Partly allowed

Furnace Fabrica (India) Ltd. v. Joint Commissioner and Others

Kerala HC19 Feb 2015WP(C)/11267/2010

Case brief

AI extract

What is this about?

The High Court of Kerala addressed a writ petition by a company challenging service tax liabilities on a subcontractor in a construction contract. The court held that while the subcontractor is liable for service tax, the adjudicating authority must verify records regarding tax discharge and input service credit before final liability determinations.

What did the court decide?

Directed the first respondent to adjudicate tax liability and input service credit; no tax demand or penalties against the fourth respondent pending finalization.

Furnace Fabrica (India) Ltd. Vs Joint Commissioner and… — GST and Indirect Tax | Kerala HC (2015)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT:

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THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM

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THURSDAY, THE 19TH DAY OF FEBRUARY 2015/ 30TH MAGHA, 1936

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WP(C).No. 11267 of 2010 (G)

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PETITIONER:

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FURNACE FABRICA (INDIA) LTD., OPP.MILMA DAIRY, KOONAMTHAI, EDAPPALLY, KOCHI-682 024, REPRESENTED BY K.E.VELAYUDHAN KUTTY.

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BY ADVS.SRI.S.ANIL KUMAR (TRIVANDRUM) SRI.K.S.HARIHARAN NAIR

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RESPONDENT(S):

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1. JOINT COMMISSIONER,

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OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, CUSTOMS & SERVICE TAX, I.S.PRESS ROAD, KOCHI- 682 018.

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2. SUPERINTENDENT, SERVICE TAX, OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, CUSTOMS & SERVICE TAX, I.S.PRESS ROAD, KOCHI- 682 018.

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3. BHARATH PETROLEUM CORPORATION LTD., KOCHI REFINERY, DY.GENERAL MANAGER(PROJECTS).

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4. SRI.K.G.JOHNSON, KARUTHEDATHE CONSTRUCTIONS, PUTHENCRUZ, ERNAKULAM-682308.

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5. THE CENTRAL BOARD OF EXCISE & CUSTOMS, MINISTRY OF FINANCE, REVENUE DEPARTMENT, NEW DELHI.

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R1 & R2 BY ADV. SRI.TOJAN J.VATHIKULAM,SC R3 BY SRI.E.K.NANDAKUMAR(SENIOR ADVOCATE) ADVS. SRI.K.JOHN MATHAI

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SRI.P.BENNY THOMAS

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SRI.P.GOPINATH R3 BY SRI.N.N.SUGUNAPALAN, (SENIOR ADVOCATE) R4 BY ADV. SRI.DAVIS J.CHIRAMMEL R5 BY SRI.THOMAS MATHEW NELLIMOOTTIL, SC

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THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 19-02-2015, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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mbr/

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WP(C).No. 11267 of 2010 (G)

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APPENDIX

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PETITIONER'S EXHIBITS:

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EXHIBIT P1 : PHOTOCOPY OF THE LETTER DATED 30.11.2009.

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EXHIBIT P2 : PHOTOCOPY OF THE LETTER DATED 30.11.2009 SENT BY THE PETITIONER.

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EXHIBIT P3 : PHOTOCOPY OF THE TAX INVOICE DATED 9.3.2010.

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EXHIBIT P4 : PHOTOCOPY OF THE FINAL ORDER NO.ST/663/07 WITH CO.NO./31/08/CUST DATED 17.2.2009.

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EXHIBIT P5 : PHOTOCOPY OF THE LETTER DATED 18.2.2010.

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EXHIBIT P6 : PHOTOCOPY OF THE LETTER C.NO.IV/16/10/2010 ST DATED 11.3.2010.

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EXHIBIT P7 : PHOTOCOPY OF THE LETTER DATED 23.3.2010 NO.CISF/FFIL/BPC/S.TAX/2010.

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EXHIBIT P8 : PHOTOCOPY OF THE RELEVANT PAGES OF SERVICE TAX CIRCULAR NO.96/7/2007-S.T.(F.NO.354/28/2007-TRU) DATED 23.8.2007.

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RESPONDENT'S EXHIBITS: - NIL

/TRUE COPY

P.A. TO JUDGE

mbr/

C.K.ABDUL REHIM, J.

=================== W.P.(C). No.11267 OF 2010

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=======================

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Dated this the 19^th day of February, 2015

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JUDGMENT

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The petitioner Company was awarded with a civil

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contract work by the 3^rd respondent, for a total contract amount of Rs.15,79,93,560/-. The petitioner sub contracted the civil and plumbing works under the above said contract to the 4^th respondent, for an amount of Rs.13,12,84,710/-. Issue involved herein pertains to levy of service tax. Ext.P3 invoice would indicate that service tax was levied on the bill raised by the petitioner on the 3^rd respondent. Therefore the petitioner took a stand that no service tax need be levied on the bill raised by the 4^th respondent on the petitioner. The 4^th respondent thereupon sought clarification from the 2^nd respondent as to whether there will be any service tax liability on the 4^th respondent, because the petitioner Company is remitting service tax for the entire contract work. Ext.P6 clarification was issued by the 1^st respondent in this regard. Referring

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W.P.(C). No.11267 OF 2010 - 2-

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to Ext.P8 Master Circular it was clarified that the subcontractor is providing service in the nature of 'input service' and therefore service tax is leviable on any taxable service provider. It was clarified that service tax is liable to irrespective of whether the services are provided by a persons in his capacity as sub-contractor or not. It is mentioned that taxable services intended for use as ' input service' by another service provider will not alter the liability of service tax with respect to the service provider. The petitioner is challenging Ext.P6 clarifications and seeking appropriate direction restraining respondents 1 and 2 from directing the 4^th respondent to charge service tax in respect of the service provided under Ext.P2 sub-contract agreement. Inter alia Ext.P8 is also challenged to the extent to which it insist levy on the sub-contractor, in cases where the principal contractor pays the service tax on the whole amount.

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Learned counsel had placed reliance on Ext.P4 decision of the Appellate Tribunal (CESTAT), New Delhi. In the said decision the Tribunal had opined that the Central

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W.P.(C). No.11267 OF 2010 - 3-

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Board of Excise and Customs had taken the view earlier through its circular dated 7.10.1998 that, a sub contractor should not be brought in the ambit of liability of tax and the liability will be on the principal contractor. But it is noticed that the Board has changed its view through Ext.P8 Master Circular, in view of the credit made available under the Cenvat Credit Rules, 2004. The case decided under Ext.P4 pertains to the Master Circular period prior to 23.8.2007. However, the Tribunal observed that if it is proved from the records on verification that the principal contractor had discharged the tax liability in respect of the contract, cascading affect should be avoided and they are entitled to refund.

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Contention of the petitioner is that since major portion of the work was sub-contracted to the 4^th respondent, the recipient of the service is the 3^rd respondent who is the awarder of the work. Therefore no tax liability can be fetched against the 4^th respondent is the contention. Per contra, learned Standing Counsel for CBEC contended that service provided by the sub contractor is in the nature

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W.P.(C). No.11267 OF 2010 - 4-

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of 'input service', which is specifically defined in the statute. Relying on Ext.P8 Circular it is contended that the Board is authorized to issue circulars prescribing the method of levy of tax. Since the service provided by the sub-contractor is in the nature of 'input service', which is used by the main service provider for completion of the work undertaken by him, the 4^th respondent cannot be exonerated from the liability fetched upon him in the capacity as service provider. He is always liable to comply with the requirements of filing returns and for paying tax. Even if the petitioner had discharged the entire liability, only a credit can be claimed under the provisions of the Cenvat Credit Rules, is the contention.

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This court is of the considered opinion that in view of the specific clarifications regarding 'input service' rendered by the sub-contractor, which is used by the main service provider for completion of the work, it cannot be held that the sub contractor is not liable to pay service tax for the services provided by him. However it is for the adjudicating authority to decide on verification of records

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W.P.(C). No.11267 OF 2010 - 5-

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regarding the discharge of liability of 'service tax' and to decide with respect to the credit relating to the 'input service'. The directions issued by the CESTAT in Ext.P4 judgment is also to the affect of issuing similar directions.

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On the facts of the case at hand, it is evident that

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this court had issued an interim order staying operation of Exts.P6 and P8 to the extent it relates to the sub- Contract in which case the principal contractor pays service tax on the whole amount of the contract. Learned counsel for the petitioner submitted that with respect to the work in question both the petitioner as well as the 4^th respondent had submitted returns within the statutory period. Therefore this court is of the opinion that interest of justice can be achieved by directing the 1^st respondent to have an adjudication with respect to the tax liability as well as credit of 'input service' with respect to the work in question awarded on the basis of Ext.P1, taking note of the returns filed by the petitioner as well as by the 4^th respondent. Necessary decision has to be taken by the 1^st respondent considering the claim for the credit based on remittance of

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W.P.(C). No.11267 OF 2010 - 6-

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the entire tax liability by the 1^st respondent.

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Hence this writ petition is disposed of by

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directing the 1^st respondent or the competent authority to conduct an adjudication as mentioned above and to decide the tax liability.

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In view of the interim order continued during

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pendency of this writ petition, no demand can be enforced against the 4^th respondent for payment of service tax with respect to the contract in question, till the adjudication is finalised. It is further directed that in view of the fact that the matter was pending adjudication before this court, the 4^th respondent shall not impose with any penalty or penal

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consequences.

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Sd/-

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C.K.ABDUL REHIM, JUDGE

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SKV

Furnace Fabrica (India) Ltd. v. Joint Commissioner and Others

Case brief

What is this about?

What did the court decide?

Furnace Fabrica (India) Ltd. v. Joint Commissioner and Others

Case brief

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