Liability of sub-contractor for service tax when main contractor paid: extended limitation not invocable, appeal allowed.

Sub-contractor liability for service tax was examined where the sub-contractor did not remit tax after Master Circular No.96/7/2007-S.T., relying on conflicting Tribunal decisions and a bona fide belief that the main contractor was discharging tax. The Larger Bench later held sub-contractors liable, but for the disputed period (Dec 2008-Mar 2012) the conflict created a genuine belief. The Tribunal found the show-cause notice dated 07.01.2014 could not validly invoke the extended period of limitation; consequence: the extended period was held not invocable and the impugned order was set aside, appeal allowed.

---

---

Issues: Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994 could be invoked to demand service tax from a sub-contractor for the period December 2008 to March 2012 where there existed conflicting tribunal decisions on the liability of a sub-contractor to pay service tax and the demand was raised before the Larger Bench decision settled the issue.

Analysis: The appellant had not paid service tax as a sub-contractor relying on the prevailing divergent tribunal views and the understanding that the principal contractor had discharged tax liability. The Tribunal's earlier and contemporaneous authorities show that where conflicting decisions existed, an assessee may have a bona fide belief that tax was not payable. Supreme Court precedent recognises that when there is scope for bona fide doubt arising from divergent judicial views, invocation of the extended period for assessment cannot be sustained. The Larger Bench later settled the legal position that a sub-contractor is liable to pay service tax; however, the show cause notice in this matter was issued prior to that Larger Bench decision while the controversy remained unresolved.

Conclusion: The extended period of limitation under Section 73(1) of the Finance Act, 1994 is not invocable in the facts of this case; the impugned demand and order are set aside and the appeal is allowed in favour of the assessee.

Ratio Decidendi: Where bona fide doubt exists due to conflicting tribunal or court decisions on a tax liability, the extended period of limitation under Section 73(1) of the Finance Act, 1994 cannot be invoked to levy tax for periods prior to resolution of the controversy by a binding authoritative decision.

---