CESTAT Kolkata Affirms CBEC Circular, Reiterates Sub-Contractor Independently Liable For Service Tax

The Kolkata Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) on 6 February clarified that after the issuance of CBEC Master Circular No. 96/7/2007-ST dated 23 August 2007, a sub-contractor is independently liable to pay Service Tax on the services rendered by it, even where the main contractor has already discharged the Service Tax liability on the same project.

A Bench comprising Judicial Member Ashok Jindal and Technical Member K. Anpazhakan, was examining the legality of invoking the extended period of limitation in a service tax demand raised against Rigtech Power, the appellant.

Rigtech Power, a proprietorship concern registered to provide taxable mining services, had acted as a sub-contractor for Oil and Natural Gas Corporation Limited (ONGC),Varun Industries Ltd., Mumbai, and Sitaram Energy and Logistics Ltd., Kolkata.

For the period from December 2008 to March 2012, the Rigtech Power paid Service Tax on amounts received from ONGC but did not pay tax on receipts from Varun Industries and Sitaram Energy, contending that the principal contractors had already paid service tax on the same services.

Following an investigation, the Department issued a show cause notice alleging wilful suppression and invoking the extended period under Section 73(1) of the Finance Act, 1994, to demand service tax of Rs. 75.10 lakh along with interest and penalties.

The Tribunal observed that although the Master Circular No. 96/7/2007-ST dated 23 August 2007 issued by the Central Board of Excise and Customs clarified that a sub-contractor is independently liable to pay Service Tax even where the main contractor has discharged the tax, the issue remained the subject of conflicting decisions by various Benches of the Tribunal for several years.

It noted that the controversy was finally settled by the Larger Bench in Commissioner of Service Tax, New Delhi v. Melange Developers Pvt. Ltd., which held that a sub-contractor is liable to pay Service Tax notwithstanding payment by the main contractor, the Bench noted.

Relying on earlier Tribunal decisions and settled law laid down by the Supreme Court of India, the Bench emphasised that the extended period of limitation cannot be invoked merely on the basis of a departmental circular where the issue is interpretational and has been subject to conflicting judicial views.

The Tribunal therefore held that the demand of Rs. 75.10 lakh, along with interest and penalties, was barred by limitation and legally unsustainable.

Accordingly, it set aside the impugned order and allowed the appeal.

For Appellant: Advocate, N.K. Chowdhury

For Respondent: Advocate, S.K. Dikshit