IAAP/2/2008 1/11 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD PETN. UNDER ARBITRATION ACT No. 2 of 2008 For Approval and Signature: HONOURABLE MR.JUSTICE M.R. SHAH ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= MONALI DEVELOPERS - Petitioner(s) Versus TRENT LIMITED - Respondent(s) ========================================================= Appearance : MR SHALIN N MEHTA for Petitioner(s) : 1, MR BH CHHATRAPATI for SINGHI & CO for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE M.R. SHAH Date : 12/12/2008 ORAL JUDGMENT 1. Present petition has been filed by the petitioner herein (lessor) under sec.11(6) of the Arbitration and Conciliation Act, 1996 (“the Act” for short) to appoint Mr.Y.B. IAAP/2/2008 2/11 JUDGMENT Mahadevia as the sole arbitrator or sole arbitrator of his choice for arbitration of the disputes between the petitioner and the respondent Company (lessee) with respect to the liability of the respondent Company to pay the service tax in respect of the premises taken on lease by the respondent Company from the petitioner by the Lease Deed dtd.5/8/2005 for the period from June, 2007 to October, 2007 due from the respondent Company already credited to Government Account by the petitioner. 2. Lease Deed dtd.5/8/1985 has been executed between the petitioner and the respondent Company leasing out to the respondent Company building premises of the Monalisa Plaza situated at Final Plot No.326 Part-II, Race Course Circle, Vadodara together with car parking space, at the monthly rent of Rs.7,01,250=00. That as per the terms of the Lease Deed, lessee shall be liable to pay all the rates, taxes, cesses etc. (Clause-10). It appears that from 1/6/2007, financial year 2007 has brought service of the renting immovable property for furtherance of business or commerce under the net of service tax. It is the case on behalf of the petitioner lessor that as per Clause 10 of the Lease Agreement, the lessee shall be IAAP/2/2008 3/11 JUDGMENT liable to pay all the rates, taxes, cesses, charges and expenses to the Vadodara Municipal Corporation and/or any other public authority, therefore, liability to pay service tax is also upon the lessee. It is the case on behalf of the petitioner lessor that the petitioner lessor has paid service tax to the tune of Rs.4,33,375, however, the respondent Company – lessee has denied its liability to pay service tax with respect of the demised premises on the plea that the terms of the Lease Deed does not provide for service tax to be born by the respondent Company. Therefore, according to the petitioner lessor, a dispute has arisen between the petitioner lessor and the respondent lessee. It is the case on behalf of the petitioner that the petitioner has written to the respondent company on 22/24-8-2007 for arbitration for the said dispute by invoking arbitration Clause-19 contained in Lease Deed dtd.5/8/2005 and the name of Mr.Y.V. Mahadevia as its arbitrator for conducting arbitration proceedings. It is the case on behalf of the petitioner that though the respondent Company has received the said communication on 4/9/2007, the respondent Company has failed to appoint its arbitrator and has thus failed to act as required under the IAAP/2/2008 4/11 JUDGMENT Arbitration Clause-19 contained in the said Lease Deed executed between the petitioner and the respondent Company on 5/8/2005 and hence the petitioner has preferred present Arbitration Petition under Sec.11(6) of the Act. 3. Mr.Shalin Mehta, learned advocate appearing on behalf of the petitioner has submitted that in view of the specific Clause No.10 of the Lease Agreement, liability to pay all the taxes, cesses etc. is upon the lessee and therefore, the respondent company is liable to pay service tax imposed for the year 2007 w.e.f. 1/6/2007. It is submitted that the respondent Company – lessee has denied its liability to pay service tax and because of that, dispute has arisen and the said dispute is required to be resolved by the arbitrator as per Clause-19 of the Lease Deed. 4. It is also further submitted that the service tax is an indirect tax relating to the premises, payable to the Union Government, a Public Authority. It is further submitted that even otherwise, the liability of the lessee to pay rates, taxes etc. under Clause-10 of the Lease Deed cannot be limited to rates, taxes etc. levied by the public authorities or the Vadodara Municipal Corporation on the date of the execution of the Lease Deed but will also IAAP/2/2008 5/11 JUDGMENT extend to all the taxes or rates etc. introduced and levied even subsequent to the execution of the Lease Deed and during the subsistence of the lease. 5. The petition is opposed by Mr.B.H. Chhatrapati, learned advocate appearing for Singhi & Company on behalf of the the respondent lessee. It is submitted that considering Clause-10 of the Lease Deed, it cannot be said that the liability to pay the service tax, which has been introduced after the execution of the Lease Deed, is also upon the lessee. It is submitted that as per Clause- 10 of the Lease Deed, lessee is liable to pay all rates, taxes etc. payable at the relevant time when the Lease Deed was executed and cannot be made applicable to the taxes which were not in existence at all at the time when the Lease Deed was executed. It is submitted that in Clause-10 of the Lease Deed it does not mention that even the taxes which may be imposed in future during the subsistence of the lease. It is submitted that to fasten the liability upon the lessee to pay the tax which is introduced subsequently after the execution of the Lease Deed, would amount to rewriting the Lease Deed and/or adding something which is not there in the Lease Deed at all. Under the circumstances, when the respondent IAAP/2/2008 6/11 JUDGMENT lessee is not liable to pay service tax at all, there is no arbitral dispute at all and therefore, there is no need to refer the dispute to the arbitrator invoking Clause-19 of the Lease Deed. It is also further submitted that Clause- 19 of the Lease Deed would be applicable in a case where the dispute has arisen between the parties with respect to the terms and conditions of the lease agreement and/or dispute within the terms and conditions of the lease agreement. It is also further submitted that as such there is no provision in the Lease Deed as to the responsibility or the obligation for payment of the tax which may be imposed after execution of the Lease Deed. It is also further submitted that even Clause-10 of the Lease Deed has also no application in respect of the obligation or responsibility for the payment of the service tax. It is further submitted that on a plain reading of Clause 10 of the lease agreement, there is a reference to “rates, taxes, cesses, assessments, charges, and expenses which are payable to the Vadodara Municipal Corporation and/or any other public authority.” It is submitted that the service tax is not rates, taxes, cesses, assessments, charges, expenses payable to the Vadodara Municipal Corporation and/or any other public authority. IAAP/2/2008 7/11 JUDGMENT It is also further submitted that even the reference in the said Clause is “rates, taxes cesses, assessments, charges and expenses”, which are payable in respect to the said premises.” It is submitted that the service tax is a tax on the service rendered and not a tax “with respect to the said premises”. It is also further submitted by the learned advocate appearing on behalf of the respondent that even otherwise as per Clause-26 of the Lease Deed dtd.5/8/2005, the Courts shall have exclusive jurisdiction to try all the suits or proceedings in connection with the said agreement and therefore, as per the Clause-19 of the lease agreement, arbitration proceedings are to be held in Mumbai and therefore, it is submitted that this Court may not entertain present petition. 6. It is also further submitted that even otherwise Clause 19 of the Lease Deed cannot be pressed into service upon the petitioner. It is submitted that the jurisdiction of the arbitrator to decide the dispute between the petitioner and the respondent is limited and confine to the dispute under the Lease Deed and the provisions thereof. It is submitted that as, in the facts of the present case, Lease Deed does not contain any provision as to which the party should pay service tax, it will not be possible for the IAAP/2/2008 8/11 JUDGMENT arbitrator to add anything to the Lease Deed from which the arbitrator deriving his jurisdiction, therefore, it is requested to dismiss the present petition. 7. Heard the learned advocates appearing on behalf of the respective parties. 8. At the outset, it is required to be noted that the Lease Deed has been executed between the petitioner and the respondent on 5/8/2005. Clause-10 of the said Lease Deed provides for liability of the respondent lessee to pay rates, taxes, cesses etc. relating to the leased premises. As per Clause 10 of the Lease Deed, the respondent lessee is liable to pay all the rates, taxes, cesses, assessments, charges and expenses to the Vadodara Municipal Corporation and/or any other public authority in respect of the said premises. It is an admitted position that financial year 2007 has brought service of the rent on immovable property for furtherance of business or commerce under the net of service tax only w.e.f. 1/6/2007 and the same is leviable by the Union Government. Thus, at the relevant time, when the Lease Deed was executed between the petitioner and the respondent, there was no service tax at all. Under the circumstances, there was no question of fastening the IAAP/2/2008 9/11 JUDGMENT liability to pay service tax upon the lessee. Clause 19 of the Lease Deed dtd.5/8/2005 is an arbitration Clause and if any difference or dispute arise between the parties touching the said Lease Deed or construction thereof, to rights, duties or obligation of the parties or as to any matter arising out of or connected with the subject matter of the said Lease Deed, the same is required to be referred to the arbitration to be held at Mumbai in accordance with the provisions of the Act. Therefore, only those disputes which are arising out of the said Lease Deed are required to be referred to the arbitration and therefore, if any dispute arises with respect to the payment of taxes, cesses, etc. as provided under Clause- 10 of the lease agreement, the said dispute is required to be referred to the arbitration. As stated above, the service tax was not payable at all at the time when the Lease Deed was executed. Therefore, there cannot be any dispute with respect to the service tax which is required to be referred to arbitration. It also appears that considering Clause-10 of the lease agreement, the liability to pay service tax cannot be upon the lessee. It does not provide in Clause 10 that for any tax to be introduced in future during the subsistence of the lease, IAAP/2/2008 10/11 JUDGMENT the lessee would be liable to pay the same. To fasten the liability to pay the tax which is imposed subsequently after execution of the Lease Deed, would amount to adding something in the lease agreement which is not there in the lease agreement. Therefore, the liability to pay the service tax upon the lessee invoking Clause 10 of the lease agreement cannot be accepted and therefore, there is no arbitral dispute at all and therefore, it cannot be said that there was any agreement between the parties to refer the dispute with respect to the tax which may be levied in future. Under the circumstances, the dispute with respect to payment of service tax which has been made applicable and levied in future i.e. after the execution of the Lease Deed, cannot be said to be agreed to be referred. Under the circumstances,there is no question to refer the said dispute to the arbitrator for arbitration. Under the circumstances, the prayer of the petitioner lessor to refer the dispute with respect to the liability to pay the service tax to the arbitrator under Clause-19 of the Lease Deed cannot be accepted. Under the circumstances, present petition deserves to be dismissed. 9. In view of the above, this court is not further entering into IAAP/2/2008 11/11 JUDGMENT other submissions interpreting Clause 26 of the lease agreement etc. and/or whether the service tax can be said to be related to a tax in respect to the said premises and/or whether the Union Government can be said to be a Public Authority as mentioned in Clause 10 of the said agreement. 10.For the reasons stated above, present petition deserves to be dismissed and is accordingly dismissed. Notice is discharged. [M.R. SHAH, J.] rafik