Independent sub-contractor service tax liability survives principal contractor payment, but interpretational disputes cannot support extended limitation.

A sub-contractor has an independent obligation to pay service tax on consideration received, and payment by the principal contractor does not extinguish that liability. However, the extended limitation period under the proviso to Section 73(1) of the Finance Act, 1994 cannot apply without substantive evidence of wilful suppression of facts with intent to evade tax. Where conflicting Tribunal decisions made sub-contractor liability an interpretational issue until settled by a Larger Bench, extended limitation is not justified. Accordingly, although the underlying service tax liability was affirmed, the demand was barred by limitation.

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Issues: (i) Whether a sub-contractor remains liable to service tax where the principal contractor has discharged tax on the services; (ii) Whether the extended limitation period could be invoked for the demand.

Issue (i): Whether a sub-contractor remains liable to service tax where the principal contractor has discharged tax on the services.

Analysis: The Larger Bench ruling established that payment of service tax by the principal contractor does not extinguish the sub-contractor's separate obligation to discharge tax on the consideration received by it.

Conclusion: The sub-contractor is independently liable to pay service tax notwithstanding payment of tax by the principal contractor; this issue is against the assessee.

Issue (ii): Whether the extended limitation period could be invoked for the demand.

Analysis: The notice did not contain substantive evidence establishing wilful suppression of facts with intent to evade tax. The liability of sub-contractors had been subject to contradictory Tribunal decisions until settled by the Larger Bench, rendering the matter interpretational. Such circumstances did not justify invocation of the extended period.

Conclusion: The extended period under the proviso to Section 73(1) of the Finance Act, 1994 was not invocable; this issue is in favour of the assessee.

Final Conclusion: Although the substantive tax liability of a sub-contractor was affirmed, the demand failed because the show-cause notice was barred by limitation.

Ratio Decidendi: The extended limitation period cannot be invoked in an interpretational dispute absent evidence of wilful suppression with intent to evade tax.

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