Vishal Engineering Company Vs Commissioner of Central Excise and Service Tax Commissionerate (CESTAT Chandigarh)
CESTAT Chandigarh held that sub-contractor is liable to pay service tax on ‘Erection, Commissioning and Installation service’ even if the main contractor has discharged Service Tax liability on the activity undertaken by the subcontractor.
Facts- The appellant is engaged in providing the taxable services of ‘Erection, Commissioning and Installation’ falling under clause (zzd) of Sub Section 105 of Section 65 of the Finance Act, 1994 which are taxable in terms of Section 66 of the Act, 1994.
Department alleged that the appellant has provided the aforesaid taxable services but did not pay the service tax on the gross amount received in lieu of rendering the services. Accordingly, the department issued the show cause notice alleging the non payment of service tax on the taxable service of ‘Erection, Commissioning and Installation’ provided by the appellant.
Appellant filed detailed reply stating that they are not the direct or the main contractor but a sub-contractor and hence the service tax is not payable by the appellant being a sub-contractor of the work when its main contractor has paid the service tax on the entire work.
Not being satisfied with the reply, the demand was confirmed. Being aggrieved, the present appeal is filed.
Conclusion- Larger bench in the case of CST vs. Melange Developers P. Ltd. 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 subcontractor in pursuance of the contract.
Held that the appellant being sub-contractor is liable to pay service tax on ‘Erection, Commissioning and Installation service’ in view of the Larger Bench decision. But, extended period cannot be invoked to demand service tax from the appellant.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The present appeal is directed against the impugned order dated 26.11.2010 whereby the Ld. Commissioner of Central Excise of Service Tax, Panchkula has confirmed the service tax demand amounting to Rs. 71,73,178/- under Section 73 along with interest under Section 75 and imposed equal penalty under Section 78 of the Finance Act, 1994. Ld. Commissioner also imposed a penalty of Rs. 5000/- under Section 77(a) and 77(b) of the Finance Act, 1994.
2. Briefly the facts of the present case as per the department are that the appellant is engaged in providing the taxable services of ‘Erection, Commissioning and Installation’ falling under clause (zzd) of Sub Section 105 of Section 65 of the Finance Act, 1994 which are taxable in terms of Section 66 of the Act, 1994. It was gathered by the department that the appellant has provided the aforesaid taxable services but did not pay the service tax on the gross amount received in lieu of rendering the services, accordingly the appellant was directed to provide the details of the nature of their business/activities undertaken by them along with the value of total amount received for providing such taxable services. The appellant provided copies of their income tax statement for the assessment year 2004-05, 2005-06 and 2006-07 and also submitted copy of their balance sheet for the year 2007-08. The proprietor of the appellant appeared before the Department and submitted the copies of TDS certificates pertaining to the financial year 2005-2006 to 2007-08 and also made his statement. The department issued the show cause notice alleging the non payment of service tax on the taxable service of ‘Erection, Commissioning and Installation’ provided by the appellant. Appellant filed detailed reply to the show cause notice taking the defence that the appellant is not the direct or the main contractor but a sub-contractor and hence the service tax is not payable by the appellant being a sub-contractor of the work when its main contractor has paid the service tax on the entire work. The appellant has also taken other defences and after following the due process, the commissioner has passed the impugned order in which he has rejected the appellant’s submissions in reply to the show cause notice, and only accepted to the extent that the amount allegedly received by it should be considered as inclusive of tax and also benefit of Cenvat credit of the tax paid on input services should be allowed to the appellant. Aggrieved by the said order, the appellant has filed the present appeal.
3. Heard both the parties and perused the record.
4. Counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law and the binding judicial precedents during the relevant time. He further submitted that the appellant being a sub-contractor is not liable to pay service tax when the main contractor has paid the service tax on the entire work. The appellant has enclosed copies of letters from the main contractors wherein it has been certified that the value of sub-contracts awarded to the appellant form part of its billing to its customer on which service tax has been paid. The appellant relied upon the trade notice no. 5/98 ST dated 14.10.1998 and various other rulings of this Tribunal wherein it has been held that sub-contractor has no responsibility to pay service tax on the services provided by it when the main contractor has paid it. He further submitted that when the service tax has been paid by the main contractor, demanding tax on the same activity would amount to double tax which is not permissible under law. He further submitted that the appellant has been charged service tax on the basis of the amounts stated in the TDS certificate issued by the main contractor as per the provisions of Income Tax Act, 1961. Whereas, in fact the payment shown therein had not been received in full. He further submitted that the amount received by the appellant towards the alleged taxable service should be considered as cum-tax and the appellant is entitled to take Cenvat credit of the service tax paid on input services received by it. He further submitted that the demand in the show cause notice is time barred as extended period of limitation cannot be invoked against the appellant as the appellant was under bona-fied belief that no service tax was payable by it in view of the clarification issued by the Department itself that a sub-contractor is not liable to pay service tax when the main contractor has paid the service tax on the entire amount.
5. He also submitted that no penalty can be imposed on the appellant as there was no intention of the appellant to evade payment of tax as alleged in the show cause notice.
6. He further submitted that the CBEC vide circular no. 96/07/2007 dated 23.08.2007 has clarified that the sub-contractor is liable to pay service tax even when the main contractor has paid the service tax on the whole amount. He cited the following decisions which have been decided after the CBEC’s master circular dated 23.08.2007 wherein it was held that when the main contractor has paid the service tax itself, sub-contractor was not required to deposit the service tax.
– Visesh Engineering Co. Vs. Commissioner of Customs, Ex. & S.T., Guntur, 2016 (43) S.T.R. 232 (Tri.-Hyd.)
– Thadi Satya Ramalinga Reddy Vs. CCE, S.T. & Cus. 2017 (4) GSTL 421 (Tri.-Hyd.)
– Power Mech Project Ltd. Vs. Commissioner of Customs, Guntur, 2017 (48) STR 165 (Tri.-Hyd.).
7. He further submitted that even though the decisions cited (Supra) were overruled by the Larger Bench of the CESTAT subsequently in the CST Vs. Melange Developers P. Ltd., 2020 (33) GSTL 116 (LB). He further submitted even that after the decision of the Larger Bench in the case of Melange Developers P. Ltd cited (Supra) the appellant is not liable to pay the service tax on the extended period of limitation. He also relied upon the decision in the case of Max Logistics Ltd. Vs. Commissioner of Central Excise, Jaipur, 2017 (47) S.T.R. 41 (Tri.-Del.) and Vinod Shipping Services Vs. CCE & S.T. Tirunelveli, 2021 (55) GSTL 313 (Tri.-Chennai).
8. On the other hand, Ld. DR supported the findings in the impugned order and submitted that even if the main contractor has discharged the service tax on the erection, Commissioning/ installation service, but still the appellant being the sub-contractor is liable to pay service tax because the appellant is providing the services to the main contractor, and the consideration received by the appellant from the main contractor is the consideration received for the services provided to the main contractor and therefore is subject to levy of service tax. He further submitted that the correct method would have been that the appellant should have discharged the service tax on the consideration received from the main contractor and the same can be claimed as input tax credit by the main contractor. Ld. AR further submitted that in the grounds of appeal filed by the appellant, a new case is sought to be set up which is not permitted under law. To support this submission, he relied upon the following decisions:-
– Warner Hindustan Ltd. Vs. Collector of Central Excise-1999 (113) E.L.T. 24 (S.C.).
– Commissioner of Cus. & C.Ex. Goa Vs. Dempo Engineering Works Ltd.-2015 (319) E.L.T. 359 (S.C.)
– SRV Print Pack (P) Ltd Vs. Commissioner- affirming the Tribunal view -2013 (294) E.L.T. A17 (Del.)
9. After consideration the submissions made by both the sides and perusal of the material on record, we find that the issue whether subcontract is liable to pay service tax on the services on which the main contractor had paid the service tax, there were contrary decisions on this issue among the various benches of the Tribunal and the matter was referred to the Larger Bench and the Larger Bench has settled the issue in the case of CST Vs. Melange Developers P. Ltd., 220 (33) GSTL 116 (LB) wherein the Larger Bench has observed as under:-
“8.1 It is seen that the amount received from the clients have been subjected to Service Tax at the hands of the main contractor. However, since the appellant, as a sub-contractor has provided services to the main contractor, is liable to discharge Service Tax on the consideration received from the main contractor namely, M/s. ACL. As correctly submitted by the Learned Authorized Representative for the Department, the main contractor would then be eligible to take credit of such Service Tax paid by the appellant as these are input services for the main contractor. This issue is no longer res integra and is settled by the decision of the Larger Bench of the Tribunal in the case of Commr. of S.T., New Delhi v. M/s. Melange Developers Pvt. Ltd. reported in 2020 (33) G.S.T.L. 116 (Tri. CB). It was observed as under:
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 .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.
XX XX XX
XX XX XX
XX XX XX
XX XX XX
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 subcontractor is not required to discharge Service Tax liability if the main contractor has discharged liability on the work assigned to the subcontractor. 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 subcontractor in pursuance of the contract.”
10. Following the above decisions, we have no hesitation to hold that the appellant/sub-contractor is liable to pay the Service Tax even if the main contractor has discharged the liability. The issue no merits is found against the assessee and in favour of the Department.
11. Further, we find that the issue whether in such cases extended period of limitation can be invoked or not was also considered by various benches of Tribunal and in this regard the Delhi Tribunal in the case of Max Logistics Ltd. Vs. Commissioner of Central Excise, Jaipur, 2017 (47) S.T.R. 41 (Tri.-Del.). In para 11 has held as under:
“11. Considering the above discussion and analysis the service tax liability on the appellant cannot be contested as invalid. We uphold the findings in the impugned order regarding tax liability. However, the appellants contested the demand on the question of time bar also. It is their case that the full amount collected by RSIC from the importers and exports has been subjected to service tax. Even if the appellant is held liable on their share of Revenue received from RSIC the said tax is eligible for credit to RSIC. Further, the issue involved is interpretation of law and there is no intend to evade payment of duty in such situation. The appellants relied on various case laws to reiterate their views. We find that the appellant is having a strong ground regarding the question of time- bar. It is to be noted that all invoices, for full consideration, have been raised by RSIC and the amount collected from the clients [importers and exports] were subjected to service tax which was deposited to the Government. RSIC in turn are paying certain amount to the appellants to get the services in these ICDs. In such situation, there is a clear possibility for a bona fide belief that as the whole amount has been subjected to service tax the amount received by the appellant may not be liable to service tax in connection with the services rendered by them.
The issue involved has been a subject matter of interpretation by the Tribunal and High Courts. In fact the earlier Circular issued by the Board, covering the period prior to the introduction of Cenvat Credit Rules gave an impression that when the main service provider discharged the service tax on gross value there may not be tax liability on the sub-contractor rendering similar service to the main contractor The Tribunal in various cases held in such a case involving interpretation of law and also a bona fide belief regarding service tax liability, will not attract the demand for extended period. We also take note that service tax liability on the appellant when discharged will be available as a credit to RSIC which can be used by RSIC for discharging their overall service tax liability. As such, to impute motivation to the appellant for intention to evade payment of duty is not sustainable. A reference can be made to the Tribunal’s decisions in British Airways v. CCE (Adjn.), Delhi reported in 2014 (36) STR. 598 (Tri. – Del.), Atul Ltd. v. CCE, Surat-Il reported in 2009 (237) E.LT. 287 (Tri. – Ahmd.). In the facts and circumstances of this case, we find that the demand for extended period is not sustainable. We have also perused the reasons recorded by the Original Authority for invoking extended period of demand. He recorded that but for the Department’s investigation the non- payment of tax would not have come to the notice. Further, the balance sheet for certain years have not been furnished in time by the appellant which was obtained from Registrar of Companies. As such, it was held that the appellants wilfully suppressed material facts. We find that the service tax demand against the appellant was sought to be confirmed mainly on the basis of the terms of agreement between the appellant and RSIC. The gross receipt of RSIC and service tax payment thereupon is available with the Department. A portion of that receipt is now being taxed under BIS at the hands of the appellant. The service. tax liability is as such on the arrangement based on agreement which is also the basis for payment of full service tax by RSIC. In other words, the service tax liability of both RSIC and the appellant has common source agreement. As such, we find the demand for extended period is not sustainable in the present case.”
12. The said findings on limitation has also been approved by the Larger Bench of the Tribunal in the case of Melange Developers Pvt. Ltd. cited (Supra). Further, we find that this issue has also been considered recently by the Division Bench of the Ahmadabad Tribunal in the case of Shanti Construction Company Vs. CCE & S.T., Gujarat reported in 2023-TIOL-223-CESTAT-AHM wherein the Hon’ble Tribunal has considered various circulars issued by the department from time to time and also considered various decisions given by the Tribunal and thereafter held that extended period of limitation cannot be invoked to demand service tax in such cases.
13. In this regard, it is relevant to reproduce the said findings of the Tribunal in para 5.2 as under:
“On limitation also we agree with the argument of Ld, Counsel. We find that during the relevant period there were various Circulars and trade notices by the Commissionerate clarifying that where the principle service provider discharged his service tax liability on the entire value of the services, a separate liability cannot be imposed against the sub-contractor. The said Circulars stands taken note of by the Tribunal in various judgments and its stand held that where the entire service tax has been paid on the full consideration of the services, the sub-contractors’ liability would not arise to pay service tax again on the part of principle service. One such reference can be made by following circulars:
TRU letter F. No. 341/18/2004-TRU (Pt.) dated 17-12-2004
-Circular No. 23/3/97-5.T., dated 13-10-1997 – Master Circular No. 96/7/2007-ST dated 23-8-2007
In fact, also from various following decisions of the Tribunal:-
– Urvi Construction v. CST, Ahmedabad 2010 (17) S.T.R. 302 (Tri. Ahmd.) = 2009- TIOL-1890-CESTAT-AHM
-CCE, Indore v. Shivhare Roadlines – 2009 (16) S.T.R. 335 (Tri.-Del.) =2009-TIOL-526-CESTAT-DEL
– Harshal & Company v. CCE, Vadodara – 2008 (12) S.T.R. 574 (Tri.-Ahmd.)
– Semac Pvt. Limited v. CCE, Bangalore-2006 (4) S.T.R. 475 (Tri.-Bang.) 2006-TIOL- 1546-CESTAT-BANG
– Shiva Industrial Security Agency v. CCE, Surat – 2008 (12) S.T.R. 496 (Tri.-Ahmd.)
– Synergy Audio Visual Workshop P. Ltd. v. CST, Bangalore 2008 (10) S.T.R. 578 (Tri.-Bang.)= 2008-TIOL-809-CESTAT-BANG
– OIKOS v. CCE , Bangalore 2007 (5) S.T.R. 229 (Tri-Bang)= 2006-TIOL-1760-CESTAT-BANG
In the Tribunal’s decision in the case of OIKOS v. CCE, Bangalore – III reported in 2007 (5) S.T.R. 229 confirmed against the subcontractor. To the similar effect the Tribunal decision in the case of Viral Builders v. CCE, Surat reported in 2011 (21) S.T.R. 457 (Tri. – Ahmd.) =2010-TIOL-1575-CESTAT- AHM observed that service stands provided only once and as such tax is not payable twice for the same service. Further in the case of Sunil Hi-Tech Engineers Ltd. v. CCE, Nagpur reported in 2010 (17) S.T.R. 121 (Tri.-Mumbai) 2009-TIOL-1867-CESTAT-MUM, the service tax confirmed against the subcontractor was set aside on the ground that the main contractor has already paid the Service Tax and the matter was remanded to verify the above effect. The same ratio was laid down by the Tribunal in the case of Newton Engg. & Chemicals v. CCE, Vadodara reported in 2008 (12) S.T.R. 378 (Tri- Ahmd.) and by the Larger Bench decision of the Tribunal in the case of Vijay Sharma & Co. v. CCE, Chandigarh reported in 2010 (20) S.T.R. 309 (Tri.-LB) 2010-TIOL-1215-CESTAT-DEL-LB.”
14. In view of our discussion above by following the ratio of the above said decisions we hold that the appellant being sub-contractor is liable to pay service tax on ‘Erection, Commissioning and Installation service’ in view of the Larger Bench decision cited (Supra). But, extended period cannot be invoked to demand service tax from the appellant. In the present case, the period of dispute is from October, 2004 to March 2009 and as per the appellant the demand for the period April, 2004 to September 2008 amounting to Rs. 6019732/- is beyond limitation and is not sustainable and the demand for the normal period from October,2008 to March 2009 amounting to Rs. 11,53,446/- can be upheld. Hence for the purpose of computing the demand of service tax for the normal period along with interest, we remand the matter to the original authority with the direction to do this exercise within a period of two months after receiving the certified copy of this order.
15. Further, in the facts and circumstances of this case, we are of the considered opinions that penalty cannot be imposed as there was no intention to evade payment of service tax.
16. In the result, the appeal is partly allowed and remanded back to the original authority for determining the tax liability of the appellant for the normal period along with interest.
(Order pronounced in the open court on 05.07.2023)
