Sub-contractor service tax liability upheld on merits, but extended limitation and penalty failed for lack of suppression.

A sub-contractor remains independently liable for service tax on taxable services rendered by it, even where the main contractor has also discharged tax, so the demand was sustainable on merits. However, the Revenue could not invoke the extended period of limitation because the record did not establish wilful suppression, mala fides, or other culpable conduct; the appellant's reliance on the main contractor's communication supported the absence of such intent. As the extended period failed, the consequential penalty also could not survive. The substantive tax liability was upheld, while relief was granted on limitation and penalty.

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Issues: (i) Whether service tax demand was sustainable against the sub-contractor when the main contractor had allegedly discharged the tax. (ii) Whether invocation of the extended period of limitation and the consequential penalty were sustainable.

Issue (i): Whether service tax demand was sustainable against the sub-contractor when the main contractor had allegedly discharged the tax.

Analysis: The applicable legal position was that a sub-contractor remained liable to pay service tax on the services rendered by it, even if the main contractor had also discharged tax. The Board circular and the larger bench ruling relied upon by the Tribunal supported this position on merits. The appellant's reliance on the main contractor's communication did not alter the substantive tax liability.

Conclusion: The demand was sustainable on merits and this issue was decided against the assessee.

Issue (ii): Whether invocation of the extended period of limitation and the consequential penalty were sustainable.

Analysis: The Tribunal found no material to establish wilful suppression or mala fides on the part of the appellant. The record indicated that the appellant may have been misled by the main contractor's communication regarding tax payment, and the Revenue failed to show facts justifying the longer limitation period. Since the extended period could not be invoked, the related penalty also could not survive.

Conclusion: The extended period of limitation was not available to the Revenue and the penalty was unsustainable; this issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of limitation and penalty, while the substantive tax liability on merits was upheld.

Ratio Decidendi: A sub-contractor is independently liable for service tax on its taxable services, but the extended period cannot be invoked unless suppression or equivalent culpable conduct is established on the evidence.

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