By TIOL News Service

MUMBAI, APR 11, 2014: WE have been covering this case all through its journey through the corridors of CESTAT and High Court since the past five years.

This is what the case is all about -

++ A Service Tax demand of Rs.63,28,217/- was confirmed against the appellant by the Commissioner in adjudication of a show-cause notice dated 23.3.2007 for the period 10.9.2004 to 31.12.2006.

++ The service tax demand is under the head "construction service" [Section 65 (30a) of the Finance Act, 1994] upto 15.6.2005 and under "commercial or industrial construction service" [Section 65(25b) of the Act] from 16.6.2005.

++ A part of the demand relates to the activity done by the assessee directly for the benefit of National Thermal Power Corporation Ltd. (NTPC) for the period from 10.9.2004 to 31.3.2006. The rest of the demand is in respect of similar activity performed by the assessee under a sub-contract awarded by M/s. Punj Lloyd Ltd who is a contractorappointed by M/s. Jindal Power Ltd. for setting up a power plant. This part of the demand pertains to the period from 1.3.2006 to 31.12.2006.

The Commissioner confirmed the demand along with penalties and interest.

So, the appellant took the matter to the Tribunal.

The CESTAT while disposing of the appeals heldthus -

Introduction of works contract service in 2007 does not make construction service not taxable earlier; If goods are sold along with service benefit of exemption under notification No. 12/2003 has to be allowed; If main contractor pays service tax, sub-contractor need not pay: CESTAT

We reported this order as 2009-TIOL-1867-CESTAT-MUM

The matter travelled to the Bombay High Court and with the consent of both the sides, the CESTAT order wa s quashed and set aside and the matters were remanded back to the Tribunal to decide the following two issues afresh -

(i) Whether the assessee has produced documentary evidence so as to hold that the assessee was entitled tothe benefit of notification No.12/2003­-ST dated 20­.06.­2003?;

(ii) Whether the assessee was entitled to the benefits of various circulars wherein it is held that a sub­contractor is not liable to pay service tax if the main contractor has paid the service tax?

We reported this order as 2010-TIOL-836-HC-MUM-ST

And in the remand proceedings,the Tribunal remanded the matter to the adjudicating authority by holding thus -

If main contractor pays Service Tax, should sub-contractor pay –Commissioner to take fresh decision on all issues - Matter remanded - 'oppressive' circular should be given only prospective effect: CESTAT

We reported this order as 2011-TIOL-592-CESTAT-MUM.

While conducting the remand proceedings, another demand notice was also taken up and that involved non-payment of service tax by the appellant as a sub-contractor in respect of various main contractors such as M/s Tata Projects Ltd., M/s Hindustan Steelworks Construction Ltd. wherein service tax demand of Rs.3,05,45,211/- was demanded for the period March 2006 to December 2007.

The CCE, Nagpur confirmed both the demands and so the appellant went to the Tribunal.

This is what happened in the CESTAT.

Whether appellant, being a sub-contractor, is not liable to pay service tax prior to 23/08/2007 in view of clarification issued by Revenue vide Master Circular No. 96/7/2007 dated 23/08/2007 - Difference of Opinion - Matter referred to Third Member: CESTAT

We reported the above order as 2014-TIOL-160-CESTAT-MUM.

The Third Member on reference, after giving a detailed reasoning as to the necessity of issuance of Board Circulars, the chronology of events that led to extension of CENVAT credit to Service Tax; the unification of credit scheme in the year 2004 with an eye to avoid the cascading effect, concluded that in the Master Circular of 2007, Reference code 999.03 /23.08.07 all that was clarified was that sub-contractor is also a service provider, and is liable to pay tax.

As regards the submission that the oppressive Circular 23.08.07 should be applied only prospectively, the Third Member while rejecting the case laws cited and agreeing with the view taken by the Member (T) that the sub-contractor of a main contractor is liable to discharge the service tax liability on the services provided by him, observed-

++ There is no circular relating to commercial and industrial service and, therefore, there was no question of withdrawing oppressive circular. Moreover, the circular clarifying the position in respect of other four services after the change in law in 2002 cannot be called as the oppressive circular. Concept of oppressive circular is relevant when government changes its view on a particular provision of law.

On the question of penalty, it was observed that in view of the fact that appellant was paying service tax till 28.2.2006 and stopped paying service tax w.e.f. 1.3.2006 due to changes in legal position relating to the main contractor, it was clearly a case of taking law into hands and, therefore, penalty is imposable.

So, the Majority decision is-

++ The appellant is liable to pay service tax on the taxable services rendered by him in the capacity of a sub-contractor. The appellant's eligibility to the benefits of Notification No. 12/2003-ST and 1/2006-ST shall be examined by the adjudicating authority in the light of the evidences already available on record or on the basis of documentary evidence which the appellant shall submit forthwith to the adjudicating authority. The service tax demands shall be re-computed thereafter in accordance with law. Extended period of time is invokable in the present case as the appellant has suppressed facts and consequently, the appellant is also liable to penalties under sections 76, 77 & 78 of the Finance Act, 1994, as discussed in para 7.8 above. The quantum of penalties will have to be re-determined after re-computing the service tax demand. Thus the matter is remanded back to the adjudicating authority for denovo consideration as discussed above.

(See 2014-TIOL-541-CESTAT-MUM)