No Service Tax Leviable by Subcontractor Merely because of Main Contractor providing Work Contact Service: CESTAT [Read Order]

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) held that service tax is not leviable by subcontractors merely because of the main contractor providing work contact service.

The order passed by the Commissioner confirming the demand for service tax and also the penalty as proposed in the show cause notice was challenged by the appellant M/s R. V. Infrastructural Pvt. Ltd.

The appellant has been issued demand-cum-show cause notice dated 23.10.2012, inter-alia stating that it was noticed that M/s R. V. Infrastructural Pvt. Ltd., (“Service Provider/ Party/ Assessee‟)working as sub-contractor has provided taxable services in respect of construction activities undertaken on behalf of M/s Larsen & Toubro Limited which may be classified as “Commercial or Industrial Construction” Services as per Section 65(105)(zzq) defined as per Section 65(25b) and “Works Contract Services” as per Section 65(105)(zzzza) of the Finance Act, 1994  ibid depending upon subcontract awarded by M/s Larsen & Toubro Limited and are getting amount instead of providing the taxable services but not paying service tax on the amount received from M/s Larsen & Toubro Limited.

The assessee was requested to furnish the details of the gross amount received and service tax paid for the period 2007-08 to 2010-12.  The assessee replied vide their letter dated 04.09.2012 which was incomplete and therefore the reply of the assessee was found inadmissible.

On this amount the assessee was liable to pay service tax amounting to Rs. 17,43,912/-, Education Cess amounting to Rs. 33,878/- and Secondary Education Cess amounting to Rs. 17,436/- (collectively amounting to Rs. 17,96,229/-.

As per the charges in the show cause notice, the services rendered by the appellant to M/s L&T Limited were proposed to be classifiable as “Commercial or Industrial Construction Services” as per Section 65 (105)(zzq) and “Works Contract Services” as per Section 65(105)(zzzza) of the Finance Act, however, they have not paid service tax on the amount received from M/s L&T Limited. 

The appellant is engaged in providing machinery i.e. Transit Mixer on hire to M/s L&T Limited, sold Ready Mix Concrete (RMC) and also provided transportation of concrete direct to M/s L&T Limited to Delhi Airport Project Site in their vehicles on which they were not liable to pay service tax under the Act.

It was alleged that the appellant had failed to provide any information to make the assessment and therefore the show cause notice for the period following the one for which the show cause notice was envisaged was to be issued on identical irregularity for the period 2008-09 to 2011-12 based on best judgement assessment under Section 72 (b) assuming 50% increase in value of the services provided as compared to the previous year.

 On the issue of service tax on transportation of concrete, it is submitted that in the case of Goods Transport Agency service (GTA), the service tax is levied on reverse charge mechanism in terms of Rule 2(1)(d)(b) of Service Tax Rules, 1994 on the service recipient or the person who has paid the freight.  It was contended that payment of service tax and VAT are mutually exclusive and referred to certain case laws.  According to him, since he is already paying VAT on the hiring of Transit Mixer and the sale of RMC, the demand for service tax is not sustainable.

On the other hand, the Authorised Representative for the Revenue reiterated the findings of the Commissioner in the impugned order The appellant is working under a self-assessment system and therefore they were duty bound to correctly assess the service tax liability and filed the return accordingly but they never disclose the correct facts to the Department. 

 A two-member bench comprising of M S Binu Tamta, Member (Judicial) and P V Subba Rao, Member (Technical) observed that the services rendered by them cannot be classified under the activity of Construction just because the main Contractor M/s L&T was engaged in providing the construction services. Reliance placed by the appellant on the Circular No. 147/16/2011 dated 21.10.2011 is rightly applicable, as it clarified that just because the main contractor is providing the WCS service in respect of projects involving construction of roads, airports, railways, transport, terminals, bridges, tunnels, dams, etc., it would not automatically lead to the classification of services being provided by the sub-contractor.

The Tribunal held that the appellant is not liable to pay service tax on the supply of RMC to M/s  L&T and hence the demand for service tax in that regard is not sustainable.

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