Subcontractor is liable to pay service tax on “Commercial or Industrial Construction Service”: CESTAT [Read Order]

The Allahabad bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that a Subcontractor is liable to pay service tax on “Commercial or Industrial Construction Service”. The tribunal found that the services have been held to classified under the category of ‘Commercial and Industrial Construction Services’ the benefit of composition scheme has been denied to assessee.

Shri Dharmendra Srivastava, Chartered Accountant & Shri Suhail appeared for the Appellant. Shri Santosh Kumar appeared for the Respondent.

During the Financial Year 2012-13 appellant, M/s Vishal Enterprises has received gross amount of Rs.3,83,49,884/- for the services provided by them. Appellant though registered did not pay the service tax due nor filed ST-3 return w.e.f. 2010-11. 

Investigations were made and revenue viewed that the actual value of taxable services provided by appellant was suppressed, deliberately with intent to evade payment of Service Tax. It was for the investigations undertaken the evasion of Service Tax by the appellant was unearthed. 

Appellant’s contention that they had not paid Service Tax during relevant period, as the tax was not leviable on the subcontractor, is not tenable, in as much as, the CBEC, vide Circular No.96/7/2007-ST Dated 23/8/2007  has clarified that a sub-contractor is also a taxable service provider. 

It was evident that the service tax was required to be paid by the Sub-contractor and in view of the decision of the Larger Bench of this Tribunal in the case of CST Vs Melange Developers P. Ltd. 2020. 

The appellant claimed that during the period in dispute he was under a bonafide belief that service tax was not leviable on him being the sub-contractor. Circular No.56/5/2003-ST dated 25.05.2003 clarified that the service tax was being paid by the main contractor and he was not required to pay the same. The services provided by him are equally classifiable under the category of “Work Contract Services”.

The tribunal found that the appellant was acting as a subcontractor of the main contractor providing services for which he claims to be classified under the category of ‘Works Contract Service’. Undisputedly, the contracts against which these services have been provided are individual composite contract for supply of goods and service. In the impugned order the services have been held to classified under the category of ‘Commercial and Industrial Construction Services’ the benefit of composition scheme has been denied to them.

In light of the case of Melange Developers P. Ltd. two member bench of Mr P K Choudhary, Member (Judicial) and Mr Sanjiv Srivastava, Member (Technical) held that the appellant being a subcontractor is liable to pay service tax on of “Commercial or Industrial Construction Service”. Further held that extended period cannot be invoked to demand service tax from the appellant and in the present case the entire demand is barred by limitation as the demand pertains to the year 2004-05 and 2005-06 whereas show cause notice was issued on 28.03.2009 which is completely time barred.

The ITAT set aside the extended period of limitation should not be invoked and  penalty under Section 78 of the Act.

To Read the full text of the Order CLICK HERE

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