Main contractor to be treated as body corporate by the department.

[Sudhir Kumar]

A show Cause Notice was issued to the noticee proposing the demand of Service Tax amounting to Rs. 86,00000/-along with applicable interest and penalty under Finance Act, 1994. The SCN alleged that as per Form 26AS the noticee received consideration from main contractor for construction of Electronic & Electrical Science Building at NIT, Rourkela. The noticee contended that services were provided to NIT, Rourkela by the main contractor, NIT falls under the definition of Governmental Authority. Similarly, the noticee provided work contract service to the main contractor for construction of IIT, NIT, IIISER, Kolkata and toilet in School under Swachh Vidyalaya Programme. Noticee contended that as the service provided by the main contractor is exempted under entry sl.no. 12A of Notification No. 25/2012-ST dated 20.06.2012 hence as per entry no. 29(h) of the same notification the service provided by him as work contract is also exempted from service tax liability. The department treated the main contractor a body corporate hence, proposed a demand of service tax under reverse mechanism and 50% liability was demanded from the noticee. The adjudicating authority confirm the demand going on line with the demand proposed in SCN. Considering the above, please give an authenticated solution with reference to Circulars/ Notifications/Acts and Rules of Service Tax so that appeal  may be filed.

[Ryan Vaz]

Applicable Law / Notifications / Circulars

1. Section 66B, Finance Act, 1994 – Charging section

2. Section 65B(44) – Definition of “service”

3. Section 68(2) – Reverse Charge Mechanism

4. Rule 2(1)(d) of Service Tax Rules, 1994

5. Notification No. 25/2012-ST dated 20.06.2012 (Mega Exemption)

   • Entry 12 / 12A – Services provided to Government / Governmental Authority

   • Entry 29(h) – Sub-contractor exemption where main service is exempt

6. Notification No. 30/2012-ST dated 20.06.2012 – RCM notification

7. CBEC Circular No. 147/16/2011-ST dated 21.10.2011

8. CBEC Circular No. 151/2/2012-ST dated 10.02.2012

9. CBEC Education Guide on Service Tax (June 2012)

10. Judicial discipline under Article 265 of Constitution of India

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Short Practical Answer

• The demand is legally unsustainable.
• Once the main service is exempt, sub-contractor services are also exempt under Entry 29(h).
• Reverse Charge cannot be invoked on an exempt service.
• Form 26AS cannot override statutory exemption.
• Adjudicating Authority failed to appreciate binding CBEC Circulars

(Next Steps)

1. File appeal before Commissioner (Appeals) within limitation

2. Attach:

   • Contracts & work orders

   • Proof of Governmental Authority status

   • Notification & Circular extracts

3. Highlight Entry 12A + Entry 29(h) correlation

4. Seek personal hearing and cite CBEC Circulars

5. If required, seek pre-deposit waiver citing prima facie case

[KASTURI SETHI]

What is the period involved  ?

[Sudhir Kumar]

The period is 2015-16 & 2016-17

[KASTURI SETHI]

Dear Querist,

Only one issue is not involved here. There are some other issues also involved. We cannot jump at conclusion on the basis of your query which is too brief to reply correctly. Can you post relevant portion of SCN ?  It is an absolutely must for concrete and correct drafting grounds of appeal.

AI Summary

Service tax reverse charge invoked on subcontractor despite claimed exemption under entries 12A and 29(h) of mega exemption notification. Department invoked the Reverse Charge Mechanism against a subcontractor after treating the main contractor as a body corporate and proposed service tax demand; the subcontractor contends services to Governmental Authorities are exempt under Notification No. 25/2012-ST entry 12A and that entry 29(h) exempts sub-contractor services where the main service is exempt, precluding reverse charge; Form 26AS cannot override statutory exemption; appeal steps include filing before Commissioner (Appeals), attaching contracts and proof of Governmental Authority status, citing CBEC circulars, and seeking pre-deposit relief.