Second SCN invoking extended limitation period for service tax recovery under Manpower Recruitment Service held unsustainable

CESTAT Chennai held that a second SCN invoking extended period of limitation for service tax recovery under Manpower Recruitment or Supply Agency Service was unsustainable. The tribunal found that the department had access to all relevant information from ST-3 returns when issuing the first SCN, making the second SCN based on the same returns time-barred. The appellant's activities involved welding and fabrication works as a sub-contractor, and Board circulars clarified that sub-contractors were not liable for service tax during the relevant period. The impugned order was set aside and appeal allowed.

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Issues Involved:
1. Legality and propriety of invoking the extended period for issuing a second show cause notice.
2. Classification of activities under 'Manpower Recruitment or Supply Agency Service' versus 'Works Contract Service'.
3. Determination of liability for service tax on sub-contractors when the main contractor has discharged the tax liability.

Summary:

1. Legality and Propriety of Invoking Extended Period:
The appellant argued that the second show cause notice (SCN) dated 22.04.2013, invoking the extended period, is not sustainable since an earlier SCN dated 17.10.2012 was issued for the same period (August 2007 to March 2011) under 'Works Contract Service' (WCS). The appellant had already approached the Settlement Commission and paid the service tax liability along with interest for the earlier SCN. The present SCN, based on the same ST-3 returns, alleges suppression of facts, which the appellant contends is not valid as the department was already aware of the facts from the earlier SCN. The Tribunal agreed, citing the Supreme Court's decision in Nizam Sugar Factory, which held that a second SCN on the same facts invoking the extended period is not sustainable.

2. Classification of Activities:
The appellant contended that the activities performed under work orders from M/s. Comtech, M/s. Espee Tech, and M/s. D.R. Associates involved fabrication and welding, which fall under 'manufacture' as per Section 2(f) of the Central Excise Act, 1944, and not under 'Manpower Recruitment or Supply Agency Service' (MRSA). The Tribunal noted that the activities were indeed fabrication and welding for shipbuilding and other projects, which had been treated as manufacturing activities by the main contractors and the appellant. The Tribunal referred to the case of Plus Tech Fabricators Pvt. Ltd., which held that such activities are 'manufacture' and not service.

3. Liability for Service Tax on Sub-Contractors:
The appellant argued that the main contractor, M/s. Comtech, had already discharged the service tax liability, and as per the Board's Circulars and the decision in Melange Developers Pvt. Ltd., the sub-contractor is not required to pay service tax if the main contractor has already done so. The Tribunal acknowledged the contradictory circulars and ongoing litigations during the relevant period and concluded that the appellant had a bona fide belief that they were not liable to pay service tax.

Conclusion:
The Tribunal held that the second SCN invoking the extended period based on the same ST-3 returns is time-barred and not sustainable. The impugned order was set aside, and the appeal was allowed with consequential relief.

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