Double taxation on the same service contract is impermissible when the principal contractor has already discharged service tax.

A sub-contractor should not be subjected to service tax on the same contract where the principal contractor has already discharged the tax liability, because such a second levy would amount to double taxation and cascading. Liability must be verified by examining the records of both the principal contractor and the sub-contractor before tax is fastened. Where duplicate tax burden is established, refund may be granted, but only subject to the statutory bar against unjust enrichment. In the circumstances described, no interest is payable on the refund because of the unsettled legal position, and the matter is to be verified before consequential refund relief is allowed.

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Issues: (i) whether a sub-contractor could be subjected to service tax where the principal contractor had discharged the liability on the same contract, and (ii) whether refund, if otherwise admissible, was to be granted subject to the test of unjust enrichment and without interest.

Issue (i): whether a sub-contractor could be subjected to service tax where the principal contractor had discharged the liability on the same contract.

Analysis: The assessment had to be made in the context of the pre-master circular period and the record of the principal contractor and the sub-contractor. The relevant consideration was whether the same service transaction had already suffered tax in the hands of the principal contractor. If the principal contractor had discharged the tax liability for the contract, a second levy on the sub-contractor would result in double taxation and cascading of tax burden. The adjudicating authority was therefore required to verify the records of both sides before fastening liability.

Conclusion: The sub-contractor was not to be doubly taxed if the principal contractor had already discharged the liability on the same contract.

Issue (ii): whether refund, if otherwise admissible, was to be granted subject to the test of unjust enrichment and without interest.

Analysis: Once double taxation was established on verification of records, refund could be granted to the sub-contractor. However, the refund was conditioned by the statutory bar against unjust enrichment, and in view of the confusion prevailing in the legal position, no interest was payable on the refund.

Conclusion: Refund was admissible on satisfaction of unjust enrichment, and no interest was payable.

Final Conclusion: The dispute was resolved in favour of the sub-contractor to the extent that duplicate tax burden on the same contract was impermissible, and the matter was remitted for verification of the records before granting consequential refund relief.

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