The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising Ramesh Nair, Judicial Member and Raju, Technical Member noted that the extended period of limitation is not attracted when there was bonafide belief on non-liability of sub-contractor when main contractor is liable to discharge full service tax.
During the course of audit of the records of the appellant, Shanti Construction Co, it was found that appellant have provided services in respect of Civil Work for terminal of HPCL as a sub-contractor of M/s Bridge and Roof Co. (India) Ltd. The appellant had stated that they had worked as sub-contractor and the principal contractor has paid the Service tax on such work and they were not liable for payment of service tax on such civil work carried out by them as subcontractor.
Further M/s Bridge and Roof Co. (India) Ltd. had also informed that they have paid the service tax on such Civil Works for terminal of HPCL. However, the revenue contended that the Board vide Circular No. 96/7/2007-ST dated 23.08.2007 had clarified that sub-contractor is essentially a taxable service provider and they are liable to pay service tax.
Accordingly, show cause notice was issued proposing the Service tax demand along with interest and penalty. In adjudication, the Commissioner, confirmed the demand of service tax along with interest and penalty.
Jigar Shah with Ambar Kumrawat, the Counsels appearing on behalf of the appellant submitted that the demand of Service tax is raised under the category of Commercial or Industrial construction services. Since the work performed by the Appellant was along with material the demand of Service tax should have been raised under the taxable category of works contract services.
The Counsel s further contended that during the period there were circulars issued by the CBEC to clarify that the sub-contractor need not to pay service tax if the Service tax is paid by the main contractor.
In the present matter appellant has acted as sub-contractor. There were contrary clarifications by the government that the sub-contractor is not liable to pay service tax when the main contractor is discharging the service. Subsequently vide circular dtd. 23.08.2007, the CBEC has taken a U-turn and withdrawn the earlier stand and clarified that the sub-contractor is liable to pay service tax.
The Bench noted that there is a reason for a bona fide belief in such arrangement regarding non-liability of sub-contractor when the main contractor is liable to discharge full service tax. Though the said principle is not applicable against the tax liability but the question of invoking extended period is to be answered in favour of the appellant.
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