Custom, Excise & Service Tax Tribunal
Sharma Decorators vs Commissioner, Service Tax-Delhi on 10 April, 2023
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH- COURT NO. I
Service Tax Appeal No. 50889 of 2017
(Arising out of Order-in-Appeal No. 162/ST/DLH/2016-17 dated 01.02.2017 passed by the
Commissioner of Service Tax, Delhi.)
M/s Sharma Decorators ...... Appellant
T-317, Gali No. 7, Gautam Puri,
Seelampur, New Delhi-110053
VERSUS
Commissioner of Service Tax-Delhi ......Respondent
17-B, IAEA House, M.G. Road, Indraprastha Estate, New Delhi-110002 APPEARANCE:
Shri Varun Gaba, Advocate for the Appellant Shri Rajeev Kapoor, Authorized Representative of the Department CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MS. HEMAMBIKA R PRIYA, MEMBER (TECHNICAL) Date of Hearing: March 02, 2023 Date of Decision: April 10, 2023 FINAL ORDER NO. 50436/2023 HEMAMBIKA R PRIYA The instant appeal has been filed to assail the Order-in-Appeal No. 173/ST/Appeal-I/2016-17 dated 01.02.2017, wherein the demand of Rs. 19,48,077/- was confirmed with appropriate interest as applicable under Section 75 of the Finance Act, 19941 and penalty of Rs. 10,000/- under Section 77 and penalty of Rs. 19,48,077/- under the provision of Section 78 of the Finance Act, 1994 has been imposed.
2. The brief facts are that M/s Sharma Decorators, [hereinafter, refer to the appellant] are engaged in providing Construction Services 1 The Act 2 ST/50889/2017 and are registered with department of Service Tax under Construction Services. They worked as sub-contractor under three contractors:
namely M/s Chawla Techno Construction Ltd., M/s Raj Furnitures and M/s Tirath Ram Ahuja Pvt Ltd.
3. Service tax audit was conducted of M/s Tirath Ram Ahuja Pvt Ltd and the department noted that the appellant had rendered construction services amounting to Rs. 21,93,750/- to M/s Tirath Ram Ahuja Pvt Ltd. as a sub-contractor and had not paid service tax on the said services. It was also observed that the appellant was not filing any ST- 3 returns with the Department. Thereafter, investigations was initiated against the appellant. The appellant was requested to provide data/ documents, but the appellant did not respond believing that being a proprietor, as per the Circular No. B11/3/98 dated 07.10.1998, it was clarified that the entire service tax, when paid by the principal contractor stands paid, the sub-Contractor need not pay any service tax. Thereafter, a show cause notice no. DL/ST/AE/Gr.9 /Inq/160/2011/ 23342 dated 16.10.2012 was served on them demanding service tax of Rs. 19,48,077/- alongwith interest and penalty as per the details given below:
Period Taxable Value Rate of Service Service Tax (Rs) Tax Amount (Rs) 2007-08 2,193,750 12.36% 271,148 2008-09 3,183,105 12.36% 393,432 2009-10 2,085,618 10.30% 214,819 2010-11 4,398,990 10.30% 453,096 2011-12 5,976,524 10.30% 615,582 Total 17,837,987 19,48,077
4. The Adjudicating Authority confirmed the demand vide Order-in- Original No. 10/RG/DIV-II/2013 dated 08.02.2013, wherein the 3 ST/50889/2017 demand was confirmed and penalties were imposed. Aggrieved by the order, the appellant preferred an appeal before the learned Commissioner (Appeals) who vide the impugned order rejected the appeal and upheld the Order-in-Original.
5. Learned counsel for the appellant stated that the appellant worked as sub-contractor and he submitted that the principal contractors to whom the appellant rendered services had paid the service tax for services received and the liability stood discharged by the principal contractor. To substantiate his statement, he produced letters from the principal contractors wherein it was stated that they had paid the service tax. He also submitted that the department has confirmed the demand of service tax despite the fact that the same would be available as Cenvat credit to the principal contractor for the tax paid on the services performed by the appellant. Service tax is in indirect tax and its burden is to be borne by the service recipient, not by the service provider. Even though it is a settled principal that contravention of statutory provision should be visited with consequences, but there are cases in taxation matters where the such contravention has no revenue implication and would be revenue neutral. In the present case, he submitted that there is no loss of revenue to the Government because of non-payment of service tax by the appellant. This is because if, even if the appellant has discharged their service tax liability provided to the principal contractor, the same would have been available to him as Cenvat credit. He relied on several judgments in this regard.
i) Lone Star Engineers v. CCE, Panchkula [2017 (47) STR 133 (Tri.-
Chan)] 4 ST/50889/2017
ii) JAC AIR Services Pvt Ltd. vs. Commissioner of Service Tax, Delhi [2013 (31) S.T.R. 155 (Tri.-Del.)]
iii) DNS Contractors v. CCE-Delhi-[2014-TIOL-752-CESTAT-DEL]
iv) National Building Construction Corpn. Ltd. vs. C.C.E. & S.T., Patna [2011 (23) S.T.R. 593 (Tri.-Kolkata)]
v) CCE, Pune vs. Coca-Cola India Pvt Ltd. [2007 (213) ELT 490 (SC)] [2007-TIOL-245-SC-CX]
vi) CCE &C, Vadodra-II vs. Indeos ABS Limited [2010 (254) E.L.T. 628 (Guj.)]
vii) Wolfra Tech (P) Ltd. Vs. CCe, Mangalore [2012 (284) E.L.T. 89 (Tri.
Bang.)]
6. He also submitted that the extended period of limitation is not invokable as the appellant was in bona fide belief that the services provided as a sub-contractor was not liable to tax, as the principal contractor had discharged the service tax liability on the whole contract value. Therefore, it cannot be said that the appellant had any intention to evade tax. He also submitted that the appellant had received confirmation from the principal contractors that they were paying the service tax on the entire value on the contract during the period of dispute and, therefore, the penalty must be dropped extending the benefit of Section 80 of the Finance Act.
7. The learned authorized representative submitted that the adjudicating authority and the Commissioner (Appeals) were correct in confirming the demand of service tax along with the applicable interest and penalties by observing that the appellant was providing taxable services but had not paid the due service tax on the same. He also justified the penalties under Section 77 and 78 stating that the appellant had not filed their ST-3 returns nor paid service tax on the amount received for providing the same.
8. We have carefully gone through the arguments of the learned counsel and learned authorized representative. We note that the period 5 ST/50889/2017 of dispute is from the year 2007-08 to 2011-12. We note that the issue is no longer res integra as the same has been decided by a Larger Bench in the case of Commissioner of Service Tax, New Delhi vs. Melange Developers Private Limited2. The relevant paragraphs of the Larger Bench decision are reproduced hereinafter:
"8. It is w.e.f. 01 June, 2007 that sub-section (zzzza) was inserted in Section 65(105) of the Act in relation to execution of 'Works Contract'. Taxable Service under Section 65(105)(zzzza) is defined as :
"65(105)(zzzza) - to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
Explanation --For the purposes of this sub-clause, - works contract means a contract wherein,--
(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii) such contract is for the purposes of carryingout,--
(a) erection, commissioning or installation of
plant, machinery, equipment or structures,
whether pre-fabricated or otherwise,
installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
(c) construction of a new residential complex or a part thereof; or
(d) completion and finishing services, repair, 2 2022(33) G.S.T.L. 116(Tri.- LB)
6 ST/50889/2017 alteration, renovation or restoration of, or similar services, in relation to (b) and (c);or
(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;
9. It is not in dispute that the activity undertaken by the sub-contractor falls under the category of 'Works Contract' service. What is sought to be contended is that the main contractors, who had given sub-contracts to the sub-contractor through various work orders, had already discharged the Service Tax liability on the entire contract amount and, therefore, the sub-contractor was not required to pay any Service Tax.
10. Section 66, as substituted by the Finance Act, 2007, provides that there shall be levied a tax (hereinafter referred to as the 'Service Tax') @ 12% of the value of taxable services of various sub-clauses of clause (105) of section 65 and collected in such a manner as may be prescribed. Section 68 of the Act provides that every person providing taxable service to any person shall pay Service Tax at the rate specified in section 66 in such a manner and within such a period as may be prescribed. Section 94 of the Act deals with power to make Rules. Sub-section (1) provides that the Central Government may, by Notification in the official gazette, make Rules for carrying out the provisions of Chapter V of the Act. Sub-section (2)(a) provides that such Rules may provide for collection and recovery of Service Tax under sections 66 and 68 of the Act. In exercise of the powers conferred by section 37 of the Central Excise Act, 1944 and section 94 of the Act and in supersession of the CENVAT Credit Rules, 2002 and Service Tax Credit Rules, 2002, the Central Government framed the CENVAT Credit Rules, 2004. It is, therefore, clear that every person (which would include a sub-contractor) providing taxable service to any person (which will include a main contractor) shall pay Service Tax at the rate specified in section 66 in the manner provided for. The manner has been provided for in the CENVAT Credit Rules of 2004. 'Input Service' has been defined to mean, any service used by a provider of output service for providing an output service. 'Output Service' has been defined to mean any service provided by a provider of service located in the taxable territory. Rule 3 stipulates that a provider of output service shall be allowed CENVAT Credit of the Service Tax leviable under Section 66, 66A and 67B of the Act. Thus, in the scheme of Service Tax, the concept of CENVAT Credit enables every service provider in a supply chain to take input credit of the tax paid by him which can be utilized for the purpose of discharge of taxes on his output service. The conditions for allowing CENVAT Credit have been provided for in Rule 4. The mechanism under the CENVAT Credit 7 ST/50889/2017 Rules also ensures that there is no scope for double taxation.
11. In the face of these provisions, it may not be open to a sub- contractor to contend that he should not be subjected to discharge the Service Tax liability in respect of a taxable service when the main contractor has paid Service Tax on the gross amount, more particularly when there is no provision granting exemption to him from payment of Service Tax.
xxx xxx xxx
15. It is not in dispute that a sub-contractor renders a taxable service to a main contractor. Section 68 of the Act provides that every person, which would include a sub-contractor, providing taxable service to any person shall pay Service Tax at the rate specified. Therefore, in the absence of any exemption granted, a sub-contractor has to discharge the tax liability. The service recipient i.e. the main contractor can, however, avail the benefit of the provisions of the CENVAT Rules. When such a mechanism has been provided under the Act and the Rules framed thereunder, there is no reason as to why a sub-contractor should not pay Service Tax merely because the main contractor has discharged the tax liability. As noticed above, there can be no possibility of double taxation because the CENVAT Rules allow a provider of output service to take credit of the Service Tax paid at the preceding stage.
xxx xxx xxx
29. The submission of the learned Counsel for the Respondent regarding 'revenue neutrality' cannot also be accepted in view of the specific provisions of Section 66 and 68 of the Act. A sub-contractor has to discharge the Service Tax liability when he renders taxable service. The contractor can, as noticed above, take credit in the manner provided for in the CENVAT Credit Rules of 2004.
30. Thus, for all the reasons stated above, it is not possible to accept the contention of the learned Counsel for the Respondent that a sub- contractor is not required to discharge Service Tax liability if the main contractor has discharged liability on the work assigned to the sub- contractor. All decisions, including those referred to in this order, taking a contrary view stand overruled.
31. The reference is, accordingly, answered in thefollowing terms:
"A sub-contractor would be liable to pay Service Tax even if the main contractor has discharged Service Tax liability 8 ST/50889/2017 on the activity undertaken by the sub-contractor in pursuance of the contract." "
9. We note that the learned counsel for the appellant has argued on the ground of limitation also. It is noted that during the relevant period, the issue as to whether a sub-contractor has to pay service tax separately even when the main contractor had discharged service tax on the very same services was subject matter of litigation before several appellate fora. The Tribunal in its decisions in the case of M/s. Semac Pvt. Ltd. Vs Commissioner3 M/s. Shivhare Roadlines Vs Commissioner4 and M/s. Urvi Construction Vs Commissioner5, had held that sub-contractors are not liable to pay service tax. As there were conflicting views, the issue was referred to Larger Bench. In M/s. Max Logistics Ltd. v. Commissioner of Central Excise, Jaipur6, the question as to whether extended period of limitation can be invoked on the above issue was decided as below :
"11. Considering the above discussions and analysis, the service tax liability on the appellant cannot be contested as invalid. We uphold the findings in the impugned order regarding tax liability. However, the appellants contested the demand on the question of time bar also. It is their case that the full amount collected by RSIC from the importers and exports has been subjected to service tax. Even if the appellant is held liable on their share of Revenue received from RSIC the said tax is eligible for credit to RSIC. Further, the issue involved is interpretation of law and there is no intend to evade payment of duty in such situation. The appellants relied on various case laws to reiterate their views. We find that the appellant is having a strong ground regarding the question of time-bar. It is to be noted that all invoices, for full consideration, have been raised by RSIC and the amount collected from the clients [importers and exports] were subjected to service tax which was deposited to the Government. RSIC in turn are paying certain amount to the appellants to get the services in these ICDs. In such situation, there is a clear possibility for a bona fide belief that as the whole amount has been subjected to service tax the amount received by the appellant may not be liable to service tax 3 2006(4) STR 475(Tri) 4 2009(16)STR 335(Tri) 5 2010(17)STR 302 (Tri) 6 2017 (47)STR 41 (Tri. - Del.) 9 ST/50889/2017 in connection with the services rendered by them. The issue involved has been a subject matter of interpretation by the Tribunal and High Courts. In fact the earlier Circular issued by the Board, covering the period prior to the introduction of Cenvat Credit Rules gave an impression that when the main service provider discharged the service tax on gross value there may not be tax liability on the sub-contractor rendering similar service to the main contractor. The Tribunal in various cases held in such a case involving interpretation of law and also a bona fide belief regarding service tax liability, will not attract the demand for extended period. We also take note that service tax liability on the appellant when discharged will be available as a credit to RSIC which can be used by RSIC for discharging their overall service tax liability. As such, to impute motivation to the appellant for intention to evade payment of duty is not sustainable. A reference can be made to the Tribunal's decisions in British Airways v. CCE (Adjn.), Delhi reported in 2014 (36) S.T.R. 598 (Tri. - Del.), Atul Ltd. v. CCE, Surat-II reported in 2009 (237) E.L.T. 287 (Tri. - Ahmd.). In the facts and circumstances of this case, we find that the demand for extended period is not sustainable."
10. The extended period of limitation could not, therefore, have been invoked.
11. In view of the above discussions and findings while holding that the appellants are liable to service tax for services rendered by them as sub contractors, we hold that the same can be confirmed only within the normal period of limitation. The appeal is disposed of in the above terms.
(Pronounced in the open Court on 10.04.2023) (JUSTICE DILIP GUPTA) PRESIDENT (HEMAMBIKAR PRIYA) MEMBER (TECHNICAL) SB