2013 (1) TMI 547 - AT - Service Tax

Court dismisses Revenue's appeal, upholds decision to drop penalties for sub-contractor's service tax liability.

COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX. PUNE – III Versus MONARCH SURVEYORS & CONTRACTORS

The court dismissed the Revenue's appeal and upheld the decision to drop penalties imposed on the appellant sub-contractor for service tax liability. The ... Survey and Map Making Service - Rendered the said service to related firm – Assessee did not pay the service tax on the ground that the main contractor, namely, M/s Monarch Surveyors and Engineering Contractors Pvt. Ltd., have discharged the service tax liability on the value inclusive of the service charges received by the appellant - Held that:- Board on a number of occasions had clarified that if the main service provider is discharging service tax liability then the sub-contractors to the main service provider need not pay service tax on the same activity. Only after the extension of CENVAT credit scheme to the service tax sector, this position changed and the Board again clarified the matter vide Circular dated 23/08/2007. Therefore, it cannot be alleged that the sub-contractor was not discharging service tax liability deliberately with an intention to evade service tax. That was the reason why the lower appellate authority has dropped the penalty proceedings against the appellant subject to their payment of service tax along with interest thereon by invoking the powers u/s 80. I do not find any infirmity in the lower appellate authority's order. In favour of assessee Issues:- Discharge of service tax liability by sub-contractor- Imposition of penalties under Sections 77 and 78 of the Finance Act, 1994- Applicability of Circular No. 96/7/2007-S.T. dated 23/08/2007- Interpretation of the law regarding service tax liabilityAnalysis:The case involved a dispute regarding the service tax liability of a sub-contractor providing 'Survey and Map Making Service' to a related firm. The appellant, a service provider, did not pay the service tax as they believed the main contractor had already discharged the tax liability on the total value received by the appellant. The Revenue contended that the appellant, as a sub-contractor, was obligated to pay the service tax and imposed penalties under Sections 77 and 78 of the Finance Act, 1994. The lower appellate authority set aside the penalties, requiring the appellant to remit the service tax with interest under Section 80, based on the appellant's reasonable belief that the main contractor's payment covered the service tax.The Revenue challenged the dropping of penalties, arguing that the appellant, having collected service charges, deliberately evaded service tax. The respondent's counsel referenced Circular No. 96/7/2007-S.T. and previous tribunal decisions to support the contention that prior to the extension of the CENVAT credit scheme to service tax, sub-contractors were not required to pay service tax if the main contractor had already done so. The respondent emphasized that the appellant had paid the service tax along with interest, and therefore, the penalties should not apply based on legal precedents.The judge considered the historical practice of not requiring sub-contractors to pay service tax when the main contractor had settled the liability before the CENVAT credit scheme extension. The judge found that the appellant's actions were not deliberate evasion but based on established practices. The judge upheld the lower appellate authority's decision to drop the penalties under Section 80, concluding that the penalties were not warranted given the circumstances and the appellant's compliance with the service tax payment.In conclusion, the appeal filed by the Revenue was dismissed as lacking merit, affirming the lower appellate authority's decision to drop the penalties imposed on the appellant. The judgment highlighted the importance of considering historical practices and legal precedents in determining service tax liabilities for sub-contractors in the absence of specific regulations.