By Puloma Dalal, Jayesh Gogri Chartered Accountants
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Service tax levy being an indirect tax on services, necessarily user of the service has to bear it by including the amount of tax in cost of service —Even if there is no explicit term in the contract — Sufficient internal indication in the Act present to indicate that the levy is indirect tax — Can be collected from the user — In this case lessee.
Facts:
The society, the owner of a building on leasehold land entered into lease deed with the lessee in October 2006 for the premises on the ground floor and also entered into agreement for the maintenance of common services and facilities of the said premises. Service tax was levied from 1-6-2007 on renting of immovable property for business purposes. The narrow issue in the dispute relates to whether service tax is to be borne by the lessee, the levy being an indirect tax which is required to be deposited after collecting from the user of the service. According to the plaintiff-society, by virtue of section 83 of the Finance Act, 1994 read with sections 12A and 12B of the Central Excise Act, the levy is to be borne by the user of the premises or services, whereas according to the lessee-defendant, the contract between the parties provided that the lessee would pay all taxes, charges, ground rent, house tax, easements and other outgoings imposed by the local authority, etc.
Held:
(i) The Court observed that the parties while entering into contract did not visualise that the tax would be levied on lease or rent of immovable property and there was no dispute that the tax was levied after the agreement was entered into. Referring to the Supreme Court in All India Federation of Tax Practitioners v. UOI, (2007) 10 STT 166 dealing with the nature of service tax liability the Court observed that the Apex Court had held that excise duty and customs are consumption-specific duties which do not constitute a charge on the business but on the client. Similarly, the Court also observed that in All India Tax Payers Welfare Association’s case (2008) 5 STT 136 (Mad.), it was observed that according to section 65 of the Finance Act, the provider of service only being an assessee is to collect service tax from the users of service as contemplated under the sections.
(ii) The Court further observed that sections 12A and 12B of the Central Excise Act were made applicable to service tax law vide section 83 of the Finance Act, 1994 to prescribe that the provider of service has the obligation to indicate the quantum of tax and that there is a presumption that incidence of duty is passed on to the buyer. Referring to section 64A of the Sale of Goods Act, 1930, the Court observed that the said section visualises and provides for situations where levies of tax are imposed after the contract is entered into.
(iii) In view of this, unless a different intention appears from the contract, in case of imposition or increase of tax subsequent to drawing a contract, the parties shall be entitled to be paid such tax or increase. In the instant case, even in the absence of explicit provision to enable lessor to receive the service tax component, there is sufficient internal indication in the Act through section 83 read with sections 12A and 12B of the Central Excise Act that the levy is an indirect tax cap-able of being collected from the user, the lessee in this case. Thus, the plaintiff was entitled to the amounts claimed from the lessee.
