2023 (4) TMI 1023 - AT - Service Tax

Tribunal rules in favor of subcontractor, finding no evidence of tax evasion.

M/s. Hari & Co. Versus Commissioner of Central Excise and Service Tax, Tirunelveli

The Tribunal held that the demand for Service Tax on a sub-contractor was not justified as the sub-contractor was misled to believe the tax had been paid ... Levy of Service Tax - sub-contractor - non-inclusion of value of services rendered by their sub-contractors - Board Circular in F. No. B/11/1/2002-TRU dated 01.08.2002 - suppression of facts or not - Extended period of limitation - HELD THAT:- Though the appellant, as a sub-contractor, was duty bound to discharge the tax liability, perhaps the communication dated 12.07.07 issued by the main contractor i.e., M/s. Aspinwall & Co., prompted them to believe that the tax had indeed been remitted. The villain appears to be M/s. Aspinwall & Co. who misled the appellant or made the appellant believe that it had remitted tax and in turn, made the appellant rely on the letter dated 12.07.07 issued by it in response to Show Cause Notice issued by the Department. This is a sufficient reason and other than this, there are no documents being brought out on record by the Revenue to prove mala fides on the part of this appellant, so as to justify invoking the larger period of limitation in this case. It is also a fact borne on record that the main contractor has not denied the fact of having collected full consideration including Service Tax from the clients. On a similar set of facts, in the case of another sub-contractor viz. M/s. Vinoth Shipping Services [2021 (8) TMI 1117 - CESTAT CHENNAI], it is found that the Chennai Bench of the CESTAT has given a finding that there was no factual basis for invoking the extended period, though declining to entertain the appeal on merits, but allowing the assessee’s contention on invoking of the extended period of limitation - the fact of suppression, etc., has not been established by the Revenue to justify invoking the extended period of limitation and therefore, in view of our discussions in the above paragraphs, the ratio of the order of this Bench in the case of M/s. Vinoth Shipping Services, wherein the order of the Larger Bench in M/s. Melange Developers Pvt. Ltd. [2019 (6) TMI 518 - CESTAT NEW DELHI] was followed, squarely applies here too. For these reasons, the impugned order, to this extent, cannot sustain. The appeal fails on merits, but however, the demand pertaining to the larger period, if any, cannot sustain and consequently, the impugned order, to this extent, is set aside - Appeal allowed on limitation. ISSUES PRESENTED AND CONSIDERED 1. Whether a sub-contractor rendering cargo handling services is liable to pay Service Tax notwithstanding that the main contractor has discharged Service Tax on the transaction. 2. Whether the Revenue is justified in invoking the extended period of limitation against a sub-contractor where it is alleged that the main contractor had represented or led the sub-contractor to believe that tax had been discharged. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability of sub-contractor to pay Service Tax when main contractor has paid Legal framework: The statutory and regulatory scheme places service tax liability on the provider of taxable services. Board clarification (F. No. B/11/1/2002-TRU dated 01.08.2002) and judicial pronouncements (including a Larger Bench decision) address the respective liabilities of main contractors and sub-contractors in service arrangements. Precedent treatment: The Larger Bench has held that a sub-contractor is liable to pay Service Tax even where the main contractor has discharged Service Tax on the composite transaction; coordinated Bench and Tribunal decisions have applied this principle. The Tribunal in earlier identical factual contexts has followed the Larger Bench and recognized sub-contractor liability. Interpretation and reasoning: The Tribunal notes that the adjudicating authority correctly analysed factual material showing that the main contractor did not positively confirm payment of tax on sub-contractor services and that the main contractor's position was non-committal in its reply to the Revenue's show cause notice. The Tribunal accepts the Larger Bench view that liability of a sub-contractor to pay Service Tax is independent of the main contractor's payment. The Tribunal also observed that the main contractor's collection of consideration (including service tax from clients) and the billing practices support the conclusion that sub-contractors remain separately liable. The Tribunal distinguishes factual nuances (e.g., representations by the main contractor) from the substantive legal position: even if a main contractor has paid, the legal liability of the sub-contractor to remit tax remains intact. Ratio vs. Obiter: The statement that a sub-contractor is liable to pay Service Tax despite payment by the main contractor is treated as ratio, following the Larger Bench precedent and consistent Tribunal application. Observations about the main contractor's conduct and billing practices are factual findings supporting application of the ratio and are not obiter. Conclusion: On merits, the Tribunal holds that the sub-contractor was duty-bound to discharge Service Tax. The appeal fails on the substantive liability issue; demands relating to the normal limitation period are left undisturbed. Issue 2 - Invoking extended period of limitation against a sub-contractor where the main contractor's representation induced belief that tax was remitted Legal framework: Extended period of limitation may be invoked where there is suppression of facts or fraud, or other circumstances justifying a longer period; ordinary demands for tax within the normal limitation period are distinct. Burden lies on Revenue to establish suppression or mala fides to justify extended limitation. Precedent treatment: The Tribunal refers to its own coordinate bench decision in a factually similar case where the extended period was not invoked in the absence of proof of willful suppression, and to the Larger Bench decision which, while deciding liability issues, has been considered in limitation contexts by subsequent benches. Other coordinate Bench decisions have also held that extended limitation cannot be invoked without evidence of suppression. Interpretation and reasoning: The Tribunal examined the record and found that the sub-contractor had relied upon a communication from the main contractor indicating that tax had been remitted. The main contractor's non-committal response to the Revenue's show cause notice and its apparent misleading conduct were relevant factual matrix. The Revenue produced no material proving mala fide suppression by the sub-contractor. In absence of evidence that the sub-contractor suppressed facts or acted with fraudulent intent, the requisites for invoking the extended period were not satisfied. The Tribunal expressly follows the coordinate decision that declined to sustain extended-period demands on similar facts. Ratio vs. Obiter: The holding that extended period of limitation cannot be invoked against the sub-contractor in the absence of proven suppression or mala fide conduct is treated as ratio of this decision on the limitation issue. Observations regarding the main contractor as the party who misled the sub-contractor are factual findings connected to the limitation conclusion and are not mere obiter. Conclusion: The Tribunal concludes that the Revenue has not established grounds to invoke the extended period of limitation against the sub-contractor. Consequently, demands and penalties attributable solely to the extended period are set aside; demands within the normal limitation period and related legal liability remain intact. Interrelation and final disposition Cross-reference: The liability issue (Issue 1) and limitation issue (Issue 2) are related but distinct. The Tribunal applies the established legal position that a sub-contractor is liable to pay Service Tax (Issue 1) while concurrently holding that, on the specific facts, the Revenue cannot sustain demands made beyond the normal limitation period because suppression/mala fides were not proved (Issue 2). Final conclusions: The appeal is dismissed on merits (sub-contractor liability) but allowed insofar as demands and penalties founded on the extended period of limitation are concerned; normal-period demands remain enforceable.