service tax Demand raised for the year 2016-17

[THYAGARAJAN KALYANASUNDARAM]

Dear Experts,

One of my clients executed a civil contract with a government department on a sub-contract basis. Now, he received the order by demanding huge service tax liability to my client.

Is there Mega Notification no.25/2012 that will be applicable to sub-contracts too?

Thanks in advance.

[KASTURI SETHI]

Relevant extract of Education Guide released by Board on 19.6.12 (effective from 1.7.12). These are guidelines.

7.11.11 Whether the exemption provided in the mega-exemption to services by way of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams etc., is also available to the sub-contractors who provide input service to these main contractors in relation to such construction?

As per clause (1) of section 66Freference to a service by nature or description in the Act will not include reference to a service used for providing such service. Therefore, if any person is providing services, in respect of projects involving construction of roads, airports, railways, transport terminals, bridges, tunnels, dams etc., such as architect service, consulting engineer service., which are used by the contractor in relation to such construction, the benefit of the specified entries in the mega-exemption would not be available to such persons unless the activities carried out by the sub-contractor independently and by itself falls in the ambit of the exemption.

It has to be appreciated that the wordings used in the exemption are ‘services by way of construction of roads etc’ and not ‘services in relation to construction of roads etc’. It is thus apparent that just because the main contractor is providing the service by way of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams etc., it would not automatically lead to the classification of services being provided by the sub-contractor to the contractor as an exempt service.

However, a sub-contractor providing services by way of works contract to the main contractor, providing exempt works contract services, has been exempted from service tax under the mega exemption if the main contractor is engaged in providing exempt services of works contracts. It may be noted that the exemption is available to sub-contractors engaged in works contracts and not to other.

[Aakash Deb]

First of all Service Tax demands are now time barred. There are innumerable judgements available where the high courts have quashed the demand notices. No need to worry or submit any documents to the dept., burden to prove guilty is on the dept.

Secondly if a contract was executed between the sub contractor and the govt department then mega exemption will be applicable.

AI Summary

Mega exemption for construction services may not extend to subcontractors, except those performing exempt works contract services. The Board's guidance states that the mega-exemption for construction services does not automatically extend to subcontractors whose services are inputs to a main contractor; the subcontractor's own activity must independently fall within the exemption. Subcontractors performing works contract services are exempt if the main contractor provides exempt works contract services. Procedural points include potential time-barred demands and the department's burden to prove liability.