Subcontractor service tax liability fails where the principal contractor has already discharged tax on the same service.

Service tax cannot be demanded again from a subcontractor for cargo handling and connected services where the principal contractor is stated to have discharged the tax on the same service. The Tribunal treated the department's own trade notice as supporting the position that tax liability follows the provider who actually renders the service and raises the bill to the client, and noted that the assessee's earlier case had already accepted this stand for an earlier period. Because the lower authorities did not verify whether the principal contractor had paid the tax and did not justify departing from the departmental clarification, the demand, interest and penalties were held unsustainable.

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Issues: Whether service tax could be demanded from a subcontractor for cargo handling and connected services when the principal contractor was stated to have discharged the tax liability.

Analysis: The Tribunal noted that the appellant had informed the department that it functioned as a subcontractor and that the principal contractor was collecting and remitting service tax. The earlier order in the appellant's own case had already examined the same activity for an earlier period and had accepted the assessee's stand. The Tribunal also relied on the departmental trade notice clarifying that where a service is subcontracted, service tax is payable by the person who provides the actual service to the client and raises the bill to the client. As the lower authorities had not verified the appellant's assertion regarding tax payment by the principal contractor and had not justified departure from the departmental clarification, the demand and consequential penalties could not stand.

Conclusion: The service tax demand, interest, and penalties were unsustainable and the appeals were allowed in favour of the assessee.

Ratio Decidendi: A subcontractor is not liable to pay service tax again where the principal contractor is shown to have discharged the tax on the same service, and the department must verify that factual position before raising a demand.

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