Question of availability of 67% abatement under Notification no. 1/2006-ST to a contractor who subcontracted a part of contract.

PJ/CASE LAW/2016-17/3172

Case:- PROTECH GALVANIZER AND FABRICATORS PVT LTD Vs COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, JAIPUR

Citation:- 2016-TIOL-333-CESTAT-DEL

Issue:-Question of availability of 67% abatement under Notification no. 1/2006-ST to a contractor who subcontracted a part of contract.

Brief Facts:-Stay application along with appeal has been filed against orderinoriginal dated 16.12.2013 in terms of which service tax demand of Rs.69,08,552/was confirmed under ECIS for the period October 2009 to March 2010 along with interest and penalties.

Appellant’s Contention:- The appellant has contended that:
(i) It was a manufacturer of transmission towers and had entered into agreements with BSNL for supply, installation and commissioning of these towers. These agreements were clearly divisible showing supply of towers and the service component relating to foundation, installation, erection, painting, earthling circuit etc.
(ii) It sub constructed the service component to subcontractor which duly paid service tax. It also paid service tax on the service component by taking credit of the service tax paid by subcontractor. The towers were supplied as per the separate value shown in the contract to service recipient and therefore towers' value was not includible in the assessable value.
(iii) It only supplied towers to BSNL and did not provide any ECIS which was provided by subcontractor and therefore it was not even liable to pay service tax. In effect thus whatever credit it took has been reversed by payment of that much amount of service tax.

Respondent’s Contention:- The appellant was liable to pay service tax by including the value of towers and as the value was not included abatement of 67% under Notification No. 1/2006-ST was not admissible and therefore the impugned demand is sustainable.

Reasoning Of Judgment: The representative purchase order "for supply, installation/ commissioning of ground based towers". The said order clearly shows separate amounts for supply for ground based towers and the service component detailed earlier. As stated by the appellant, it supplied towers to BSNL and subcontracted, ECIS part to subcontractor "which duly paid service tax under ECIS. In these circumstances, prima facie the appellant itself did not provide any ECIS and therefore was not liable to pay service tax. This view is supported by the following clarification contained in Board's circular No. 96/7/2007ST dated 23.8.2007 999.03/ 23.8.07 in respect of case where A taxable service provider outsources a part of the work by engaging another service provider, generally known as subcontractor. Service tax is paid by the service provider for the total work. In such cases, whether service tax is liable to be paid by the service provider known as subcontractor who undertakes only part of the whole work. A subcontractor is essentially a taxable service provider. The fact that services provided by such subcontractor are used by the main service provider for completion of his work does not in any way after the fact of provision of taxable service by the subcontractor. Services provided by sub contractors are in the nature of input services. Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a subcontractor and whether or not such services are used as input services. The fact that a given taxable service is intended for use as an input service by another service provider does not alter the taxability of the service provided. Seen in this light, the question of availability of 67% abatement under Notification No. 1/2006ST loses relevance as whatever service tax the appellant paid can be deemed to bereversal of the Cenvat credit of service tax (paid by subcontractor)taken by it (i.e. the appellant) when service tax paid by it (appellant) was not less than such credit taken.In the light of the foregoing analysis and having regard to the fact that as against the demand of Rs. 69,08,552/an amount of Rs.23,39,742/has been remitted, we do not order any further predeposit and stay recovery of the remaining adjudicated liability during pendency of the appeal.

Decision:-Appeal allowed.

Comment:- The gist of the case is that the availability of 67% abatement under Notification No. 1/2006-ST loses relevance as whatever service tax the appellant paid can be deemed to be reversal of the Cenvat credit of service tax (paid by subcontractor) taken by it (i.e. the appellant) when service tax paid by it (appellant) was not less than such credit taken.

Prepared By: - Alakh Bhandari

Comments

PJ/CASE LAW/2016-17/3172

Post a Comment

Query