Sub-contractor service tax liability upheld, but extended limitation and penalty set aside for no suppression

A sub-contractor was held separately liable to pay service tax even though the main contractor had discharged tax on the full value, following the Board's clarification that such liability applies independently. The extended period of limitation could not be invoked because the record showed conflicting views on the tax position during the relevant period, the issue was already within departmental knowledge, and no suppression of facts with intent to evade tax was established. Penalty was also held unsustainable for the same reason. The demand survived only for the normal period, while the extended-period demand and penalty were set aside.

---

---

Issues: (i) whether a sub-contractor is liable to pay service tax even where the main contractor has discharged tax on the full value; (ii) whether the extended period of limitation was invocable; (iii) whether penalty was imposable.

Issue (i): whether a sub-contractor is liable to pay service tax even where the main contractor has discharged tax on the full value.

Analysis: The services were rendered by the appellant as a sub-contractor. The Board's clarification dated 23.08.2007 stated that a sub-contractor is separately liable to pay service tax even if the main contractor has paid tax on the entire amount. On that basis, the liability of the sub-contractor was upheld.

Conclusion: The issue was decided against the assessee and the sub-contractor's service tax liability was affirmed.

Issue (ii): whether the extended period of limitation was invocable.

Analysis: The record showed conflicting views during the relevant period on the tax liability of sub-contractors. The clarification issued by the Board later removed the ambiguity. The demand was already within the knowledge of the Department, and no material established suppression of facts with intent to evade tax. The extended period was therefore not available, while the demand for the normal period survived within the period available on the date of notice.

Conclusion: The extended period of limitation was held inapplicable, but the demand for the normal period was sustained.

Issue (iii): whether penalty was imposable.

Analysis: In the absence of suppression of facts with intent to evade tax, the precondition for penalty was not satisfied.

Conclusion: Penalty was held to be not imposable.

Final Conclusion: The service tax demand was sustained only for the normal period, while the demand for the extended period and the penalty were set aside.

Ratio Decidendi: Where the factual matrix shows no suppression with intent to evade and the dispute remained unsettled during the relevant period, the extended limitation period cannot be invoked, though the demand may still survive for the normal period available under the statute.

---