M/S Mkb Power Construction Private Limited vs. The Union Of INDIA

Held

The Court held that the petitioner is liable to pay service tax on the taxable services provided to its principal contractors. The Court distinguished the case of State of Andhra Pradesh vs. Larsen and Toubro Limited, noting that the issue there pertained to sales tax on goods in works contracts and the credit of tax paid by sub-contractors. In the present case, the issue is service tax liability. The Court found that the petitioner admittedly provided taxable services and charged for them, making them liable under the Act. The principle that the service provider is liable to pay service tax, and cannot escape this liability by claiming the service recipient (even if a principal contractor) has paid it, was affirmed. The Court relied on decisions of the Tribunal in Murari Lal Singhal vs. Commissioner of Central Excise and Service Tax, Jaipur-I and Larsen and Toubro Ltd. vs. Commissioner of Central Excise, Raipur, which held that a sub-contractor providing taxable services is liable for service tax, and this liability is not absolved by the service recipient discharging their own tax obligations. The petitioner failed to make out a case for interference with the impugned order.

Facts

The petitioner, M/s MKB Power Construction Private Limited, a construction company, is challenging an order dated 09.02.2024 passed by the Commissioner, Goods and Service Tax (GST). The petitioner received sub-contract work orders from M/s Powertech Engineers and M/s Kanti Prasad Mittal, who had a primary work order from Bihar State Power Transmission Company Limited (BSPTCL). A demand-cum-show cause notice was issued on 12.10.2021, alleging that the petitioner failed to assess and pay service tax amounting to Rs. 7,41,09,408/- for the period 2016-17 to 2017-18 (up to June). The notice alleged contravention of Sections 67, 68, and 70 of the Finance Act, 1994, read with Rules 4, 6, and 7 of the Service Tax Rules, 1994, and suppression of facts with intent to evade tax. The petitioner did not submit a defence reply initially. Despite opportunities for personal hearing and submission of documents, the petitioner failed to conclusively prove that their principal contractors had paid the service tax on their behalf, leading to the impugned order.

Key Issues

1. Whether the petitioner, as a sub-contractor, is liable to pay service tax on the taxable services provided to its principal contractors, even if the principal contractors are also liable for service tax on the overall project, under Section 65B of the Finance Act, 1994, read with Section 66D and Mega Exemption Notification No. 25/2012-ST? The petitioner argued that as a sub-contractor, they acted as an agent of the main contractor and had no privity of contract with the ultimate contractee. They relied on the Supreme Court's decision in State of Andhra Pradesh vs. Larsen and Toubro Limited, which held that property in goods in a sub-contract works contract passes directly from the sub-contractor to the contractee, and that taxing both contractor and sub-contractor on the same works contract is impermissible. The petitioner contended that their principal contractors had already paid the service tax, and therefore, they should not be held liable. The revenue contended that the petitioner admittedly provided taxable services to its principal contractors and charged them for these services. Under the Act, the liability for payment of service tax is fixed upon the service provider, who has the right to collect it from the person to whom the service is provided. The revenue argued that the petitioner cannot escape taxability simply because the recipient was their main contractor.