Service Tax Paid by Partner Under Individual Registration Can Be Adjusted Against Firm’s Liability: CESTAT
Pranav B Prem
The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal, New Delhi, has held that service tax paid by a partner under his individual service tax registration can be adjusted against the tax liability of the partnership firm. While granting this relief, the Tribunal upheld the firm’s liability 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 Bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) was dealing with an appeal filed by Deepa Construction, a partnership firm engaged in construction and works contract services. The appeal challenged an Order-in-Original passed by the Commissioner, CGST & Central Excise, Raipur, confirming 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 was raised after scrutiny of Income Tax returns and TDS data for the financial years 2013–14 to 2017–18, which revealed substantial receipts from taxable services. Alleging non-payment of service tax, the Department invoked the extended period of limitation on the ground of suppression of facts and confirmed the demand.
A central issue before the Tribunal was whether service tax paid under the PAN-based service tax registration of one of the partners, Shri K. Surendran Nair, could be treated as valid payment towards the service tax liability of the partnership firm. The Department contended that the firm and its partner were separate legal entities and that tax paid under the partner’s registration could not be adjusted against the firm’s liability.
Rejecting this rigid stand, the Tribunal examined the legal nature of a partnership firm and relied on Section 4 of the Partnership Act, 1932, which defines a partnership as a relationship between persons carrying on business collectively. The Tribunal also relied on Board Circular No. 58/07/2003-CX (ST) and judicial precedents of the Gujarat High Court to hold that, for service tax purposes, a partnership firm and its partners are not entirely distinct in the manner suggested by the Department.
The Tribunal observed that it was an admitted position that the taxable services were rendered by the partnership firm and that service tax had in fact been paid, albeit under the partner’s registration. It held that such payment could not be ignored merely because of a registration mismatch, particularly when the Department had accepted the same registration and tax payments for several years. 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 did not pertain to services independently rendered by the partner in his proprietary capacity.
On the issue of services rendered by the appellant as a sub-contractor to Tecpro Systems Ltd., the Tribunal upheld the service tax demand. Relying on the Larger Bench decision in Melange Developers Pvt. Ltd., the Tribunal reiterated that a sub-contractor is independently liable to pay service tax on the services rendered by him, even if the main contractor has discharged service tax on the overall contract. The plea of revenue neutrality was expressly rejected.
With respect to receipts reflected under the head “Transportation and Hiring,” the appellant claimed exemption under Section 66D of the Finance Act, 1994 for transportation of goods by road. The Tribunal noted that the adjudicating authority had not examined the relevant documents to verify the nature of these receipts. It therefore remanded this issue for fresh consideration after proper verification.
The Tribunal also remanded the issue relating to abatement under Rule 2A of the Service Tax (Determination of Value) Rules, 2006. It observed that invoices, work orders, payment documents, and other records produced by the appellant required detailed scrutiny to correctly compute the taxable value and service tax liability.
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Summarising its conclusions, the Tribunal held that service tax paid by the partner under his individual registration must be adjusted against the partnership firm’s liability, upheld the firm’s liability to pay service tax as a sub-contractor, and remanded the issues relating to computation of demand on works contract and transportation services for fresh adjudication after granting due opportunity to the appellant. Accordingly, the appeal was partly allowed, and the impugned order was upheld only to a limited extent.
Cause Title: M/s Deepa Construction Versus Commissioner of Central Goods Service Tax, Central Excise, Raipur
Case No.: Service Tax Appeal No. 50608 Of 2021
Coram: Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member)
