By TIOL News Service

MUMBAI, JAN 17, 2013: THIS is a Revenue appeal.

The respondents are service providers of ‘Survey and Map Making' which is a taxable service and they rendered the said service during the period from 2005-06 to 2007-08 to Monarch Surveyors and Engineering Consultants Pvt. Ltd. , which is a related firm of the appellant. But they did not pay the service tax on the ground that the main contractor, namely, M/s Monarch Surveyors and Engineering Contractors Pvt. Ltd, have discharged the service tax liability on the value inclusive of the service charges received by the appellant.

It is the view of the department that notwithstanding the fact that the appellant is a sub-contractor they are required to discharge service tax liability and accordingly, demanded and confirmed service tax amounting to Rs.9,58,231/- along with interest thereon. Penalty and interest was also imposed.

The appellant discharged the service tax liability along with interest but contested the penalties imposed before the lower appellate authority who set aside the same by invoking the provisions of s.80 of the FA, 1994 and taking a view that the appellant was having a reasonable belief that once the main contractor discharged service tax liability, the appellant being a sub-contractor need not pay the service tax.

The Revenue is before the CESTAT and its representative submits that the appellant having collected the service charges from the service recipient cannot be held to be ignorant of the provisions of law and, therefore, non-payment of service tax is a deliberate act with an intention to evade service tax and, therefore, penalty should not have been dropped by the lower appellate authority.

The appellant submits that the CBEC had on a number of occasions clarified that if the main contractor discharges the service tax liability, the sub-contractor need not pay service tax on the same activity and only in August, 2007 the Board issued a Circular No. 96/7/2007-S.T. dated 23/08/2007 wherein it was clarified that the services rendered by the sub-contractors are in the nature of ‘input service' and, therefore, service tax is leviable on any taxable service provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as ‘input service'. It is further submitted that the bulk of the period involved is prior to the issue of the circular. Reliance is also placed on the decisions in Urvi Construction 2009-TIOL-1890-CESTAT-AHM; Foto Flash 2008-TIOL-351-CESTAT-BANG and Synergy Audio Visual Workshop Pvt. Ltd 2008-TIOL-628-CESTAT-BANG and it is pleaded that although the demand for the bulk period is not payable but since the appellant has paid the same along with interest, consequential penal liability will not follow and, therefore, the decision of the lower appellate authority in dropping the penal proceedings is correct in law and accordingly has to be sustained.

The Bench observed -

“6.1 It is a fact that prior to extension of CENVAT credit scheme to service tax, the Board on a number of occasions had clarified that if the main service provider is discharging service tax liability then the sub-contractors to the main service provider need not pay service tax on the same activity. That was the practice which continued since the introduction of service tax. Only after the extension of CENVAT credit scheme to the service tax sector, this position changed and the Board again clarified the matter vide Circular dated 23/08/2007. Therefore, it cannot be alleged that the sub-contractor was not discharging service tax liability deliberately with an intention to evade service tax. That was the reason why the lower appellate authority has dropped the penalty proceedings against the appellant subject to their payment of service tax along with interest thereon by invoking the powers under Section 80. I do not find any infirmity in the lower appellate authority's order.”

In fine, the Revenue appeal was dismissed.

(See 2013-TIOL-109-CESTAT-MUM)