Sub-contractor service tax liability: conflicting views on double taxation, limitation, abatements, cum-tax benefit and SEZ exemption.

The commentary examines whether service tax can be demanded from a sub-contractor when the main contractor has already discharged tax on the composite contract value. One view treats a second levy as impermissible multiple taxation in a destination-based service tax regime, so the demand, extended period, and penalties fail, while abatement for material, cum-tax benefit, and SEZ exemption are allowed. The contrary view says the person actually providing the taxable service remains liable under the Finance Act unless exempt, and rejects revenue neutrality as a complete defence, while accepting the SEZ claim but not similar relief on limitation and penalties.

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Issues: Whether service tax was payable by the sub-contractor where the main contractor had discharged tax on the entire contract value, and whether the extended period of limitation and penalties were invokable; whether abatement for the material component, cum-tax benefit, and exemption for services rendered in the SEZ were available.

Concurring Opinion: The Member (Judicial) held that service tax could not again be demanded from the sub-contractor when tax had already been paid by the main contractor on the composite contract value. It was held that the levy under the Finance Act, 1994 is destination-based and cannot result in multiple taxation on the same service. On that basis, the demand was held unsustainable, the extended period was found unavailable in the absence of suppression or fraud, abatement for material component and cum-tax benefit were allowed, SEZ services were held exempt, and all penalties were set aside.

Dissenting Opinion: The Member (Technical) held that the statutory scheme under Section 66 and Section 68 of the Finance Act, 1994 requires the person providing the taxable service to discharge service tax, unless a specific exemption applies. It was concluded that the sub-contractor remained liable notwithstanding payment by the main contractor, that the contrary authorities were not applicable to service tax in the presence of the credit mechanism, and that the demand itself did not fail on the ground of revenue neutrality. However, it was also concluded that the SEZ-related claim could be accepted, while the issue of extended period and penalties did not warrant relief in the same manner.

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