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Issues: (i) Whether a sub-contractor is liable to pay service tax on services provided to the main contractor even when the main contractor has discharged tax on the contract; (ii) Whether the demand was barred by limitation; (iii) Whether cum tax benefit under Section 67(2) of the Finance Act, 1994 is admissible and calls for recomputation of the demand.
Issue (i): Whether a sub-contractor is liable to pay service tax on services provided to the main contractor even when the main contractor has discharged tax on the contract?
Analysis: The liability of a sub-contractor was treated as settled by the Larger Bench view relied upon by the Tribunal, which held that a sub-contractor is a taxable service provider in his own right. The existence of payment of tax by the main contractor does not, by itself, exempt the sub-contractor from the statutory levy. The scheme of service tax and CENVAT credit was treated as sufficient to answer the double taxation objection.
Conclusion: The issue was answered against the assessee and in favour of the Revenue; the sub-contractor remained liable to pay service tax.
Issue (ii): Whether the demand was barred by limitation?
Analysis: The dispute period was February 2016 to December 2016 and the show cause notice was issued on 30.08.2018. On the Tribunal's computation, the notice fell within the normal limitation period applicable to service tax demands, and therefore invocation of the extended period was unnecessary. The demand was consequently not hit by limitation in the facts of the case.
Conclusion: The issue was decided in favour of the Revenue; the demand was held to be within time.
Issue (iii): Whether cum tax benefit under Section 67(2) of the Finance Act, 1994 is admissible and calls for recomputation of the demand?
Analysis: The Tribunal accepted that where the gross amount charged is inclusive of service tax, the taxable value must be recomputed by extending cum tax benefit. It therefore held that the service tax liability required reworking on the basis of the correct taxable value, and that the consequential interest and penalty aspects also had to be reconsidered on the recomputed figure.
Conclusion: The issue was decided in favour of the assessee; the demand was required to be recalculated after granting cum tax benefit.
Final Conclusion: The service tax liability of the sub-contractor was upheld, the plea of limitation failed, but the matter was remanded for fresh computation after allowing cum tax benefit and for consequential reconsideration of interest and penalty.
Ratio Decidendi: A sub-contractor rendering a taxable service is independently liable to service tax notwithstanding payment by the main contractor, while the taxable value must be recomputed on a cum-tax basis where the gross amount charged includes service tax.
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