Case: Union of India &amp; Others Vs. Bengal Shrachi Housing Development Limited &amp; Another

ELECTRICITY; WATER 7.1. It is agreed by and between the Parties that the Lessor shall be liable to pay property taxes and other outgoings in respect of the Premises, whatsoever payable and as levied from time to time promptly and timely, including any revisions thereto, directly to the authorities concerned and no claim for contribution towards such taxes, cesses, levies and increases shall be made by the Lessor or be entertained by the Lessee. xxx xxx xxx 9. COVENANTS OF THE LESSEE The Lessee, for itself, its successors and permitted assigns and to the intent that its obligations may continue through the term hereby created, but not exceeding the Initial Term, covenants with the Lessor as follows: xxx xxx xxx (d) To pay all taxes necessary for carrying on its business within the Premises, other than municipal taxes and other related property taxes.?32. An arbitration award construed the aforesaid clauses stating that service tax would have to be paid by the lessor. This, according to the Division Bench, was not a possible construction inasmuch as the Division Bench bifurcated taxes that were payable by the lessor and the lessee. Clause 7 being confined to property taxes and clause 9 referring to taxes other than property taxes, the judgment of the Division Bench stated:?………Thus, Clause 7.1 is clearly confined to property taxes or other outgoings in respect of the premises. It has to be a tax on the premises or the property. Such a tax may be of any nature whatsoever and thus even a new tax on the premises would be covered by this clause and absolves the lessee of the liability in this behalf, this clause nowhere envisaging an indirect tax of the nature of a service tax. The aforesaid view is further reinforced by Clause 9 (d) which in fact puts the responsibility on the lessee to pay all taxes necessary for carrying on its business within the premises other than the municipal taxes and related property taxes. Thus, any tax on the business activity is on the lessee and the only exclusion made is of municipal tax and related property taxes for which there is a specific Clause 7.1. It is not as if there is a singular clause relating to taxes in the agreement being the Lease Deed which puts the burden on the lessor alone. The nature of taxes if bifurcated into two categories; one borne by the lessor and the other to be borne by the lessee. The aforesaid becomes important in the context of the nature of service tax which is a tax on the commercial activity and to that extent would, thus, fall within the parameters of Clause 9 (d) and not Clause 7.1. We thus have not the slightest of doubt that these are not clauses which can brook of any two interpretations, but there can by only one interpretation on a plain reading of the clauses. The language of a clause cannot be twisted to come to a conclusion as is sought to be done by the learned Arbitrator. It appears that Clause 9 (d) seems to have been completely lost by the learned Arbitrator. ……….?33. In this view of the matter, the arbitration award was set aside. This judgment again turned on the language of the particular clauses in the lease deed and would have no application to the facts of the present case. 34. At the fag end of the argument, however, Shri Gupta referred us to a sanction letter dated 27th April, 2012 and a letter dated 30th April, 2012. The sanction letter of 27th April, 2012 issued by the Government of India conveying sanction for hiring of the lease premises in the present case to the Director General, Indian Coast Guard, specifically states:?…… The registration charges, stamp duty, service taxes, etc. (if applicable) is the liability of the lessee……?35. The letter dated 30th April, 2012, written by the Deputy Inspector General, Chief Staff Officer, to the Respondent, in turn, in paragraph 3(c) reiterated the same position as that of the sanction letter. The learned single Judge in dealing with the letter dated 30th April, 2012 has held:?12. Turning to the facts of the present case, it appears that clause 6 extracted supra delineated the respective obligations of the lessor and the lessees. The parties agreed that the rates and taxes primarily leviable upon the occupier would be paid by the Government. That the respondents were not oblivious of their obligation to bear service charge is reflected from the letter dated April 30, 2012. Although the said deed does not specifically refer to service tax, the letter dated April 30, 2012 expressly provides that Government of India had sanctioned the terms and conditions of hiring including, inter alia, the liability of the ?lessee in respect of registration charges, stamp duty, service tax etc., (if applicable)?. The words ?if applicable? in brackets follows ?etc.? and not ?service tax?. Therefore, it is not a case that if obligation to make payment of service tax arises, the respondents would have discretion to foist the responsibility on the lessor (the first petitioner). Liability to bear service tax being that of the person receiving service, there can be no escape from the conclusion that the respondents are liable to bear service tax.?36. This being the case, though in law and under clause 6 of the lease deed the Appellant is not required to pay service tax, we are loathe to upset the finding of the learned single Judge based upon a letter by the Appellant to the Respondent in which the Appellant has expressly stated that it was liable to pay service charges. Having thus clarified the legal position, given the sanction letter of 27th April, 2012 and the letter dated 30th April, 2012, in which it was made clear that the Union of India alone will bear the service charges, we refuse to exercise our discretion under Article 136 of the Constitution of India in favour of the Union of India.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]12. A reading of the Act and the Rules, therefore, makes it clear that ?assessee?, as defined, means the person liable to pay service tax under the Act. In the present case, we are concerned with the taxable service of renting of immovable property. It is clear that under Section 66B, the levy of service tax at the rate of 12% is on the value of the service of renting of immovable property that is provided or agreed to be provided by one person to another and collected in such manner as may be prescribed. Section 68 whose marginal note reads?payment of service tax?, makes it clear that it is the person providing the taxable service to another, who is to pay service tax at the rate specified in Section 66B, in such manner and within such period as may be prescribed, unless otherwise specified by the Central Government. Therefore, the person liable for paying service tax is to be determined on a reading of the Rules.When we come to the Rules, it is clear that under Rule 2(1)(d), the person liable for paying service tax, where the service of renting immovable property is agreed to be provided by the Government, is the provider of such service. Even in a converse situation, which is the situation in the facts of the present case, it is the provider of the service alone, who is liable for paying service tax.It is thus clear, on a conspectus of the authorities of this Court, that service tax is an indirect tax, meaning thereby that the said tax can be passed on by the service provider to the recipient of the service. Being a tax on service, it is not a direct tax on the service provider but is a value added tax in the nature of a consumption tax on the activity which is by way of service. It is settled by various judgments of this Court that, in order to have conceptual clarity, the taxable event and the taxable person are distinct concepts.It is thus clear that the judgments of this Court which referred to service tax being an indirect tax have reference only to service tax being an indirect tax in economic theory and not constitutional law. The fact that service tax may not, in given circumstances, be passed on by the service provider to the recipient of the service would not, therefore, make such tax any the less a service tax. It is important to bear this in mind, as the main prop of Shri Jaideep Gupta?s argument is that service tax being an indirect tax which must be passed on by virtue of the judgments of this Court, would make the recipient of the service the person on whom the tax is primarilyreading of these two judgments would, therefore, show that, on facts, it was held that since payment of service tax was not contemplated by the parties and it was agreed that the lessor shall continue to pay taxes, it was evident that the parties contemplated only existing taxes and not taxes which may arise in the future. This being the overwhelming circumstance in that case, any observations made on law have to be read in light of the facts of thatjudgment again turned on the language of the particular clauses in the lease deed and would have no application to the facts of the present case.This being the case, though in law and under clause 6 of the lease deed the Appellant is not required to pay service tax, we are loathe to upset the finding of the learned single Judge based upon a letter by the Appellant to the Respondent in which the Appellant has expressly stated that it was liable to pay service charges. Having thus clarified the legal position, given the sanction letter of 27th April, 2012 and the letter dated 30th April, 2012, in which it was made clear that the Union of India alone will bear the service charges, we refuse to exercise our discretion under Article 136 of the Constitution of India in favour of the Union of India.