Subcontractors Must Pay Service Tax Independently — Main Contractor’s Payment Not a Shield: CESTAT
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has upheld the service tax demands raised against subcontractors for failing to discharge service tax liabilities for construction services provided between FY 2012–13 and 2016–17.
The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has dismissed their appeals, confirming that subcontractors remain independently liable for service tax, even if the main contractor has paid tax on the entire project value.
The applennats/assessees are the subcontractors engaged in providing construction of residential complex services, a taxable service under Section 66E(b) of the Finance Act, but had not registered under service tax.
The assessee challenged the order passed by the Commissioner (Appeals), CGST, Bhopal, which overturned earlier decisions by the adjudicating authority. The authority had initially dropped substantial service tax demands against both appellants on the ground that the main contractor, M/s Agarwal Builders & Developers, had already paid service tax on the complete contract value.
However, the Commissioner (Appeals) revived demands of Rs. 12.03 lakh plus penalties against Rahul Agarwal and Rs. 14.15 lakh plus penalties against Sandeep Jain.
The tribunal held that subcontractors are taxable service providers in their own right, and mere payment of tax by the main contractor does not absolve them of their individual obligations.
Citing the Larger Bench decision in Melange Developers Pvt. Ltd., the Tribunal noted that double taxation is mitigated through CENVAT credit mechanisms, not by exempting subcontractors from tax liability.
The tribunal clarified that exemptions under Notification No. 25/2012-ST post July 1, 2012, apply only when the main contractor is exempt — which was not the case here, as the services involved residential complex construction, a taxable declared service under Section 66E of the Finance Act, 1994.
The Tribunal rejected the appellants' reliance on Board Circular No. 96/7/2007-ST, stating it was outdated and inapplicable post the negative list regime of July 1, 2012. It emphasized the ruling in Melange Developers which unequivocally states, “A sub-contractor would be liable to pay Service Tax even if the main contractor has discharged Service Tax liability on the activity undertaken by the sub-contractor in pursuance of the contract.”
Case Details
Case Title: Shri Rahul Agarwal Versus Commissioner CGST, Customs & Central Excise, Jabalpur
Case No.: SERVICE TAX APPEAL NO. 50395 OF 2019
Date: 26.06.2025
Counsel For Appellant: Pradumna Singh
Counsel For Respondent: Anand Narayan
Mariya is the Senior Editor at JurisHour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.
