Commissioner of Service Tax Vs M/s Melange Developers Private Limited (CESTAT Delhi)
In this case, the contracts which were secured by the Appellant therein were works contract and a part thereof was assigned to the sub-contractor 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 sub-contractors 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 sub- contractors or payments made to them shall not be taken into consideration while computing total turnover for the purposes of Section 6-B 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.
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 sub-contractor 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.
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.
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.”
FULL TEXT OF THE CESTAT JUDGMENT
A Division Bench of this Tribunal in its order dated 23 March, 2018 noticed that there were conflicting decisions of Division Benches of the Tribunal on the issue as to whether a sub-contractor is liable to pay Service Tax even if the main contractor has discharged the Service Tax liability on the gross amount and, therefore, considered it appropriate to place the matter before a Larger Bench. This Larger Bench has, accordingly, been constituted.
2. The Respondent was registered with the Service Tax Commissionerate for “Commercial or Industrial Construction” services (section 65(105)(zzq)), “Works Contract“ services (section 65(105)(zzzza) and “Transport of Goods by Road in a Goods Carriage“ services (section 65(105)(zzp)) under the Finance Act, 1944 (hereinafter referred to as the ‘Act’). During the period 01 October, 2007 to 31 March, 2012, the Respondent was engaged in providing ―Works Contract‖ service as a sub-contractor to the main contractors and details of the contracts are as follows :
