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

Duty to verify subcontractor tax compliance: main contractor has no strict liability but should take reasonable steps when availing credit.
No absolute legal duty exists for a main contractor to ensure a sub-contractor has complied with tax formalities; under the Cenvat credit regime the person availing credit must take reasonable steps to verify that credit is correctly taken, including confirming the sub-contractor's registration and that service tax is being paid and returns filed.