Penal consequences for an unregistered subcontractor

[paresh zatakia]

Dear All, a person ia subcontractor of a contracot (contractor is registered under service tax).He has not taken the regi.because he thought he is not liable to pay tax,since the main contractor is paying.now enquiry from dept has come,what are the penal consequences? paresh zatakia

[Surender Gupta]

This is the case of fact as well as law. There are various options available in the service tax provisions. For example, you may fight the case on the ground of bonafide belief, limitation of time limit, various circulars of the Board etc. etc. I believe, I good stand may reduce the adverse consequences.

[Madhukar N Hiregange]

The sub contractor is liable to register and pay servcie tax once his taxable servcies exceed Rs. 4 Lakhs. He can avail the not.1/2006 to arrive at his taxable servcies and claim that 67% is exempt. In effect the turnover upto Rs. 12 Lakhs would not then be liable. After that turnover there is a liability to pay. The main contracotr would be eligible for availing the credit if he is working under Not.12/2003 but not admissible if under 1/2006. There is also an old circular for sub contract of 1997 which states that as long as the main Service provider is registered and has paid the servcie tax the sub contractor need not register. However this may be disputed by the dept. as now cenavt credit is available.

AI Summary

Service tax registration obligation: subcontractor may be liable to register and pay tax despite main contractor's payments. A subcontractor must register and pay service tax when his taxable turnover exceeds the statutory threshold; failure to do so can lead to assessment and penalties, though defences such as bona fide belief, limitation and reliance on Board circulars may mitigate consequences. Use of specified notifications determines the taxable portion of receipts and affects whether registration is required, while the main contractor's payment of tax does not automatically relieve the subcontractor though an earlier circular suggested otherwise and may be disputed by the department.