Sub-contractor service tax liability and suppression allegation found prima facie unsustainable for stay relief

A sub-contractor rendering erection, commissioning and installation services was, prima facie, not shown to be liable where the principal contractor had already discharged tax on the same service category under the departmental circular position. The audit report had itself recorded the sub-contracting arrangement and the circular guidance, and the show-cause notice followed about two years later. On that limited stay record, the allegation of suppression was held prima facie unsustainable, and waiver of predeposit was granted with recovery of service tax, interest, and penalty stayed pending appeal.

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Issues: Whether, for the purpose of waiver of predeposit and stay of recovery, the service tax demand against a sub-contractor was prima facie sustainable and whether the extended period could be invoked on the allegation of suppression of facts.

Analysis: The audit report itself recorded that the assessee acted as a sub-contractor rendering erection, commissioning and installation services to the main contractor, and noted the departmental circular position that a sub-contractor need not pay service tax where the principal contractor has discharged tax on the same service category. The show-cause notice was issued about two years after the audit report, which had already referred to the circular guidance. On that basis, the allegation of suppression was found, prima facie, unsustainable for the limited purpose of the stay application.

Conclusion: The application for waiver of predeposit was allowed and recovery of service tax, interest, and penalty was stayed pending disposal of the appeal.

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