Sub-contractor Liable to Pay Service Tax Despite Main Contractor’s Payment: CESTAT [Read Order]

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal(CESTAT) held that a sub-contractor is liable to pay service tax even if the main contractor has already paid tax on the entire contract value.

Lakshya Technocon Pvt. Ltd.,appellant-assessee, was registered for providing erection, commissioning, and installation services under the Finance Act, 1994. During an audit for December 2008 to March 2011, it was found that service tax of Rs. 35,27,972/- was unpaid on services provided as a sub-contractor. A show cause notice was issued in April 2014 to recover the tax with interest and penalties.

The assessee argued that the main contractor had already paid service tax, so it was not liable. However, the Deputy Commissioner rejected this and confirmed the demand with interest and penalties in April 2017.

The assessee appealed, but the Commissioner (Appeals) upheld the order.

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The two member bench comprising Binu Tamta(Judicial Member) and P.V.Subba Rao(Technical Member) heard both sides and found two key issues: whether the sub-contractor had to pay service tax when the main contractor already paid on the full contract, and whether the extended limitation period and penalties were justified.

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

The appellate tribunal referred to a Larger Bench decision in the Melange Developers case, which ruled that sub-contractors must pay service tax, and the main contractor can claim credit for it. So, the first issue was decided against the assessee.

However, since there were conflicting views during the relevant period, the assessee could have honestly believed no tax was due, and the extended limitation period should not have been applied. For the same reason, penalties were not justified. Therefore, the CESTAT allowed the appeal, set aside the earlier order, and granted relief to the assessee.

To Read the full text of the Order CLICK HERE

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