M.K. Ghori & Associates Vs Commissioner (Appeals) (CESTAT Delhi)
Summary: M/s. M.K. Ghori & Associates, engaged in trading of goods and providing repair and maintenance services, challenged the order passed by the Commissioner (Appeals), Central GST & Central Excise, Raipur. The Commissioner (Appeals) had allowed the Revenue’s appeal against the adjudicating authority’s order dropping the proceedings on the basis that once the principal contractor had discharged service tax, the sub-contractor was not liable to pay tax.
The proceedings originated from data received from the Income Tax Department. A Show Cause Notice dated 22.10.2019 alleged that for Financial Years 2015-16 and 2016-17 there was only sale, whereas during Financial Year 2014-15 the appellant had provided services. The Adjudicating Authority, by order dated 06.02.2023, dropped the proceedings. The Revenue appealed and the Commissioner (Appeals) allowed the appeal, leading to the present proceedings before the Tribunal.
Before the Tribunal, the appellant raised two issues: whether a sub-contractor was liable to pay service tax when the main/principal contractor had already paid the tax, and whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 could be invoked when there were divergent Tribunal decisions.
On merits, the Tribunal followed the Larger Bench decision in Commissioner of Service Tax Vs M/s Melange Developers Private Limited, which held that payment of service tax by the main contractor did not discharge the sub-contractor’s independent obligation to pay tax on the consideration received by it. The Tribunal therefore held that the appellant was liable on merits.
The decisive issue, however, was limitation. The appellant relied upon decisions including Commissioner of Service Tax, New Delhi Vs. M/s. S. Gupta & Contracts India Pvt. Ltd., Essem Erectors Vs Commissioner of Central Excise and Rigtech Power Vs. CCE & ST, Dibrugarh, contending that divergent views on the liability of sub-contractors prevented invocation of the extended period.
The Tribunal observed that the Department had not produced substantive evidence establishing the ingredients necessary for invoking the extended period of limitation. In the absence of such evidence, the appellant could not be said to have wilfully suppressed facts to evade payment of tax. The Tribunal further noted that the issue of sub-contractor liability had been settled by the Larger Bench only after contradictory views had existed. Since the issue was interpretational, the extended period could not be used against the appellant.
The Tribunal also relied upon the fact that identical cases had held that the extended period could not be invoked in circumstances involving divergent views. Accordingly, although the appellant’s liability on merits stood covered against it by the Larger Bench decision, the Show Cause Notice was held to be time-barred and the demand was found unsustainable.
The impugned order was modified to that extent and the appeal was allowed.
Cases Discussed
- CST New Delhi Vs Melange Developers Pvt. Ltd. — Larger Bench decision holding that a sub-contractor has an independent service tax liability even where the main contractor has discharged tax on the entire consideration.
- Commissioner of Service Tax, New Delhi Vs. M/s. S. Gupta & Contracts India Pvt. Ltd. — relied upon on the issue of extended limitation where divergent views existed.
- Essem Erectors Vs Commissioner of Central Excise — relied upon on the issue of limitation.
- Rigtech Power Vs. CCE & ST, Dibrugarh — relied upon on the issue of extended limitation.
FULL TEXT OF THE CESTAT DELHI ORDER
Challenge is to the impugned order1, allowing the appeal filed by the Revenue against the dropping of the demand by the Assistant Commissioner holding that once the principal contractor has paid the service tax, the sub-contractor is not liable to pay tax.
2. The appellant is engaged in trading of goods and also providing repair and maintenance services. The receipt of the data from the Income Tax Department, led to the issuance of Show Cause Notice dated 22.10.2019 raising the allegation that for the Financial Year 2015–16 and 2016–17, there is only sale whereas during Financial Year 2014–15 the appellant provided services. The Adjudicating Authority, vide Order dated 06.02.2023 dropped the proceedings, however, on appeal by the Revenue, the Commissioner (Appeals) allowed the appeal. Hence, the present appeal.
3. The Ld. Counsel for the appellant has raised twofold issues:
i) Whether the sub-contractor (appellant) is liable to pay service tax when the main/principal contractor paid the tax.
ii) Whether the extended period of limitation under Section 73(1) proviso of the Finance Act, 19942 can be invoked as there were divergent views of the Tribunal.
4. The issue on merits regarding the liability of sub-contractor to pay service tax when the main/principal contractor has paid the tax has been decided by the Larger Bench of the Tribunal in the case of CST New Delhi vs Melange Developers Pvt. Ltd.3 holding that, even if the main contractor has discharged the service tax liability, it does not discharge the sub-contractor of its independent obligation of paying the tax on the portion of consideration they received. In that view, the appellant is liable to pay the service tax, accordingly.
5. On the issue of invocation of the extended period of limitation, the Ld. Counsel submitted that the Tribunal in identical cases involving the same issue has held that extended period of limitation cannot be invoked as on merit, the Tribunal has passed divergent orders. He relied on the following decisions as under:
(a) Commissioner of Service Tax, New Delhi vs. M/s. S. Gupta & Contracts India Pvt. Ltd.4
(b) Essem Erectors vs. CCE, Nagpur5
(c) Rigtech Power vs. CCE & ST, Dibrugarh6
6. On the contrary, the Ld. AR has referred to the Master Circular No. 96/7/2007–ST dated 23.08.2007, clarifying that sub-contractor is essentially a taxable service provider as the services provided are used by the main service provider for completion of his work and does not in any way, alter the fact of provision of taxable service by the sub-contractor. He therefore submitted, that it was emphatically clear that sub-contractor must discharge his service tax liability while providing taxable service to the main or principal contractor and cannot escape the liability on the plea that the payment made by them would amount to double taxation.
7. Considering the rival submissions on the issue of invoking the extended period, I am of the view that the issue of applicability of extended period of limitation has already been settled in catena of decisions. Perusal of the Show Cause Notice reveals that the Department has not produced any substantive evidence to prove the existence of the ingredients of invoking the extended period of limitation and in absence thereof, it cannot be said that the appellant has willfully suppressed the facts to evade the payment of tax. Secondly, I find that the issue as to the liability of the sub-contractor to pay service tax was settled by the decision of the Larger Bench and before that there were contradictory views. It being an interpretational issue, the extended period cannot be used against the appellant. Moreover, as submitted by the Ld. counsel, the Tribunal in identical cases have held that extended period of limitation cannot be invoked. In that view, there is no reason to differ with those decisions. I therefore, hold that the appellant cannot be saddled with the burden of service tax in terms of the provisions of proviso to Section 73(1) of the Act.
8. On merits, regarding the liability of the sub-contractor to pay service tax even where the main contractor has discharged the tax liability, the issue is covered by the decision of the Larger Bench in Melange Developer Pvt. Ltd. against the appellant. However, on the Show Cause Notice being time barred, I conclude that the demand is not sustainable. The impugned order is, therefore, modified to that extent. The appeal is, accordingly allowed.
[Order pronounced on 27.07.2026]
Notes:
1 Order-in-Appeal No. RPR-EXCUS-000-APP-225-24-25 dated 25.07.2024
2 The Act
3 2020 (33) GSTL 116 (Tri.–LB)
4 2023 (3) TMI 439 – CESTAT New Delhi
5 2025 (1) TMI 143 – CESTAT Mumbai
6 2026 (2) TMI 433 CESTAT Kolkata
