Limitation bars service tax demand against sub-contractors where the department delayed action despite earlier knowledge.

Service tax demand against sub-contractors was treated as time-barred because the department had knowledge of the alleged non-payment during audit proceedings in 2008 but initiated action only nearly three years later. Although the department relied on Master Circular No. 96/7/2007-S.T. to support taxability, the extended limitation period was not available on these facts. The demand therefore could not survive on limitation, and the appeals were dismissed, leaving the impugned orders undisturbed.

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Issues: Whether the service tax demand raised against the sub-contractors was barred by limitation despite the department's case on tax liability.

Analysis: The respondents were engaged as sub-contractors during the relevant period, and the department relied on Master Circular No. 96/7/2007-S.T. to contend that service tax was payable. However, the fact of non-payment had come to the department's knowledge in 2008 during audit proceedings at the end of the main contractor, yet no action was taken against the respondents for nearly three years thereafter. In these circumstances, invocation of the extended period was not sustainable and the demand could not survive on limitation.

Conclusion: The demand was held to be barred by limitation and the appeals were dismissed, leaving the impugned orders undisturbed.

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