2025 (7) TMI 1338 - AT - Service Tax

Liability of sub-contractor when entire service tax liability has been borne by the main contractor - double taxation - revenue neutrality - HELD THAT - The Appellant is a sub contractor of SIDCO. It is undisputed fact that the entire liability of service tax including the part of liability payable by the Appellant has also been discharged by the main contractor. Thus there is no loss of revenue to the Government exchequer. In the present case the amount of service tax if collected from the Appellant would amount to double taxation which is not justified. It is also submitted by the learned Advocate that had the service tax been paid by the Appellant the same would have been available to the main contractor as Cenvat credit making the situation revenue neutral. As per various pronouncements of the Tribunal if the service tax liability stands discharged on the full and complete value the sub-contractor cannot be taxed again in respect of the same services of that part valued in the services provided by them. Admittedly demand amounts to double taxation in respect of same services. Reliance placed on the Tribunal s decision in the case of Safe and Sure Marine Services Pvt. Ltd. vs. CST Mumbai 2012 (4) TMI 56 - CESTAT MUMBAI laying down that it is the responsibility of the sub-contractor to pay Service Tax. But keeping in view the other decisions and keeping in view that when the principle contractor has paid the Service Tax on the entire value and keeping in view that exchequer cannot be enriched on account of double taxation and keeping in view that the Revenue has already earned its share of Service Tax whether coming from the pocket of main contractor or from the pocket of sub-contractor and keeping in view the earlier Boards clarifications which were relevant during the period which stand relied upon the case of JAC Air Services and keeping in view that concept of Service Tax are still not clear and keeping in view that there was a pattern in the industry for payment of Service Tax by the main contractor and keeping in view that entire situation is revenue neutral it is deemed fit to set aside the impugned order and allow the appeal with consequential relief as per law. Appeal allowed.

Summary

ISSUES:

Whether the sub-contractor is liable to pay service tax when the main contractor has discharged the entire service tax liability on the full value of the services.Whether demand of service tax on the sub-contractor amounts to double taxation in respect of the same services.Whether the payment of service tax by the main contractor on the entire value precludes separate payment by the sub-contractor under the applicable Cenvat Credit Rules and Finance Act, 1994.

RULINGS / HOLDINGS:

The sub-contractor is not liable to pay service tax where the entire liability, including that portion attributable to the sub-contractor, has been discharged by the main contractor, as there is "no loss of revenue to the Government exchequer."The demand for service tax on the sub-contractor in such circumstances would result in "double taxation" on the same services, which is "not justified."Although the Cenvat Credit Rules require separate payment of service tax on separate activities, when the main contractor has paid service tax on the full value, "the exchequer cannot be enriched on account of double taxation" and the situation remains "revenue neutral."

RATIONALE:

The Court applied the statutory provisions under the Finance Act, 1994, specifically Sections 70, 77, and 78, and considered the Cenvat Credit Rules governing service tax liability and credit availability.The Court relied on prior Tribunal pronouncements establishing that if service tax liability is discharged on the full and complete value of services, sub-contractors cannot be taxed again for the same services, to avoid double taxation.The Court acknowledged the industry practice where the main contractor pays service tax on the entire value and noted that the main contractor's payment includes the sub-contractor's share, making separate payment by the sub-contractor unnecessary and unjustified.The Court distinguished the decision in Safe and Sure Marine Services Pvt. Ltd. (Tri.-Mumbai), emphasizing the overall revenue neutrality and the lack of loss to the exchequer in the present case.The Court considered the certificate issued by the main contractor confirming payment of service tax liability and held that this suffices to discharge the sub-contractor's liability.The judgment reflects a doctrinal emphasis on preventing double taxation and ensuring that the Government's revenue is not "enriched" unfairly by multiple demands on the same taxable event.