stock broker is made liable to service tax for the self same transaction. Such set off depends on the facts and circumstances of each case and subject to verification of evidence as well as rules made under the law w.e.f. 10-9-2004. No set off is permissible prior to this date when sub-broker was not within the fold of law during that period.”

27. The Commissioner did express in the impugned order that under the Cenvat Scheme every stage of provision of service is required to be taxed and if a sub-contractor discharges the Service Tax liability, it will not result in double taxable even if the main contractor discharges the Service Tax liability because the credit of the earlier tax paid is available at a subsequent stage, but it is because of the decision of the Tribunal in Urvi Construction, that the Commissioner held that double taxation would result if a sub-contractor is also required to discharge Service Tax liability when the main contractor has discharged the entire liability.

28. Learned Counsel for the Respondent has, however, relied upon the decision of the Supreme Court in Larsen and Toubro Ltd. v. Additional Deputy Commissioner of Commercial Taxes and Anr., reported in 2016-TIOL-155-SC-VAT. In this case, the contracts which were secured by the Appellant therein were works contract and a part thereof was assigned to the subcontractor who had submitted returns and paid taxes for the execution of the works contract. During the course of the assessment, the Appellant submitted that the sub-contractors had already been taxed and, therefore, the Appellant cannot be taxed again under section 6B of the Karnataka Sales Tax Act. The submission, therefore, was that the value of the work entrusted to the sub­contractors could not be taken into account while computing the total turnover of the Appellant for the purpose of taxation under the Karnataka Sales Tax Act. It is in view of the provisions of the Karnataka Sales Tax Act that the Supreme Court observed that the value of the work entrusted to the sub­contractors or payments made to them shall not be taken into consideration while computing total turnover for the purposes of Section 6B of the Karnataka Sales Tax Act. This decision of the Supreme Court will not come to the aid of the Respondent in this case in view of the specific provisions of Section 66 and 68 of the Act as also the Cenvat Rules discussed in the foregoing paragraphs of this order. It also needs to be noted that there is no provision for input tax credit on deemed sales in levy of VAT.

29. The submission of the Learned Counsel for the Respondent regarding ‘revenue neutrality’ cannot also be accepted in view of the specific provisions of Section 66 and 68 of the Act. A subcontractor has to discharge the Service Tax liability when he renders taxable service. The contractor can, as noticed above, take credit in the manner provided for in the Cenvat Credit Rules of 2004.

30. Thus, for all the reasons stated above, it is not possible to accept the contention of the Learned Counsel for the Respondent that a sub-contractor is not required to discharge Service Tax liability if the main contractor has discharged liability on the work assigned to the sub-contractor. All decisions, including those referred to in this order, taking a contrary view stand overruled.

31. The reference is, accordingly, answered in the following terms :

“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.”

4.4 Appellant do not challenge the above position and agree that the issue is squarely covered by the decision of larger bench of tribunal. However they challenge the demand on the ground of limitation and have also claimed that abatement as per the Notification No. 15/2004-ST dated 10-9-2004.”

4.6 With regards to the services provided to UCO Bank the Appellant have on the basis of certain circular issued have shown that certain wages provided in respect of the services provided by them. Wages are not identical to salary and do not determine the employment status. No employment contract providing for the provision of salary to the Appellant has been produced by what so ever name. The consideration provided for provision of service the same became part of the gross value of the services provided. Same is with regards to the services provided to Brahmavart Commercial Cooperative Bank. I do not find any merits in the submissions made in this regard.

4.7 The Appellants have also argued on ground of limitation stating that they were under a bona fide belief. However, nothing has been produced that they entertained any such belief. It has been constantly held that bona fide belief cannot be equated with the belief of a doubting Thomas cannot be said to be bona fide belief. Interestingly it is the submission of the Counsel that they themselves took registration for the year 2016. This opinion has not been given to the appellant in person. It is also noticed that the service recepient had sought the view of the Chartered Accountant with respect to the Service Tax liability in respect of the service received in the year 2019. I find no reason to place reliance on such an opinion given which is four years later to the service recipient to conclude that the Appellant entertained a bona fidebelief in 2015-16 on the basis of the advice rendered in 2019.

4.8 Thus I do not find any merits in the said submission of the Appellant. It is a fact that the Appellant for the first time took registration during the Financial Year 2016-17 and during the period from 2015-16 they were not registered nor were paying any Service Tax. It is not been placed on record as to what enlightened them to take registration in the year 2016-17 and not before that in respect of the service being provided by them which have been upheld to be taxable. On the issue of limitation and penalties imposed Bombay bench has in case of Om Sai Fabricators, referred earlier observed as follows:

“4.8 To argue on the limitation appellant have pressed the ground of bonafide belief and for that reason they rely upon the certificate issued to them by M/s Gammon. They also submit that there were conflicting views in the matter. However on query from the bench the counsel for appellant was unable to point out to a single decision available during the relevant period giving a contrary view. Further the submission to the effect that there were conflicting circulars is also not borne out by any evidence. Larger bench has in case of Melange Developer Pvt Ltd. clearly in para 12 noted that all Trade Notices/Instructions/Circulars/Communications were superseded by the Master Circular dated 23 August, 2007, and this circular had clarified the liability of sub contractor to pay the service tax. It is settled law that bona fide belief is not the blind belief and needs to be established. Hon’ble Bombay High Court has in case of Responsive Industries Ltd. [2019 (26) G.S.T.L. 457 (Bom.)] held as follows:

“9. The contention that there was a bona fide belief that the Appellant are not liable to pay the service tax on outward transportation of goods and the GTA is not supported by any reasonable explanation. The bona fide belief that one is not liable to pay the tax has to be based on some facts on record which led to the belief. It is not the Appellant’s case that the belief based on a ruling of the some authority that it not liable to pay service tax on outward transportation. A mere statement to the effect that the Appellant was under a bona fide belief of non liability of paying tax cannot be accepted in the face of clear provision of law. Thus, it is not possible to accept the contention that the Appellant had bona fide belief of for non-payment of tax, so as to invoke Section 80 of the Act.”

4.9 A statement of Shri Sukhdeo Vasudeo Yadav (proprietor of appellant} was recorded on 10-11-2008 wherein he stated that he has paid the service tax but has not filed any service tax return so far and submitted copies of taxable invoices, bank pass book and bank statement for 2006-07; that as a sub-contractor, he has provided commercial & industrial construction service to Gammon India Ltd, Mumbai, Japsin Jacob Wire Drawing P Ltd, New Delhi and Man Infra Project Ltd, Mumbai but has not paid any service tax till 31-3-2008 being a sub-contractor; that from 1-4-2008, he started charging service tax on the service provided as sub-contract and that the same would be credited to the service tax department; that he does not have any agreement with these 3 firms but has letter of indent from Gammon India Ltd.

4.10 Shri Sukhdeo Vasudeo Yadav, in his statement dated 21-11-2008 deposed that he paid service tax for the year 2006-07 but did not pay service tax for 2007-08 and 2008-09(up to October 2008); that in 2006-07, he discharged service tax on the invoices where contract was direct but where contract was on sub-contract basis, he did not discharge service tax; that he was not aware that a sub contractor is liable to pay service tax; that he collected Rs. 1,44,904.00 @12.24% for the period 2007 08 and Rs. 14,49,484.00 @12.36% for the period 2008-09 (till Oct 2008); that he would pay the service tax amount by December 2008 after rechecking his liability and agreed to submit VAT returns and balance sheet on 5-12-2008.

4.11 On verification of sample work order bearing number 8450/112 dated 07/04/2007, issued by M/s Gammon India Limited in favor of the appellant, it is observed that as per Clause/ Condition No. 23 of the said contract, “Sub-Contractor has agreed that the service tax is included in his offer and so no claim whatsoever shall not be entertained in this regard & Gammon shall not be liable to pay the same.” This condition clearly indicates that contract itself placed service tax liability on the appellant. In contradiction to specific provision of the contract, the submission of the appellant on the basis of the certificate issued by the M/s Gammon India only need to be negated. This condition in contract itself shows that appellant was aware of his liability to pay service tax.

4.12 The Appellant concealed the correct taxable amount with the service tax department, until the Departmental officers initiated an inquiry in this regard. These facts were suppressed with intent to evade the payment of service tax due on various taxable services provided by them thereby facilitating the evasion of service tax payable on the said services so rendered by them. Thus it the extended period, as provided for under the proviso to sub­section (1) of section 73 ibid for recovery of such service tax not paid and/or short paid by Appellant has been correctly invoked by the revenue authorities.

4.13 For the facts as stated above when we hold that the ingredients for invocation of the extended period of limitation were present, we are bound to uphold the penalties imposed on the appellant under section 78 of Finance Act, 1994 in view of the decision of Hon’ble Apex Court in case of Rajasthan Spinning Mills [2009 (238) E.L.T. 3 (S.C.)] wherein following has been held:

“20. At this stage, we need to examine the recent decision of this Court in Dharamendra Textile (supra). In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it laid down that in every case of non-payment or short payment of duty the penalty clause would automatically get attracted and the authority had no discretion in the matter. One of us (Aftab Alam, J.) was a party to the decision in Dharamendra Textile and we see no reason to understand or read that decision in that manner. In Dharamendra Textile the court framed the issues before it, in paragraph 2 of the decision, as follows :

“2. A Division Bench of this Court has referred the controversy involved in these appeals to a larger Bench doubting the correctness of the view expressed in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai & Anr. [2007 (8) SCALE 304]. The question which arises for determination in all these appeals is whether Section 11AC of the Central Excise Act, 1944 (in short the “Act’) inserted by Finance Act, 1996 with the intention of imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient and whether there is a scope for levying penalty below the prescribed minimum. Before the Division Bench, stand of the revenue was that said section should be read as penalty for statutory offence and the authority imposing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority in such cases was duty bound to impose penalty equal to the duties so determined. The assessee on the other hand referred to Section 271(1)(c) of the Income-tax Act, 1961 (in short the IT Act’) taking the stand that Section 11AC of the Act is identically worded and in a given case it was open to the assessing officer not to impose any penalty. The Division Bench made reference to Rule 96ZQ and Rule 96ZO of the Central Excise Rules, 1944 (in short the “Rules’) and a decision of this Court in Chairman, SEBI v. Shriram Mutual Fund & Anr. [2006 (5) SCC 361] and was of the view that the basic scheme for imposition of penalty under section 271(1)(c) of IT Act, Section 11AC of the Act and Rule 96ZQ(5) of the Rules is common. According to the Division Bench the correct position in law was laid down in Chairman, SEBI’s case (supra) and not in Dilip Shroff’s case (supra). Therefore, the matter was referred to a larger Bench.”

After referring to a number of decisions on interpretation and construction of statutory provisions, in paragraphs 26 and 27 of the decision, the court observed and held as follows :

26. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given.

27. Above being the position, the plea that the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff’s case (supra) was not correctly decided but Chairman, SEBI’s case (supra) has analysed the legal position in the correct perspectives. The reference is answered………. “

From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that Section 11AC would apply to every case of non­payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application.

21. There is another very strong reason for holding that Dharamendra Textile could not have interpreted Section 11AC in the manner as suggested because in that case that was not even the stand of the revenue. In paragraph 5 of the decision the court noted the submission made on behalf of the revenue as follows :

“5. Mr. Chandrashekharan, Additional Solicitor General submitted that in Rules 96ZQ and 96ZO there is no reference to any mens rea as in section 11AC where mens rea is prescribed statutorily. This is clear from the extended period of limitation permissible under section 11A of the Act. It is in essence submitted that the penalty is for statutory offence. It is pointed out that the proviso to Section 11A deals with the time for initiation of action. Section 11AC is only a mechanism for computation and the quantum of penalty. It is stated that the consequences of fraud etc. relate to the extended period of limitation and the onus is on the revenue to establish that the extended period of limitation is applicable. Once that hurdle is crossed by the revenue, the assessee is exposed to penalty and the quantum of penalty is fixed. It is pointed out that even if in some statues mens rea is specifically provided for, so is the limit or imposition of penalty, that is the maximum fixed or the quantum has to be between two limits fixed. In the cases at hand, there is no variable and, therefore, no discretion. It is pointed out that prior to insertion of Section 11AC, Rule 173Q was in vogue in which no mens rea was provided for. It only stated “which he knows or has reason to believe”. The said clause referred to wilful action. According to learned counsel what was inferentially provided in some respects in Rule 173Q, now stands explicitly provided in Section 11AC. Where the outer limit of penalty is fixed and the statute provides that it should not exceed a particular limit, that itself indicates scope for discretion but that is not the case here.”

23.The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides.”

4.14 As appellant had not taken registration and had not filed ST-3 returns within the prescribed time, penalty imposed under section 77 is justified.

4.15 As we uphold the demand for service tax, demand for interest follows, and needs to be upheld. It is now settled law that once the tax is demandable the interest as prescribed by law will automatically follow.

This decision of Bombay Bench has been affirmed by Hon’ble Supreme Court as reported at [(2023) 6 Centax 210 (S.C.)]. I find that the issue involved in the present appeal is squarely covered by the above decision of Bombay Bench against the appellant both on merits and limitation. Thus, I do not find any merits in the claim of the appellant that they entertained a bona fide belief.

4.9 I do not find any merits in the grounds taken by the Appellant on the issue of limitation. As upheld the demand made by invoking the extended period of limitation, penalty under Section 78 is also upheld.

5.1 Appellant failed to provide the information when called for, penalty under Section 77(1)(c) is also upheld and so is penalty under Section 77(2) of the Finance Act, 1994 for non filing of the ST-3 Returns during the period 2015-16. I do not find any merits in the appeal.

5.2 Appeal is dismissed.

(Pronounced in open court on 25.03.2026)

Notes:

¹ During the financial year 2015-16 various rates of Service Tax were applicable. Service Tax rate of 12.36%, 14% & 14.50% was applicable during the period April 2015 to May 2015, June 2015 to Oct.2015 & Nov. 2015 to March 2016 respectively. In absence of segregated data, highest rate of 14.50% has been taken into consideration for calculating the service tax liability for the financial year 2015-16