Bona fide belief and revenue neutrality defeated extended limitation in a service tax demand against a sub-contractor.

A service tax demand against a sub-contractor executing government construction works was held time-barred because the appellant's belief that the work was exempt or otherwise not taxable was found bona fide on the admitted facts. The Tribunal also treated the matter as revenue neutral, since any tax paid by the appellant would have been available as Cenvat credit to the main contractor. In that setting, the extended limitation period could not be invoked, and the demand was unsustainable; the Tribunal found it unnecessary to examine the remaining exemption disputes in detail and set aside the impugned order.

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Issues: Whether the service tax demand raised on the appellant, a sub-contractor executing government construction works, was barred by limitation in the facts of the case.

Analysis: The appellant had undertaken the disputed works as a sub-contractor for a main contractor, and the main contractor had not paid service tax nor faced any demand. On these admitted facts, the appellant's belief that the work was exempt or otherwise not taxable was held to be bona fide. The Tribunal also accepted that any tax paid by the appellant would have been available as Cenvat credit to the main contractor, making the situation revenue neutral. In such circumstances, the extended demand could not be sustained and the Tribunal found it unnecessary to examine the remaining exemption disputes in detail.

Conclusion: The demand was held to be time-barred and unsustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where the facts show bona fide belief and revenue neutrality, a service tax demand against a sub-contractor cannot be sustained beyond limitation.

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