2022 (10) TMI 60 - AT - Service Tax

Tribunal upholds service tax liability for subcontractor, rejects bonafide belief defense

The Tribunal upheld the Commissioner's decision, determining the appellant's liability to pay service tax for the period 2006-07 to 2008-09 as a ... Non-payment of service tax - it is alleged that noticee is charging and collecting service tax from their clients on the taxable service provided but not depositing the same with the Government exchequer - failure to submit returns in the form ST 3 to the service tax department on due date as per the section 70 ibid read with rule 7 ibid - failure to maintain proper records under rule 5 ibid - abatement as per the Notification No 15/2004-ST dated 10.09.2004 - time limitation. HELD THAT:- It is evident from the facts of the case that the appellant are merely providing the taxable services simplicitor without any element of transfer of the material along with the service. The contracts for provision of services wherein not transfer in property occurs, qualify as service contracts simplicitor. In case of service contracts simplicitor there can be no question of abatement. In light of above observation reference made to the Notification No 15/2004-ST dated 10.09.2004. Notification No 15/2004-Service Tax, dated the 10th September, 2004 was rescinded vide n Notification No 2/2006-ST dated 01.03.2006. Hence this claim made by the appellant is under a notification which was not available after 01.03.2006. Hence the claim made under this notification is denied. Time Limitation - Suppression of facts or not - HELD THAT:- The Appellant concealed the correct taxable amount with the service tax department, until the Departmental officers initiated an inquiry in this regard. These facts were suppressed with intent to evade the payment of service tax due on various taxable services provided by them thereby facilitating the evasion of service tax payable on the said services so rendered by them. Thus it the extended period, as provided for under the proviso to sub-section (1) of section 73 ibid for recovery of such service tax not paid and/or short paid by Appellant has been correctly invoked by the revenue authorities. Penalties - HELD THAT:- When the ingredients for invocation of the extended period of limitation were present, the penalties imposed on the appellant under Section 78 of Finance Act, 1994 are upheld - As appellant had not taken registration and had not filed ST-3 returns within the prescribed time, penalty imposed under Section 77 is justified. Interest - HELD THAT:- The demand for service tax, demand for interest follows, and needs to be upheld. It is now settled law that once the tax is demandable the interest as prescribed by law will automatically follow. Appeal dismissed. Issues Involved:1. Determination of service tax liability for the period 2006-07 to 2008-09.2. Appropriation of already paid service tax amount.3. Payment of interest on delayed service tax payments.4. Imposition of penalties under various sections of the Finance Act, 1994.5. Invocation of extended period of limitation.6. Eligibility for abatement under Notification No. 15/2004-ST.7. Validity of the appellant's claim of bonafide belief and conflicting instructions.Detailed Analysis:1. Determination of Service Tax Liability:The Commissioner determined that the appellant, a sub-contractor, is liable to pay service tax on services provided during 2006-07 to 2008-09. The appellant argued that being a sub-contractor, they were not required to pay service tax as the main contractor, Gammon India Ltd., had paid the service tax on the entire contract value. However, the Tribunal referred to the Master Circular dated 23 August 2007, which clarified that sub-contractors are taxable service providers and must pay service tax regardless of the main contractor's tax payments. This position was upheld by the larger bench in the case of Melange Developers Private Limited [2020 (33) G.S.T.L. 116 (Tri. - LB)].2. Appropriation of Already Paid Service Tax Amount:The Commissioner ordered the appropriation of Rs. 9,45,516.00 already paid by the appellant against the confirmed demand. The Tribunal upheld this appropriation as part of the tax liability determination.3. Payment of Interest on Delayed Service Tax Payments:The appellant was ordered to pay interest on the delayed payment of service tax under section 75 of the Finance Act, 1994. The Tribunal upheld this order, stating that once the tax is demandable, the interest as prescribed by law will automatically follow.4. Imposition of Penalties:The Commissioner imposed a penalty of Rs. 1,25,36,776.00 under section 78 and Rs. 5,000/- under section 77 of the Finance Act, 1994. The Tribunal upheld these penalties, citing the appellant's failure to pay service tax, file returns, and maintain proper records as required by law. The appellant's argument of bonafide belief was rejected, as they could not provide evidence of conflicting decisions or instructions during the relevant period.5. Invocation of Extended Period of Limitation:The extended period of limitation was invoked on the grounds of suppression of facts with intent to evade tax. The Tribunal upheld this invocation, noting that the appellant had concealed taxable amounts and failed to pay service tax until the Department initiated an inquiry. The Tribunal referred to the decision in Rajasthan Spinning Mills [2009 (238) ELT 3 (SC)] to support the imposition of penalties when the extended period is invoked.6. Eligibility for Abatement under Notification No. 15/2004-ST:The appellant claimed abatement under Notification No. 15/2004-ST, which was denied by the Tribunal. The Tribunal noted that the notification was rescinded on 01.03.2006, and thus, the claim was not valid for the period in question. Additionally, the contracts in question were for service provision without any transfer of property, qualifying as service contracts simplicitor, which are not eligible for abatement.7. Validity of the Appellant's Claim of Bonafide Belief and Conflicting Instructions:The appellant argued that they had a bonafide belief based on a certificate from Gammon India Ltd. and conflicting instructions regarding the tax liability of sub-contractors. However, the Tribunal found no evidence of conflicting instructions and noted that the Master Circular dated 23 August 2007 had clarified the liability of sub-contractors. The Tribunal emphasized that bonafide belief must be based on reasonable grounds and supported by facts, which was not the case here.Conclusion:The Tribunal dismissed the appeal, upholding the service tax demand, appropriation of already paid amounts, interest on delayed payments, and penalties imposed by the Commissioner. The Tribunal found no merit in the appellant's arguments regarding bonafide belief, conflicting instructions, or eligibility for abatement. The order was pronounced in the open court on 29.09.2022.