Service Tax Paid By Partner In His Individual Registration Can Be Adjusted Against Tax Liability Of Partnership Firm: CESTAT

The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that service tax paid by a partner in his individual service tax registration can be adjusted against the tax liability of the partnership firm, setting aside a significant portion of the demand raised by the Department. The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has upheld the liability of the firm to pay service tax on services rendered as a sub-contractor, and remanded the matter for fresh computation of tax on works contract and transportation services. The appeal was filed by M/s Deepa Construction, a partnership firm engaged in construction and works contract services, challenging an Order-in-Original passed by the Commissioner, CGST & Central Excise, Raipur. The Commissioner had confirmed a service tax demand of ₹2.83 crore, along with interest and penalties under Sections 77 and 78 of the Finance Act, 1994. The demand arose after scrutiny of Income Tax and TDS data, which revealed substantial receipts during FYs 2013-14 to 2017-18. The Department alleged non-payment of service tax on taxable services and invoked the extended period of limitation on grounds of suppression of facts. A central issue before the Tribunal was whether service tax paid under the PAN-based registration of a partner (Shri K. Surendran Nair) could be treated as valid payment for services rendered by the partnership firm. The Department contended that the firm and its partner were distinct legal entities, and since the firm had not paid tax under its own registration, the payment made under the partner’s registration could not be adjusted. Rejecting this rigid view, the Tribunal relied on Section 4 of the Partnership Act, 1932, Board Circular No. 58/07/2003-CX (ST), and judicial precedents of the Gujarat High Court. It held that a partnership firm and its partners are not entirely separate for service tax purposes, and tax paid by a partner on behalf of the firm cannot be ignored merely due to a registration mismatch. Accordingly, the Tribunal ruled that service tax paid by the partner must be adjusted against the firm’s liability, subject to verification that such payments do not relate to services independently provided by the partner in his proprietary capacity. On the issue of works executed as a sub-contractor for M/s Tecpro Systems Ltd., the Tribunal upheld the demand, reiterating that sub-contractors are independently liable to pay service tax, even if the main contractor has discharged tax on the overall contract. Relying on the Larger Bench decision in Melange Developers Pvt. Ltd., the Tribunal rejected the plea of revenue neutrality and confirmed that service tax liability arises on each taxable service rendered by a sub-contractor. With respect to receipts shown under “Transportation and Hiring,” the appellant claimed exemption under Section 66Dfor transportation of goods by road. The Tribunal noted that relevant documents had not been examined by the adjudicating authority and therefore remanded the issue for fresh consideration. The Tribunal remanded the matter relating to abatement under Rule 2A of the Service Tax (Determination of Value) Rules, 2006, observing that invoices, work orders, and payment documents submitted by the appellant required detailed verification. The Tribunal has directed the adjustment of service tax paid under the partner’s PAN allowed against the firm’s liability. Service tax liability as a sub-contractor upheld. Computation of demand on works contract and transportation services remanded to the original authority for fresh adjudication after granting opportunity to the appellant. The tribunal partly allowed appeal and the impugned order was upheld only to a limited extent. Case Details Case Title: M/s Deepa Construction Versus Commissioner of Central Goods Service Tax, Central Excise, Raipur Case No.: Service Tax Appeal No. 50608 Of 2021 Date: 02.02.2026 Counsel For Appellant: Atul Gupta, Chartered Accountant Counsel For Respondent: Shashank Yadav, Authorized Representative Click Here To Read Order Read More: Baggage Rules, 2026: Duty-Free Allowance Raised From Rs. 50K To Rs. 75K, Higher Jewellery Limits for Returning Passengers

Service Tax Paid By Partner In His Individual Registration Can Be Adjusted Against Tax Liability Of Partnership Firm: CESTAT

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