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A service provider is statutorily liable to pay service tax even
though based on contractual arrangement, service tax liability can be
recovered from the service receiver. Though liability can be transferred
to third party, revenue cannot be asked to recover the same from third
party or asked to wait till its recovery
Facts:
The
Appellants provided space to various contractors/ advertisers for
display of advertisement. The terms of contract clearly stated that the
contractors were responsible for paying tax to the concerned authorities
in addition to the license fees payable to them. The department issued
various letters followed by a Show Cause Notice to the Appellants for
discharge of service tax liability on such sale of space for
advertisement along with penalties. The Appellants argued that they were
autonomous body of Delhi Government and they had no intention to evade
service tax. Inadvertently, they did not obtain registration. As per
contractual arrangement, all the contractors paid service tax which was
duly deposited except 2 of the contractors. In spite of directions of
High Court u/s. 9 of Arbitration and Conciliation Act, 1996, these 2
contractors did not abide the contract. Accordingly, they were intending
to institute contempt proceedings. The department invoked extended
period of limitation on the grounds of suppression of facts. It was
argued that they were under a bonafide belief that liability was
transferred to contractors in view of the Agreements. However, the
argument of bonafide belief was rejected by CESTAT on the grounds that
the Appellants should have taken efforts to find out who was liable to
pay service tax and there was no ambiguity in provisions of service tax
law.
Held:
The Hon’ble High Court observed that
though service tax burden can be transferred by way of contractual
arrangement, statutorily service provider is required to discharge
service tax liability and the assessee cannot ask revenue to recover tax
dues from a third party or wait till recovery of such tax dues from a
third party. In view of the orders under Arbitration and Conciliation
Act, 1996, the Appellants can recover service tax paid. However, these
orders would not affect recovery by department from the Appellants.
Accordingly, service tax liability with interest and penalties were
confirmed. Though the Appellants took a stand to discharge service tax
liability only after receipt thereof from contractors, there were no
malafide intentions. Further, in absence of support of facts and also in
view of poor financial position, penalty u/s. 78 of the Finance Act,
1994 was waived vide section 80 of the Finance Act, 1994.
