The Ahmedabad bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that service tax demand issued for one year period beyond the date of the Show Cause Notice is not valid
Pramukh Earth Movers, the appellant was engaged in providing services of “Supply of Tangible Goods, Site Formation/Leveling of Land and Construction Service in the capacity of Sub-contractor. The main contractors obtained the contracts out of which only partial work was assigned to the appellant in respect of which the appellant provided the aforesaid services.
The appellant under the belief that the main contract is discharging the service tax liability on the contracts awarded to them, they are not liable to pay Service Tax on the works/Services rendered by him. Therefore the appellant did not take service tax registration and also not paid the service Tax on the aforesaid service provided by him in the capacity of Sub-contractor.
A show cause notice dated 07.06.2012 was issued to the appellant covering the period 13.11.2007 to 31.03.2011 by invoking the extended period of 5 years as per the first Proviso to Subsection(1) of Section 73 of Finance Act, 1994 for demanding Service Tax amounting to Rs 86,57,392/- by the Order-inOriginal dated 03.09.2013. The commissioner confirmed the demand holding that Master Circular No. 96/7/2007- Service Tax dated 23.08.2007 covers the issue of liability of sub-contractor.
As per the said circular, the sub-contractor is liable to pay Service Tax is not absolved even when the main contractor discharges the service tax on the total value of the Service tax. The demand for service tax was confirmed by invoking an extended period of limitation under proviso to section 73(1) of the Finance Act, 1994. The penalty under sections 78 and 77 of the Finance Act, 1994 were also imposed therefore, the present appeal was filed by the appellant.
It was submitted that it was not in dispute that the appellant has provided the services of supply of tangible goods, site formation and clearance on construction service in the capacity of sub-contractor, where the main contractors have discharged their liability of Service Tax on the total contract value.
In Jaiprakash Industries Ltd. vs. Commissioner of Central Excise, Chandigarh, the Supreme Court held that when there are divergent views of High Courts, there can be a bona fide doubt as to whether the activity would amount to manufacture and in such circumstances, it cannot be urged that there was misstatement or suppression of facts with intent to evade payment of duty.
A two-member bench comprising Mr Ramesh Nair, Member (Judicial) and Mr C L Mahar Member (Technical) observed that in the case of Service Tax liability on the sub-contractor demand for the extended period cannot be sustained in the light of the larger bench judgment in the case of M/s Melange developers Pvt. Ltd.
The CESTAT held that the entire demand being issued for an extended period i.e. beyond one year from the date of show cause notice shall not sustain on limitation alone and set aside the impugned order while allowing the appeal.
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