2026 (2) TMI 433 - AT - Service Tax

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 ... Invocation of extended period of limitation - liability of sub-contractor where principal contractor discharged service tax - suppression of material facts with intent to evade - bona fide belief arising from conflicting decisions of the Tribunal - effect of Master Circular No.96/7/2007-S.T. - HELD THAT:- We find that it is a fact on record that after issuance of the Master Circular No. 96/7/2007-S.T. dated 23.08.2007, the appellant has not paid Service Tax, being the sub-contractor, on the ground that the main contractor was paying Service Tax on the activity undertaken by the appellant. Further, the issue was referred to the Larger Bench of the Tribunal in the case of Commissioner of S.T., New Delhi v. Melange Developers Pvt. Ltd. [2019 (6) TMI 518 - CESTAT NEW DELHI-LB] wherein this issue came up before this Tribunal to decide as to whether in such a situation, after issue of the Master Circular dated 23.08.2007, a sub-contractor is liable to pay Service Tax if the main contractor is paying Service Tax. The Larger Bench decided the issue on 23rd May, 2019 holding that in such a situation, the sub-contractor would be liable to pay Service Tax. However, till then, there was a dispute as to whether a sub-contractor was liable to pay Service Tax in such cases or not. Admittedly, in this case, the period of dispute is from December, 2008 to March, 2012 whereas the Show Cause Notice came to be issued only on 07.01.2014 by invoking the extended period of limitation. Therefore, in these circumstances, we hold that the extended period of limitation is not invocable. In view of this, we set aside the impugned order and allow the appeal, with consequential relief, if any. 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.