Sub-contractor of Works Contract was also exempt from Service Tax if main contractor was exempt from it: CESTAT Sets aside Demand of Service Tax [Read Order]

The  Allahabad bench of the Customs, Excise & Service Tax Appellate Tribunal( CESTAT) set aside the demand of service tax, holding that a  sub-contractor of a works contract was also exempt from Service Tax if the main contractor was exempt from it             

M/s AECS Engineering and  Geotechnical Services Pvt. Ltd., the Appellant, challenged the Order-in-Original  passed by the Ld. Principal Commissioner, CGST Noida. The Appellant was registered with Service Tax Department vide registration No. AAICA3141RSD001 under the Finance Act, 1994 for providing and receiving taxable services.

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On scrutiny of ST-3 Returns revealed that the returns were not filed for the period from October, 2015 to March, 2017. Difference in the value of service declared in ST-3 returns and Form 26AS was noticed to the tune of Rs.7,35,97,122/- and Rs.17,01,72,959/-  for the F.Y. 2015-16 and 2016-17 respectively. It was further found that the Appellant had not paid service tax on the aforesaid differential value of services.

Show Cause Notice was issued to the Appellant by the Principal Commissioner, CGST, Noida to demand Service Tax amounting to Rs.3,61,97,527/- (Rs.1,06,71,583/- for F.Y. 201516 and Rs.2,55,25,944/- for F.Y. 2016-17 under the provisions of Section 73(1) of the Finance Act, 1994 alongwith interest and equal penalty. Penalty was also proposed under the provisions of Section 77 of the Finance Act, 1994. 

The Appellant agitated against the allegation leveled against him and contented that appropriate Service Tax was already paid but ST-3 returns for the period from October, 2015 to Mach, 2017 could not be filed due to serious illness and subsequent demise of the working director of the company. The case was adjudicated vide the impugned OIO. Services rendered by the Appellant were classified as Works Contract Service, Renting of Machinery Service and Engineering Consultancy Service. Out of total demand of Rs.3,61,97,527/-, an amount of Rs.1,27,68,835/- was confirmed alongwith interest and equivalent penalty was imposed. Remaining demand was dropped. Penalty of Rs.10,000/- under Section 77 of the Finance Act, 1994 was also imposed.

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The Chartered Accountant argued that the Appellant had provided Works Contract Service and Consultancy Service during the intervening period. The Appellant was a sub-contractor of M/s JMC Project India Ltd., who were awarded work order number JMC/DL/B&F/WO/SCAO/2015/09 dated 9.2.2015 for providing and installing temporary earth retaining   structure with soil nailing with insertion of nails in all strata for the soil including fixing wire nesh on exposed excavated surface, bearing  plates, nuts, PVC drainage pipes, shotcrete etc.

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The said work relates to installing of drainage system in connection with sewerage treatment or disposal pertaining to Supreme Court, Additional Office Complex, Pragati Maidan, New Delhi. The award was for Rs.2,82,40,000/-. During F.Y. 2016-17, the Appellant provided services in terms of said contract for an amount of Rs.36,36,586/-. The Service Tax involved on such value of services was worked out to be Rs.2,18,195/-. The said service was exempt from Service Tax in terms of clause (e) of Sl. No.12 of Notification No.25/2012-ST dated 20.6.2012. Thus, the demand of Rs.2,18,195/- is liable to be dropped.

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The bench found that the SCN was issued based on third party information received from Income Tax Department. The value shown in TDS statement, i.e. Form 26AS was considered as Taxable Value and Service Tax was demanded @14.50% for the F.Y. 2015-16 & 15% for the F.Y. 2016-17 without any investigation to identify the nature of services and the manner of determination of value to charge service tax. During adjudication proceedings, the Appellant submitted that he had provided services under Works Contract and Engineering Consultancy during the F.Y. 2015-16 & 2016-17.

 It was also submitted that due to illness of active director who subsequently died, the Appellant could not file ST-3 returns for the period from October, 2015 to March, 2016, April, 2016 to September, 2016 and October, 2016 to March, 2017, but due tax was deposited. 

The Appellant submitted that during 2015-16, in the category of Works Contract, they provided services of Rs.9,54,44,841/- and in the category of Engineering Consultancy Rs.70,01,377/-, totaling Rs.10,24,46,218/ which is equal to the value of services shown in Form 26AS. The Adjudicating Authority has shown his disagreement with the above calculation on the ground that the Appellant had provided Renting of Machinery Services to M/s Krishna Build Estate Pvt. Ltd. on the basis of receipts shown under Section 194 I(a) in Form 26AS. It is a trite law that no demand of Service Tax can be made on the basis of entries shown in Form 26AS.

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A two member bench of P.K. Choudhary, Member (Judicial) and P. Anjani Kumar, Member (Technical)  observed that as per clause (h) of Sl.No.29 of the said Notification, sub-contractor of Works Contract was also exempt from Service Tax if main contractor was exempt from Service Tax. Thus, the demand of Rs.2,18,195/- is liable to be dropped. The Service Tax payable during 2016-17 is Rs.1,09,50,292/- (Rs.1,11,68,487/Rs.2,18,195/-).

The Appellant has deposited Rs.66,02,978/- in cash and Rs.10,41,790/- by adjusting through Cenvat during F.Y. 2015-16 and Rs.30,92,779/- in cash and Rs.36,27,094/- by adjusting through Cenvat for the F.Y. 2016-17. Total Service Tax deposited was Rs.1,43,64,641/- before issuance of the SCN. The Cenvat credit claimed by the Appellant for the period from October, 2015 to March, 2017 was rejected by the Adjudicating Officer simply on the ground that ST-3 returns were not filed. It is noticed that manner of availment of Cenvat credit of duties or service tax paid on inputs and input services is   provided under Rule 9 (5)(6) of the Cenvat Credit Rules, 2004.

As regards penalty under Section 78 of the Finance Act, 1994, it is found that the same is imposable equal to the amount of Service Tax short paid or not paid. As there is no short payment of Service Tax, no penalty is imposable under Section 78 of the Finance Act, 1994.

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