Service tax liability of sub-contractors persists despite principal contractor payment, subject to record-based verification of credit claims.

A sub-contractor engaged in execution of a composite civil contract is not automatically exempt from service tax merely because the principal contractor has paid tax on the whole contract; service tax may still apply to the sub-contractor as a taxable service provider. However, where the records show tax payment on the composite value and filing of returns, the proper course is to verify the records and examine the claim for credit so that cascading effect is avoided. The sub-contractor is therefore not exonerated from liability, but the exact tax liability and consequential credit must be determined on record verification.

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Issues: Whether a sub-contractor rendering services in execution of a composite civil contract is liable to service tax notwithstanding the principal contractor's payment of tax on the whole contract, and whether the question of credit and liability should be decided on verification of the records.

Analysis: The clarification relied on in the dispute proceeded on the basis that services rendered by a sub-contractor constitute input service and that service tax is leviable on every taxable service provider. The fact that the main contractor may have discharged tax on the composite contract does not, by itself, absolve the sub-contractor of liability. At the same time, where records indicate payment of tax on the whole value and returns have been filed, the proper course is to examine the claim for credit and to verify whether cascading effect is to be avoided.

Conclusion: The sub-contractor is not exonerated from service tax liability, but the exact tax liability and consequential credit require adjudication on verification of records.

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