Limitation in service tax disputes: bona fide belief based on Board clarifications supported rejection of a time-barred demand.

The note addresses whether a service tax demand against a sub-contractor was barred by limitation. It states that the demand related to a period beyond one year from the show cause notice, and that prior Board clarifications had suggested a sub-contractor need not separately pay service tax where the main contractor had discharged the liability. Although that understanding lacked legal sanctity after the Cenvat Credit Rules, 2004, it was treated as supporting a bona fide belief against registration and payment. Without examining taxability on merits, the demand was held time-barred and the appeal succeeded on limitation alone.

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Issues: Whether the service tax demand was barred by limitation.

Analysis: The demand covered a period beyond one year from the show cause notice. The assessee had acted as a sub-contractor, and prior Board clarifications had indicated that where the main contractor had discharged the full tax liability, the sub-contractor need not separately pay service tax. Although that position did not have legal sanctity after the introduction of the Cenvat Credit Rules, 2004, it was capable of creating a bona fide belief against non-registration and non-payment of tax. Without entering into the merits of taxability, the demand was held to be hit by limitation.

Conclusion: The demand was time-barred and the appeal succeeded on limitation alone.

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