Service Tax Paid Under Partner’s PAN to Be Adjusted Against Firm’s Liability: CESTAT Partly Allows Appeal [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Bench at New Delhi has held that service tax paid under the PAN of a partner is liable to be adjusted against the liability of the partnership firm.

M/s Deepa Construction, had filed Service Tax Appeal No. 50608 of 2021 against Order-in-Original dated 28.05.2020 passed by the Commissioner of Central Goods, Service Tax and Central Excise, Raipur. The order confirmed the demand of Rs. 2,83,27,069/- along with applicable interest under Section 75 and penalties under Sections 77(1), 77(2) and 78 of the Finance Act, 1994.

The Department, on scrutiny of TDS/ITR data, observed that the firm had received Rs. 5,00,11,867/- during 2013-14 and Rs. 7,59,27,497/- during 2014-15 towards supply of taxable services. A show cause notice dated 17.10.2018 was issued proposing demand of Rs. 1,55,66,105/- along with interest and penalties.

An addendum dated 18.04.2019 further demanded Rs. 1,27,60,964/- for subsequent periods up to June 2017. The adjudicating authority confirmed the total demand of Rs. 2,83,27,069/- with interest and penalties.

Before the Tribunal, the appellant contended that the demand was confirmed on the ground that service tax had been paid in the service tax registration of the partner K. Surendran Nair and not in the registration of the partnership firm. It was submitted that the tax had been duly discharged under the PAN of the partner on the suggestion of departmental officials and that such registration had been used since 2005 without objection from the Department.

The Tribunal noted that it was an admitted fact that taxable services were provided by the appellant and service tax was paid using the registration of the partner. Referring to Section 4 of the Partnership Act, 1932 and decisions including Commissioner of Central Excise & Service Tax, Surat-II v. Mohammad Farookh Mohammad Ghani and Commissioner of Central Excise v. Jai Prakash Motwani, the Tribunal observed that a partnership firm and its partners are not separate excisable entities and payment made by a partner can be adjusted against the liability of the firm.

Accordingly, it was held that payment of service tax under K. Surendran Nair’s PAN is allowed and should be adjusted against the liability of the appellant. However, the Tribunal clarified that the tax liability of K. S. Nair for services provided by his proprietorship firm would also have to be taken into account.

On the issue of liability as sub-contractor to M/s Tecpro Systems Limited, the Tribunal relied on the larger Bench decision in Commissioner of Service Tax v. M/s Melange Developers Pvt. Ltd., observing that a sub-contractor is liable to discharge service tax even if the main contractor has discharged service tax liability. Accordingly, the demand on services provided by the appellant as sub-contractor was upheld.

With regard to the demand on “Transportation of Goods” and computation of tax under “Works Contract Service”, the Tribunal observed that the appellant had submitted certain documents such as payment documents, work orders, invoices and challans which required examination. The issue of computation and abatement was therefore remanded to the adjudicating authority for fresh consideration.

In view of the above, the appeal was partly allowed to the extent that service tax paid under the partner’s PAN is to be adjusted against the firm’s liability. The demand on sub-contract services was upheld, and the matter relating to computation of demand on Works Contract Service and Transportation of Goods was remanded to the original authority for reconsideration.

The order was pronounced by the Bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member).

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