2024 (3) TMI 71 - AT - Service Tax

Levy of service tax - Dredging Services undertaken by the Appellant as a sub-contractor of M/s MBL - Construction Service - Goods Transport Agency Service - time limitation - penalties. Levy of service tax - 'Dredging Services' as a sub-contractor to the main contractor - contention of the Appellant is that as the main contractor M/s. MBL has discharged service tax on the gross amount received by them towards the whole amount received rendering of 'Dredging Services', they are not liable to pay service tax again for the 'Dredging Service' as a sub-contractor - HELD THAT - The Department had also earlier clarified that the sub-contractor is not liable to pay service tax when the main contractor pays service tax on the gross value received for the services rendered. Thus, we observe that there were confusions regarding the liability for payment of service tax by the sub-contractor, when the main contractor pays service tax on the gross value. Later, the Board issued a further clarification vide Circular No. 96/7/2007-ST dated 23.08.2007, clarifying that sub-contractors are liable to pay service tax even if the main contractor pays service tax on the gross value. This Circular, being oppressive in nature towards the sub-contractors, can be applied only prospectively as held by the Hon ble Supreme Court in the case of SUCHITRA COMPONENTS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, GUNTUR 2007 (1) TMI 4 - SUPREME COURT - for the demand of Rs.38,16,593/- confirmed under Dredging Services rendered by the Appellant as a sub-contractor pertaining to the period 2005-06 and 2006-07, it is held that the demand confirmed in the impugned order is not sustainable. Levy of service tax - dredging services undertaken by the Appellant in the river Daya and at the lagoon of Chilka lake, as a sub-contractor - HELD THAT - The said demand has been raised for the period 2008-09 to 2011-12. It is also observed that all the amounts received by the Appellant for the dredging services rendered have been recorded in their books of accounts, i.e., in the Balance Sheet and Profit Loss Account. The figures mentioned in the statutory records are not challenged by the Department. The Notice has not brought in any evidence to substantiate the allegation of suppression of any information on the part of the Appellant. Moreover, the 'Dredging Service' rendered by the Appellant was within the knowledge of the Department - the said demand covers the period up to September 2011. The Appellant has been filing ST-3 returns regularly. During the relevant period, the demand, if any, for the normal period of limitation has to be issued within a period of one year from the relevant date, i.e., the date of filing of the return. The Appellant has filed the ST-3 return for the period April 2011 to September 2011 in October 2011. Thus, it is observed that the entire demand in the Show Cause Notice dated 18.10.2013 was raised beyond the normal period of limitation. Accordingly, the demand of service tax of Rs.1,15,68,852/- confirmed on Dredging Services in the impugned order by invoking the extended period of limitation is not sustainable. Penalty - HELD THAT - As there is no evidence on record to establish suppression of facts with intention to evade payment of service tax, the penalty imposed equivalent to the service tax confirmed is not sustainable. Appeal allowed.

Summary

Issues Involved:
1. Demand of service tax on 'Dredging Services' as a sub-contractor.
2. Demand of service tax on 'Construction Service' and 'Goods Transport Agency Service'.
3. Extended period of limitation for demanding service tax.
4. Imposition of penalties under Section 78 of the Finance Act, 1994.

Summary:

1. Demand of Service Tax on 'Dredging Services' as a Sub-Contractor:
The Appellant contested the demand of Rs.38,16,593/- for 'Dredging Services' undertaken during 2005-06 and 2006-07, arguing that the main contractor, M/s MBL, had already discharged service tax on the gross amount received. The Tribunal observed that initially, the Department had clarified that sub-contractors were not liable for service tax if the main contractor paid it. However, a later Circular No. 96/7/2007-ST dated 23.08.2007 clarified that sub-contractors are liable to pay service tax. The Tribunal held that this circular could only be applied prospectively from 23.08.2007. Therefore, the demand for Rs.38,16,593/- for the period 2005-06 to 2006-07 was not sustainable.

2. Demand of Service Tax on 'Construction Service' and 'Goods Transport Agency Service':
The Appellant did not contest the demand of Rs.1,77,608/- for 'Construction Service' and Rs.92,828/- for 'Goods Transport Agency Service'. The Tribunal upheld these demands along with interest.

3. Extended Period of Limitation for Demanding Service Tax:
For the demand of Rs.1,15,68,852/- for the period 2008-09 to 2011-12, the Appellant argued that the dredging services in Chilka lake were not taxable and that the extended period of limitation could not be invoked. The Tribunal noted that the dredging was undertaken in the estuary area, which is liable to service tax. However, it found that the demand was raised beyond the normal period of limitation, as the Appellant had been filing regular returns and there was no suppression of facts. Therefore, the demand was not sustainable on the ground of limitation.

4. Imposition of Penalties under Section 78 of the Finance Act, 1994:
The Tribunal held that there was no evidence of suppression of facts with the intention to evade tax. Consequently, the penalties imposed under Section 78 were set aside.

Order:
i. The demand of Rs.38,16,593/- for 'Dredging Services' for 2005-06 to 2006-07 was set aside.
ii. The demand of Rs.1,77,608/- for 'Construction Service' and Rs.92,828/- for 'Goods Transport Agency Service' was upheld with interest.
iii. The demand of Rs.1,15,68,852/- for 2008-09 to 2011-12 was set aside on the ground of limitation.
iv. The penalties under Section 78 were set aside.
v. Appeals were disposed of accordingly.

(Order pronounced in the open court on 29.02.2024)