Service Tax paid by Sub-contractor claiming abatement and Main Contractor claiming refund of ST paid by sub-contractor- whether allowable?

PJ/Case Laws/2012-12/1013

Case: Soans Construction Company Vs Commr. Of C.Ex., Mangalore

Citation: 2011(24) S.T.R. 315 (Tri.- Bang.)

Issue:- Whether service tax on Construction of Residential complex paid by both contractor and sub contractor is sustainable?

Brief Facts:- Appellant is a sub-contractor of M/s. SKS Group, Mangalore and undertook construction work for a project. Appellant suo motu claimed benefit of 67% abatement under Notifications 15/2004-S.T., 18/2005-S.T. and 1/2006-S.T. and paid Service Tax only on 33% of the gross taxable value of the work. The burden of this tax paid by the appellant was passed on to Main Contractor. The Main Contractor also paid Service Tax on the same work but subsequently claimed refund on the ground that their sub-contractor had paid tax on the same service.

Revenue issued Show Cause notice demanding Service Tax by denying appellant benefit of abatement which was availed by them while paying Service Tax on 33% of the gross value. This demand was confirmed against the assessee and an amount already paid by them towards Service Tax with interest was appropriated. In addition, penalties were also imposed on the assessee under Sections 76, 77 and 78 of the Finance Act, 1994.

Aggrieved, appellant preferred an appeal to the Commissioner (Appeals) who upheld the order-in-original. Thereafter the appellant filed an appeal against order of Commissioner (Appeals) before Tribunal.

Appellant Contention: - Appellant submitted that Revenue is not entitled to demand Service Tax on the same subject matter from both the builder and their sub-contractor. It is submitted that, even if it be assumed that the appellant (sub-contractor) is also liable to pay the tax, they cannot be compelled to pay the tax on the gross taxable value including the cost of materials and goods supplied by the main contractor. It is also submitted that appellant are entitled to claim abatement from the gross value to the extent of 67% in terms of the Exemption Notifications. In this connection, the appellant has relied on decision of this Bench in the case of Kunnel Engineers & Contractors Pvt. Ltd. v. CCE, Cochin [2011 (22) S.T.R. 296 (Tri.-Bang.)].

Respondent’s Contention: - Revenue submitted that the appellant cannot claim abatement without including the value of the goods and materials supplied for the construction activity, in the gross taxable value. This argument is based on Explanation to Notification, which reads thus

"The 'gross amount charged' shall include the value of goods and materials supplied, or provided or used by the provider of the construction service for providing such service".

Revenue relied on judgment of Jaihind Projects Ltd. v. Commissioner of Service Tax, Ahmedabad [2010 (18) S.T.R. 650 (Tri.-Ahmd.)] wherein the question whether abatement of 67% of the gross taxable value of "commercial or industrial construction service" was admissible to the assessee was considered and it was held that the benefit was not admissible if the value of the goods supplied to the service provider by the service recipient was not included in the gross taxable value.

Revenue also submitted that the present appeal is only liable to be dismissed. In answer to a query from the Bench, the respondent has opined that the refund claim of the builder is an independent matter and that the present appeal can be dealt with, without reference thereto.

Reasoning of Judgment:- The Tribunal held that they were unable to accept the last submission made by the Revenue. It is not in dispute that the work undertaken by the appellant was one awarded to them by the builder (Main Contractor). It is also not in dispute that whatever materials and goods were received by the builder from the beneficiary were transmitted to the appellant for being used in the construction service. The builder admittedly paid Service Tax on the gross taxable value including the cost of such materials.

The Tribunal was of the view that the refund claimed by the builder before the Original Authority is on the ground that they were not liable to pay Service Tax on the taxable value on which the sub-contractor (the present appellant) had paid tax. In the present case, the main contention raised by the appellant is that the Department cannot recover Service Tax on a given taxable value from both the builder and the sub-contractor. If that be so, the issue is very much connected with the one being agitated by the builder through a refund claim before the Original Authority. The Tribunal also held that the Original Authority should deal with both the matters and pass a common order. Impugned order set aside.

Decision:- Appeal allowed by way of remand.

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PJ/Case Laws/2012-12/1013

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