Liability of Legal Compliances

[Brijesh Verma]

Dear Sir

Is it a legal duty of the Main Contractor to ensure that the sub-contractor has complied with the legal formalities. The Main contractor must ensure that sub-contractor has paid the due tax to the Government even when the main contractor doesn't take any credit of the tax paid by sub-contractor. 

Kindly guide with case laws if possible. 

[Surender Gupta]

Dear Brijesh, there is no legal liability on the part of Main Contractor to ensure that sub-contractor has complied with the legal formalities as such.

It appears that your query is related more to Cenvat Credit. As per the provisions of Rule 9 it is the responsibility of the person availing credit to ensure that he is taking cenvat credit correctly.  Reasonable steps are enough. Therefore, where sub-contractor is charging service tax on its bills, main contractor may ensure that he is registered with the service tax department. Though no required but he may randomly check whether he is paying service tax to the government and filing service tax returns in due course.

You may also refer a decision of CESTAT as:

Bhagwati Silk Mills Versus Commissioner of Central Excise, Surat [2011 (1) TMI 239 - CESTAT, AHMEDABA]

AI Summary

Main contractor not liable for sub-contractor's service tax compliance; responsibility lies with Cenvat Credit claimant. A query was raised regarding whether a main contractor is legally obligated to ensure that a sub-contractor complies with legal formalities, specifically the payment of service tax. The response clarified that there is no legal liability for the main contractor to ensure the sub-contractor's compliance. The responsibility lies with the party availing Cenvat Credit to ensure its correctness. Reasonable steps, such as verifying the sub-contractor's registration with the service tax department, are sufficient. A related case, Bhagwati Silk Mills versus Commissioner of Central Excise, Surat, was referenced for further guidance.