2025 (7) TMI 639 - AT - Service Tax

Contractor held liable for service tax on work executed for JSPL despite contractual clause requiring client to bear tax burden

M/s Gupta & Company Developers Pvt. Ltd. Versus Commissioner of CGST & Central Excise, Ranchi

CESTAT Kolkata held appellant liable for service tax on work executed for JSPL during FY 2008-09 to 2011-12. Despite contractual clause requiring JSPL to ... Liability of appellant to pay service tax - non-payment of service tax - appellant has executed work for JSPL in FY 2008-09 and 2009-10 and in 2010-11 and 2011-12 under the Pradhan Mantri Grameen Sadak Yojna - HELD THAT:- It is found that it is the case of non-payment of service tax by the appellant and the same has been detected during the course of investigation, wherein various summons have been issued to the appellant and in response to the said summons, various documents were furnished by the appellant and a show-cause notice was issued to the appellant. The appellant has admitted in their written submissions itself that they have executed the work amounting to Rs.7,46,22,386/-, on which TDS has been deducted by JSPL. The sole contention of the appellant is that as per Clause 10(j) of the Agreement, if any service tax is payable, the same shall be borne by JSPL on production of requisite documents. Admittedly, neither the appellant paid the service tax to the Department nor any documents have been produced for payment of service tax by the appellant. In that circumstances, JSPL has rightly not paid the service tax. In fact, it is the liability of the appellant to pay the service tax and raise invoices for payment of service tax on the service recipient, which the appellant has failed to do so. Further, the appellant’s claim is that they have executed the work under Pradhan Mantri Grameen Sadak Yojna, which was awarded to the appellant by way of Hindustan Steel Works Construction. The said issue has not been dealt by the adjudicating authority in the impugned order, which is required to be verified on production of the Works Order for execution of works by the appellant under Pradhan Mantri Grameen Sadak Yojna - Therefore, though the issue will be examined by the adjudicating authority afresh, but with regard to the work executed for JSPL, the amount received by the appellant shall be treated as cum-tax amount and the appellant is liable to pay service tax thereon as it is for the appellant to make payment of service tax on receipt of the amount of remuneration of service provided by them. The matter back to the adjudicating authority for computation of demand considering the claim of the appellant where the appellant has executed any work under the Pradhan Mantri Grameen Sadak Yojna, if the same has been executed by the appellant on the said work, the appellant is not liable to pay service tax but on the work executed for M/s JSPL, the appellant is liable to pay service tax and the amount received from JSPL be treated as cum-tax. Appeal disposed off by way of remand. The primary legal questions considered by the Tribunal in this appeal are:1. Whether the appellant is liable to pay service tax on the amounts received for site formation, clearance, excavation, earthmoving, and demolition services provided to M/s Jindal Steel & Power Limited (JSPL) during the period 2008-2010 and subsequent years.2. Whether the amounts received by the appellant from JSPL should be treated as inclusive of service tax (cum-tax) or exclusive, given the contractual clause regarding service tax liability.3. Whether the appellant is exempt from service tax liability for works executed under the Pradhan Mantri Grameen Sadak Yojna (PMGSY), as claimed.4. The applicability and imposition of interest and penalty for non-payment and non-declaration of service tax.Issue 1: Liability to Pay Service Tax on Services Rendered to JSPLThe legal framework governing this issue is the Finance Act, 1994, which mandates the payment of service tax on taxable services provided. The appellant was alleged to have received substantial amounts for services rendered to JSPL but declared and paid negligible service tax, leading to a demand of Rs.3,61,25,889/- along with interest and penalty.The Tribunal noted that the appellant admitted executing work worth Rs.7,46,22,386/- for JSPL and that Tax Deducted at Source (TDS) was deducted by JSPL on these payments. The appellant, however, did not pay service tax to the department nor produced documents evidencing payment of service tax by JSPL.Contractual Clause 10(j) of the Work Order stated that service tax liability was to be borne by JSPL upon production of requisite documents. The appellant contended that this clause absolved them of service tax liability.The Tribunal interpreted this clause in the context of statutory provisions and found that the liability to pay service tax lies with the service provider (appellant) who must raise invoices inclusive of service tax and remit the tax to the department. The mere contractual stipulation that the service recipient (JSPL) would bear the service tax does not relieve the appellant of statutory liability to pay service tax. The appellant's failure to raise service tax invoices and remit tax to the department was a breach of statutory duty.The Tribunal applied the law to the facts by treating the amounts received by the appellant from JSPL as inclusive of service tax (cum-tax). This means the appellant was liable to pay service tax on the entire amount received, regardless of the contractual clause.Competing arguments from the appellant emphasizing contractual allocation of tax liability were rejected on the basis that statutory obligations cannot be circumvented by private agreements.The Tribunal concluded that the appellant was liable to pay service tax on services rendered to JSPL and the demand confirmed by the adjudicating authority was justified.Issue 2: Treatment of Amounts Received as Cum-Tax or Exclusive of Service TaxThe appellant argued that the amounts received from JSPL did not include service tax, as JSPL was to bear the tax separately under the contract. The Tribunal examined this claim in light of the evidence, including the absence of any documents showing payment of service tax by JSPL to the appellant or to the department.The Tribunal held that in the absence of any such documents or invoices reflecting separate service tax, the amounts received must be treated as inclusive of service tax. This interpretation aligns with the principle that the service provider is responsible for discharging service tax liability on the total consideration received.This legal position was applied to the facts, leading to the conclusion that the appellant's receipts from JSPL were cum-tax amounts and service tax was payable on the entire sum.Issue 3: Exemption Claim for Works Executed Under Pradhan Mantri Grameen Sadak Yojna (PMGSY)The appellant claimed exemption from service tax liability for works executed under PMGSY, contending that such works fall outside the purview of service tax.The Tribunal observed that this issue was not considered by the adjudicating authority in the impugned order and required verification through production of the relevant Work Orders and documents.The Tribunal remanded this issue to the adjudicating authority for fresh examination. The authority was directed to verify whether the appellant had executed any work under PMGSY and if so, determine the applicability of service tax on such works.This approach reflects the principle that exemption claims must be substantiated with proper documentation and examined on merits.Issue 4: Imposition of Interest and PenaltyThe Finance Act, 1994, provides for interest on delayed payment of service tax and penalties for non-compliance, including failure to pay tax and furnish returns.The Tribunal upheld the imposition of interest and penalty on the appellant for non-payment and non-declaration of service tax on amounts received from JSPL. The appellant's failure to respond adequately to summons and to discharge statutory obligations justified the penalty imposition.However, the Tribunal remanded the matter for recalculation of demand and penalties after considering the PMGSY exemption claim.Significant Holdings:'It is the liability of the appellant to pay the service tax and raise invoices for payment of service tax on the service recipient, which the appellant has failed to do so.''The amount received by the appellant shall be treated as cum-tax amount and the appellant is liable to pay service tax thereon as it is for the appellant to make payment of service tax on receipt of the amount of remuneration of service provided by them.''The issue regarding work executed under Pradhan Mantri Grameen Sadak Yojna has not been dealt with by the adjudicating authority and requires verification on production of the Work Order.'The core principles established include the statutory liability of the service provider to pay service tax irrespective of contractual arrangements to the contrary, the treatment of amounts received as inclusive of service tax in absence of separate invoicing, and the necessity to substantiate exemption claims with proper documentation.On the final determinations, the Tribunal confirmed the appellant's liability to pay service tax on services rendered to JSPL, upheld the demand with interest and penalty, but remanded the matter for fresh consideration of the PMGSY exemption claim and consequent recalculation of demand and penalties.