Sub-contractor not liable for service tax on dredging services as main contractor already paid tax on gross value

CESTAT Kolkata held that sub-contractor was not liable for service tax on dredging services for 2005-07 period since main contractor had already paid tax on gross value, applying Supreme Court precedent that oppressive circulars operate prospectively only. For 2008-12 period, demand was time-barred as it exceeded normal limitation period of one year from return filing date, with no evidence of suppression to justify extended limitation. Penalties were set aside due to lack of evidence showing intentional evasion. Appeal allowed.

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Issues Involved:
1. Demand of service tax on 'Dredging Services' as a sub-contractor.
2. Demand of service tax on 'Construction Service' and 'Goods Transport Agency Service'.
3. Extended period of limitation for demanding service tax.
4. Imposition of penalties under Section 78 of the Finance Act, 1994.

Summary:

1. Demand of Service Tax on 'Dredging Services' as a Sub-Contractor:
The Appellant contested the demand of Rs.38,16,593/- for 'Dredging Services' undertaken during 2005-06 and 2006-07, arguing that the main contractor, M/s MBL, had already discharged service tax on the gross amount received. The Tribunal observed that initially, the Department had clarified that sub-contractors were not liable for service tax if the main contractor paid it. However, a later Circular No. 96/7/2007-ST dated 23.08.2007 clarified that sub-contractors are liable to pay service tax. The Tribunal held that this circular could only be applied prospectively from 23.08.2007. Therefore, the demand for Rs.38,16,593/- for the period 2005-06 to 2006-07 was not sustainable.

2. Demand of Service Tax on 'Construction Service' and 'Goods Transport Agency Service':
The Appellant did not contest the demand of Rs.1,77,608/- for 'Construction Service' and Rs.92,828/- for 'Goods Transport Agency Service'. The Tribunal upheld these demands along with interest.

3. Extended Period of Limitation for Demanding Service Tax:
For the demand of Rs.1,15,68,852/- for the period 2008-09 to 2011-12, the Appellant argued that the dredging services in Chilka lake were not taxable and that the extended period of limitation could not be invoked. The Tribunal noted that the dredging was undertaken in the estuary area, which is liable to service tax. However, it found that the demand was raised beyond the normal period of limitation, as the Appellant had been filing regular returns and there was no suppression of facts. Therefore, the demand was not sustainable on the ground of limitation.

4. Imposition of Penalties under Section 78 of the Finance Act, 1994:
The Tribunal held that there was no evidence of suppression of facts with the intention to evade tax. Consequently, the penalties imposed under Section 78 were set aside.

Order:
i. The demand of Rs.38,16,593/- for 'Dredging Services' for 2005-06 to 2006-07 was set aside.
ii. The demand of Rs.1,77,608/- for 'Construction Service' and Rs.92,828/- for 'Goods Transport Agency Service' was upheld with interest.
iii. The demand of Rs.1,15,68,852/- for 2008-09 to 2011-12 was set aside on the ground of limitation.
iv. The penalties under Section 78 were set aside.
v. Appeals were disposed of accordingly.

(Order pronounced in the open court on 29.02.2024)

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