Sub-contractor service tax demand time-barred due to conflicting board circulars and lack of clarity

CESTAT Ahmedabad allowed the appeal in a service tax case where the appellant provided erection, commissioning, installation and fabrication services as a sub-contractor. The HC held that due to conflicting board circulars and lack of clarity on sub-contractor liability during the relevant period (September 2005 to June 2009), no mala fide intention could be attributed to the appellant. The demand was time-barred as the SCN dated 18.10.2009 was issued beyond the normal limitation period, making the entire demand unsustainable. The impugned order was set aside.

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Issues Involved:

1. Whether the demand of Service Tax on the appellant, a sub-contractor, is unsustainable on the ground of time bar.
2. Whether the extended period of limitation can be invoked in this case.

Summary:

Issue 1: Demand of Service Tax on Sub-Contractor and Time Bar

The appellant, acting as a sub-contractor for main contractors including Petron Engineering Construction Ltd., Punj Llyod Ltd, BHEL, Engineering India Ltd, and L&T, faced a demand for Service Tax for the period September 2005 to June 2009. The Show Cause Notice (SCN) was issued on 18.10.2009, covering services provided from 10.09.2004 to 30.04.2008. The appellant argued that the demand is time-barred, citing conflicting board circulars and the Larger Bench decision in the case of M/s. Melagne Developers Pvt Ltd -2019 (6) TMI 518 (CESTAT New Delhi). The Tribunal found that due to the lack of clarity and conflicting circulars during the relevant period, no mala fide intention to evade tax could be attributed to the appellant. Consequently, the demand for the period beyond the normal limitation is unsustainable.

Issue 2: Extended Period of Limitation

The Tribunal considered various judgments, including those in the cases of M/s. Pramukh Earth Movers, Synergy Engineers Group Pvt Ltd, Vinoth Shipping Services, Vishal Engineering Company, and others. It was consistently held that the extended period of limitation could not be invoked due to the bona fide belief and conflicting judgments regarding the taxability of sub-contractors. The Tribunal cited the Larger Bench decision in M/s Melange Developers Pvt. Ltd, which clarified that the sub-contractor is liable to pay Service Tax, but the extended period cannot be invoked without clear evidence of suppression, misstatement, fraud, or collusion with intent to evade tax.

The Tribunal concluded that the demand for Service Tax for the extended period is not sustainable and set aside the impugned order, allowing the appeal with consequential relief in accordance with the law.

Conclusion:

The Tribunal set aside the impugned order and allowed the appeal, ruling that the demand for Service Tax on the appellant, a sub-contractor, is unsustainable on the ground of time bar, and the extended period of limitation cannot be invoked. The decision was pronounced in open court on 20.10.2023.

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