Whether the assessee is liable to pay service tax regarding the work subcontracted by him to a subcontracter?

PJ/Case Law /2016-17/3330

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

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

Brief facts:-Stay application along with appeal has been filed against order in original
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 ld. DR, on the other hand, stated that 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. 1/2006ST was not admissible and therefore the impugned demand is sustainable.

Reasoning of judgement:-The Tribunal considered the contention of both sides and have perused 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 clarification contained in Board's circular No. 96/7/2007ST dated 23.8.2007.

999.03/
23.8.07

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
alter 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.

Decision:- Appeal allowed.
Comment:-The gist of the case is that a manufacturer of transmission towers had entered into agreements with BSNL for supply, installation and commissioning of these towers. Purchase order "for supply, installation/commissioning of ground based towers" clearly shows separate amounts for supply for ground based towers and service component detailed earlier. The assessee supplied towers to BSNL and subcontracted ECIS part to subcontractor who duly paid service tax under ECIS. The assessee itself did not provide any ECIS and therefore was not liable to pay service tax. Further the question of availability of 67% abatement under Notification no. 1/2006ST loses relevance as whatever ST the assessee paid can be deemed to be reversal of Cenvat credit of ST paid by subcontractor.

Prepared by:- Praniti Lalwani

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PJ/Case Law /2016-17/3330

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