Sub Contractor is Liable to Pay Service Tax Even If Main Contractor Has Discharged Service Tax on Contract Value: CESTAT [Read Order]

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) observed that the sub contractor is liable to pay service tax even if main contractor has discharged service tax on contract value.

A.S.K. Swetha appeared and argued for the Appellant. It was submitted that once the tax has already been collected at the end of the main contractor, the same cannot be taxed again in the hands of the sub-contractor as the services which were supplied in execution of the contract whether in respect of the work assigned to the sub-contractor or work executed by the Principal Contractor would form one transaction only i.e; there is only one taxable event. Once the main contractor has already paid the service tax on such transaction, a separate service tax liability in the hands of the appellant – sub-contractor on the same contract is not legally sustainable as there were no two services provided i.e; there is only one taxable event.

The Counsel submitted that in a transaction of Works Contract Services, the property in the goods passes directly to the Customer by the theory of accretion, which is taken note of in the above judgment. At any point of time, the property in the goods does not pass to the main contractor when work is executed by sub-contractor. The sub-contractor is only an agent of the main contractor and the property in the goods directly passes from sub-contractor to the customer, and therefore there can only be one sale which is a deemed sale.

The AR submitted that the main contractor is eligible to take credit on the service tax paid by the sub-contractor. This is clarified by the Board in its’ Circular No. 96/7/2007-ST dated 23.08.2007. The Larger Bench of the Tribunal in the case of Melange Developers Ltd., has also noted this in the Order wherein the decision of the Supreme Court in the case of Larsen & Toubro Ltd., Vs Deputy Commissioner of Commercial Taxes.

A Single Bench of CS Sulekha Beevi, Judicial Member observed that “I therefore agree with the view taken by brother Member (Technical) and hold that the Appellant is liable to pay service tax on the value of sub-contract/work done inspite of the fact that the main contractor has discharged the service tax on the whole contract value.”

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