Sub-contractor Not Liable for Service Tax When Principal Contractor Has Already Paid on the Entire Contract Value: CESTAT [Read Order]
The CESTAT held that a sub-contractor is not liable to pay service tax when the principal contractor has already paid tax on the entire contract value.
The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a sub-contractor is not liable to pay service tax when the principal contractor has already discharged tax on the entire value of the works contract.
The case arose from an appeal filed by Friendship Waterproofing against the order of the Commissioner (Appeals), Lucknow, which had confirmed a service tax demand of Rs. 46,99,844 along with interest and penalties.
The department alleged that the appellant, acting as a sub-contractor for U.P. Rajkiya Nirman Nigam Ltd. (UPRNN), failed to pay service tax on waterproofing services rendered during the financial years 2015-16 and 2016-17.
The appellant’s counsel argued that UPRNN, as the principal contractor, had already paid service tax on the full contract value, including the portion of work executed by the appellant. Certificates and challans from various units of UPRNN confirming such payments were placed on record.
The counsel further relied on the Larger Bench decision in Melange Developers Pvt. Ltd. v. CCE & ST, Noida, which held that once the principal contractor has discharged service tax, the sub-contractor is not required to pay tax again on the same value. They also argued that the issue involved the interpretation of law and hence the extended period of limitation could not be invoked.
The revenue counsel argued that service tax liability of a sub-contractor is independent and cannot be extinguished merely because the principal contractor has paid tax. They further argued that no agreement existed transferring the liability to UPRNN and that the appellant had failed to declare the taxable value, justifying invocation of the extended limitation period.
The single-member bench comprising Judicial Member P.K. Choudhary observed that UPRNN had already discharged service tax on the entire contract value, as verified by certificates issued by its various divisions.
The tribunal pointed out that demanding service tax again from the sub-contractor would amount to double taxation, which is not permissible under the Finance Act, 1994. The tribunal explained that when the tax has already been collected from the same transaction, the liability cannot be fastened on another party for the same value.
It further observed that the issue was subject to legal uncertainty during the relevant period, and in such cases, extended limitation could not be applied. Setting aside the order of the Commissioner (Appeals), the tribunal restored the original order dropping the proceedings and held that no service tax, interest, or penalties were payable by the appellant.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
