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Renting of immovable property — Service tax being indirect in nature — Lessee was liable to pay the same in absence of any specific arrangement in lease deed on introduction of the levy on the said category.
Facts:
The plaintiffs had a lease arrangement with the defendants in 2006 for maintenance of common services and facilitates in respect of leased premises. The agreement stated the liability to pay municipal, local and other taxes was of plaintiffs. However, there was no specific mention as to who would bear service tax. The Finance Act, 1994 introduced service tax w.e.f. 2007. The plaintiffs contended that the said tax being in nature of indirect tax, had to be deposited by the service provider only after collecting the same from the receiver. They claimed that the tax was on the service and not on the service provider; and by virtue of section 83 of the Finance Act, 1994, it is presumed by law that the tax is to be collected from the service receiver. According to the defendant, the plaintiffs was law bound to bear all or any taxes levied by MCA, DDA, L&DO and or Government, local authority, etc. The defendants also relied on the ruling of the High Court of Allahabad in Thermal Contractors Association v. Dir Rajya Vidyut Utpadan Nigam Ltd., 2006 (4) STR 18 which inter alia held that “The payer of service tax is entitled to realise the same from its consumer; however it always depends on the contract entered into between the parties”.
Held:
The issue was decided in favour of the plaintiffs. While observing the ruling of the Supreme Court in All India Federation of Tax Practioners v. Union of India, 2007 (7) SCC 527, the Court held that service tax is consumption-specific as it does not constitute a charge on the business but on the client. Further, relying on All India Taxpayers Welfare Association v. Union of India & Others, 2006 (4) STR 14, the Court observed that as per section 12A of the Central Excise Act, 1944 r.w.s. 83 of the Finance Act, 1944, invoice and other documents should bear the amount of service tax. Section 12B of Central Excise Act, 1944 r.w.s. 83 of the Finance Act, 1944 contemplates that service is deemed to have been passed on to the service receiver. The agreement was silent on service tax levy as it was not anticipated at the time of making argument.
Therefore, even in absence of an express provision in law, but based on the overall scheme of the legislation, service tax could be collected from the recipient and accordingly, the plaintiffs were eligible to collect service tax from the defendant.
