2007 (10) TMI 134 - AT - Service Tax

Tribunal rules in favor of sub-contractors in service tax dispute

The tribunal allowed the appeal filed by sub-contractors to CHAs against the service tax demands for cargo handling services. It held that the appellants, ... When CHA deal with the customers directly and pay service tax, there is no need for the sub-contractor to discharge service tax liability - appellants had informed the department about that one year before the SCN issued- trade notice/circulars issued by the dept. not followed – Demand set aside Issues:Leviability of Service Tax on sub-contractors to CHAs for cargo handling services and C&F services.Analysis:The appeal concerns the dispute over the Service Tax levied on the value of taxable services rendered by the appellants as sub-contractors to CHAs. The Revenue asserted that the appellants are liable to pay service tax for services provided in this capacity. The original authority confirmed demands for clearing and forwarding agency services and cargo handling services along with interest and penalties. The Commissioner (Appeals) remanded the issue related to C&F services but upheld the liabilities for cargo handling services. The appellants contested this decision before the tribunal seeking relief.The learned Advocate for the appellants argued that the appellants act as sub-contractors to CHAs, who collect service tax from customers and pay it to the department. They relied on various case laws and emphasized that the issue is revenue-neutral since CHAs can claim credit for the service tax paid by the appellants. The appellants also pointed out the invocation of the longer period in the show cause notice, challenging the sustainability of the demand based on a Supreme Court decision.The departmental representative contended that the appellants undertook taxable services and suppressed the fact of cargo handling service provision. She argued that previous circulars and trade notices regarding sub-contractors were not applicable due to the availability of service tax credit during the dispute period. The department also questioned the appellants' failure to provide evidence of the CHAs discharging the service tax liability.Upon careful consideration, the tribunal found that the appellants had informed the department about acting as sub-contractors to CHAs and the collection of service tax by their principals. The tribunal highlighted the relevant trade notice stating that sub-contracting CHAs need not pay service tax if the main CHA pays. It criticized the lower authorities for not properly considering the appellants' submissions and failing to verify the facts. The tribunal concluded that the demand for service tax on the appellants for cargo handling services was unsustainable, as the department did not follow the trade notices and circulars. The appeal was allowed with consequential relief.This detailed analysis of the judgment showcases the legal arguments presented, the interpretation of relevant laws and circulars, and the tribunal's reasoning for allowing the appeal against the service tax demands on the appellants.