No Suppression or Fraud: Delhi HC Rejects GST Dept’s Service Tax Demand on Subcontractor Beyond Limitation [Read Order]

The Delhi High Court recently reiterated the bounds of power exercisable by the Goods and Services Tax (GST) Department, dismissing an appeal filed by the Commissioner of Central Tax, CGST Delhi East, seeking to invoke the extended period of limitation under Section 73(1) of the Finance Act, 1994, to impose service tax liability on a company for the period between 2004 and 2009.

The appeal arose from an order passed by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) on 26th October 2023, wherein it was held that the respondent-subcontractor, Simplex Infrastructure Limited, had acted under a bona fide belief regarding its service tax liability.

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The primary issue pertained to whether the subcontractor was independently liable for service tax even though the main contractor had already discharged the tax liability. In this regard, the department relied on Circular No. 96/7/2007-ST issued by the Department of Revenue dated 23rd August, 2007 clarified that even subcontractors were required to pay service tax. However, prior to the issuance of the circular, there was prevailing ambiguity regarding the obligation of subcontractors to do so.

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Representing the Department, Shubham Tyagi contended that Simplex Infrastructure Limited had suppressed facts, wilfully mis-stated matters and intentionally failed to pay the service tax, thereby warranting the invocation of the extended limitation period of five years

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Meanwhile, Rajeev Kumar appeared for Simplex Infrastructure Limited.

The Division Bench of Justice Prathiba M. Singh and Justice Rajneesh Kumar Gupta observed the decision given by the CESTAT in the impugned order wherein the Tribunal had held that the sub-agent may not be required to discharge service tax liability if they were under a bonafide belief that they were not required to do so and hence, extended period of limitation may not be invoked.

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In light of the observations made, the Delhi High Court proceeded to dismiss the matter and all pending applications.

To Read the full text of the Order CLICK HERE

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