CESTAT Delhi: Extended Limitation Period Cannot Be Invoked Where Divergent Tribunal Views Existed on Sub-Contractor's Service Tax Liability
Background and Context
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi recently examined a significant question arising under the service tax regime — specifically, whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 can be validly invoked in circumstances where the Tribunal itself had rendered contradictory views on the substantive issue of a sub-contractor's tax liability.
The matter involved M/s. M.K. Ghori & Associates, a firm engaged in both trading of goods and providing repair and maintenance services. The firm was the appellant before the Tribunal, challenging an order passed by the Commissioner (Appeals), Central GST & Central Excise, Raipur, which had reversed the first adjudicating authority's decision to drop the service tax proceedings against the assessee.
How the Proceedings Originated
The proceedings were triggered not by any routine departmental audit but by data received from the Income Tax Department. Based on this data, the department issued a Show Cause Notice dated 22.10.2019. The notice alleged that:
- During Financial Years 2015–16 and 2016–17, the assessee's transactions constituted only sale of goods, and
- During Financial Year 2014–15, the assessee had provided taxable services.
The Adjudicating Authority, through its Order dated 06.02.2023, dropped the proceedings entirely. The basis for dropping the proceedings was the view that once the principal contractor had already discharged the service tax liability on the full consideration, the sub-contractor could not independently be made liable — doing so would amount to taxing the same transaction twice.
The Revenue contested this conclusion before the Commissioner (Appeals), who allowed the Revenue's appeal and reversed the Adjudicating Authority's order. This led the assessee to approach CESTAT Delhi.
The Two Central Questions Before the Tribunal
The learned Counsel for the appellant framed the dispute around two distinct questions:
On Merits: Whether a sub-contractor is independently liable to pay service tax when the main/principal contractor has already discharged the service tax on the full consideration for the contract.
On Limitation: Whether the extended period of limitation under the proviso to
Section 73(1)of the Finance Act, 1994 could lawfully be invoked in a situation where there had been divergent and contradictory decisions of the Tribunal on the very same issue.
Tribunal's Analysis on Merits: Larger Bench Binding
On the first question — the substantive liability of a sub-contractor — the Tribunal did not rule in favour of the assessee. The Tribunal applied the binding Larger Bench decision in CST New Delhi Vs Melange Developers Pvt. Ltd. — 2020 (33) GSTL 116 (Tri.–LB).