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The primary issue was whether the appellant/sub-contractor is liable to pay service tax when the main contractor has already paid service tax on the entire contract value. The appellant argued that once the main contractor has paid the service tax, the same cannot be taxed again in the hands of the sub-contractor as there is only one taxable event. The appellant relied on several judicial precedents, including the decision by the Jurisdictional High Court of Andhra Pradesh in the case of Larsen & Toubro Ltd., which was upheld by the Supreme Court, and other cases like CCE & ST, Panchkula Vs M/s Lone Star Engineers, and Hindustan DORR - Oliver Ltd., & Another Vs Union of India & Others.
The Department, represented by the Learned AR, contended that the decision in Larsen & Toubro Ltd. was rendered in the context of the APVAT Act and not under the Finance Act, 1994, which governs service tax. The Department argued that the main contractor is eligible to take credit on the service tax paid by the sub-contractor, as clarified by the Board's Circular No. 96/7/2007-ST. The Larger Bench of the Tribunal in the case of Melange Developers Ltd. had also held that the sub-contractor is liable to pay service tax even if the main contractor has paid tax on the gross amount charged.
The Tribunal, after considering the arguments, held that the decision of the Larger Bench in Melange Developers Ltd. is binding. It was noted that the service tax law is different from VAT law, and the taxable event in service tax is the activity of rendering the service, not the sale of goods. Therefore, the sub-contractor is liable to pay service tax on the consideration received from the main contractor, who can then avail of Cenvat Credit. The Tribunal concluded that there is no situation of double taxation as the main contractor can claim credit for the service tax paid by the sub-contractor.
In conclusion, the Tribunal resolved the difference of opinion by agreeing with the view that the appellant/sub-contractor is liable to pay service tax on the value of the sub-contract/work done, despite the main contractor having discharged the service tax on the whole contract value. The reference was answered accordingly, and the matter was placed before the Division Bench for deciding the appeal.
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