whether the sub contractor liable to charge Service Tax?

PJ/Case Law /2016-17/3324

Case:-FURNACE FABRICA (INDIA) LTD. VersusJOINT COMMR. OF C. EX., CUS. & S.T., KOCHI
Citation:-2016 (43) S.T.R. 175 (Ker.)
Brief fact:-The petitioner-company was awarded with a civil contract work by the 3rd respondent, for a total contract amount of Rs. 15,79,93,560/-. The petitioner sub-contracted the civil and plumbing works under the above said contract to the 4th respondent, for an amount of Rs. 13,12,84,710/-. Issue involved herein pertains to levy of Service Tax. Ext.P3 invoice would indicate that Service Tax was levied on the bill raised by the petitioner on the 3rd respondent. Therefore, the petitioner took a stand that no Service Tax need be levied on the bill raised by the 4th respondent on the petitioner. The 4th respondent thereupon sought clarification from the 2nd respondent as to whether there will be any Service Tax liability on the 4th respondent, because the petitioner-company is remitting Service Tax for the entire contract work. Ext.P6 clarification was issued by the 1st respondent in this regard. Referring to Ext.P8 Master Circular it was clarified that the sub-contractor is providing service in the nature of ‘input service’ and therefore, Service Tax is leviable on any taxable service provider. It was clarified that Service Tax is liable to irrespective of whether the services are provided by a persons in his capacity as sub-contractor or not. It is mentioned that taxable services intended for use as ‘input service’ by another service provider will not alter the liability of Service Tax with respect to the service provider. The petitioner is challenging Ext.P6 clarifications and seeking appropriate direction restraining respondents 1 and 2 from directing the 4th respondent to charge Service Tax in respect of the service provided under Ext.P2 sub-contract agreement. Inter alia Ext.P8 is also challenged to the extent to which it insist levy on the sub-contractor, in cases where the principal contractor pays the Service Tax on the whole amount.
Appellant’s contention:- Learned counsel had placed reliance on Ext.P4 decision of the Appellate Tribunal (CESTAT), New Delhi. In the said decision the Tribunal had opined that the Central Board of Excise and Customs had taken the view earlier through its Circular dated 7-10-1998 that, a sub-contractor should not be brought in the ambit of liability of tax and the liability will be on the principal contractor. But it was noticed that the Board has changed its view through Ext.P8 Master Circular, in view of the credit made available under the Cenvat Credit Rules, 2004. The case decided under Ext.P4 pertains to the Master Circular period prior to 23-8-2007. However, the Tribunal observed that if it is proved from the records on verification that the principal contractor had discharged the tax liability in respect of the contract, cascading affect should be avoided and they are entitled to refund.
Contention of the petitioner was that since major portion of the work was sub-contracted to the 4th respondent, the recipient of the service is the 3rd respondent who is the awarder of the work. Therefore, no tax liability can be fetched against the 4th respondent is the contention.
Respondent’s contention:- learned standing counsel for C.B.E. & C. contended that service provided by the sub-contractor is in the nature of ‘input service’, which is specifically defined in the statute. Relying on Ext.P8 Circular it is contended that the Board is authorized to issue circulars prescribing the method of levy of tax. Since the service provided by the sub-contractor is in the nature of ‘input service’, which is used by the main service provider for completion of the work undertaken by him, the 4th respondent cannot be exonerated from the liability fetched upon him in the capacity as service provider. He was always liable to comply with the requirements of filing returns and for paying tax. Even if the petitioner had discharged the entire liability, only a credit can be claimed under the provisions of the Cenvat Credit Rules, is the contention.
Reasoning of judgment:-This Court is of the considered opinion that in view of the specific clarifications regarding ‘input service’ rendered by the sub-contractor, which is used by the main service provider for completion of the work, it cannot be held that the sub-contractor was not liable to pay service tax for the services provided by him. However, it was for the adjudicating authority to decide on verification of records regarding the discharge of liability of ‘service tax’ and to decide with respect to the credit relating to the ‘input service’. The directions issued by the CESTAT in Ext.P4 judgment was also to the affect of issuing similar directions.

On the facts of the case at hand, it was evident that this Court had issued an interim order staying operation of Exts.P6 and P8 to the extent it was related to the sub-contract in which case the principal contractor pays service tax on the whole amount of the contract. Learned counsel for the petitioner submitted that with respect to the work in question both the petitioner as well as the 4th respondent had submitted returns within the statutory period. Therefore, this Court was of the opinion that interest of justice can be achieved by directing the 1st respondent to have an adjudication with respect to the tax liability as well as credit of ‘input service’ with respect to the work in question awarded on the basis of Ext.P1, taking note of the returns filed by the petitioner as well as by the 4th respondent. Necessary decision had to be taken by the 1st respondent considering the claim for the credit based on remittance of the entire tax liability by the 1st respondent. Hence this writ petition was disposed of by directing the 1st respondent or the competent authority to conduct adjudication as mentioned above and to decide the tax liability.
In view of the interim order continued during pendency of this writ petition, no demand can be enforced against the 4th respondent for payment of Service Tax with respect to the contract in question, till the adjudication is finalized. It was further directed that in view of the fact that the matter was pending adjudication before this Court, the 4th respondent shall not impose with any penalty or penal consequences.

Decision:-Petition disposed of

Comment:- the core of this case was that the sub contractor is liable to pay tax for the work done by the contractor which is finally used by main service provider. However the adjudication authorities was held responsible for computing and decide on verification of records regarding discharge of liability of Service Tax and credit relating to input service.
Prepared by:- Alakh Bhandari

Comments

PJ/Case Law /2016-17/3324

Post a Comment

Query