2010 (1) TMI 616 - HC - Service Tax

Relief - Demand - Commercial contracts - commercial contracts - petitioner is entitled to recover the amount of service tax from the respondent No. 1 either under the common law or under the resolution No. 12 relating to the service tax - Held that this Court is not required to enter into the contractual dispute - Insofar as implementation of subject No. 12/resolution No. 12 is concerned assuming the respondent has taken such a resolution then too it would not be possible for a Court of law to direct the respondent No. 1 to put into force such resolution which is likely to be reviewed - The petition is dismissed

Summary

Issues:
1. Liability to pay service tax in a construction contract.
2. Obligation of the State to act fairly in contractual matters.
3. Interpretation of relevant legal provisions and judgments in determining liability.
4. Implementation of a resolution regarding service tax payment.
5. Jurisdiction of the Court in contractual disputes.

Analysis:

Issue 1: Liability to pay service tax in a construction contract
The petitioner, a Government contractor, entered into agreements with the respondent for construction work without specifying the payment of service tax. The respondent later demanded service tax from the petitioner. The Court noted that under the Finance Act, the liability to pay service tax is on the service provider, which in this case is the petitioner. The Court observed that the petitioner cannot claim reimbursement for service tax as there was no agreement or contract obliging the respondent to pay the tax.

Issue 2: Obligation of the State to act fairly in contractual matters
The petitioner argued that the respondent, being a State entity, is obligated to act honestly and implement a resolution regarding service tax payment. However, the Court held that the respondent's obligation to pay service tax cannot be enforced based on a resolution that may be subject to review and does not have legal backing.

Issue 3: Interpretation of relevant legal provisions and judgments in determining liability
The petitioner relied on judgments emphasizing fair treatment by State entities in contracts. However, the Court found that the absence of a contractual provision for service tax payment means the petitioner cannot compel the respondent to pay the tax. The Court also clarified that the judgments cited by the petitioner did not support their claim for reimbursement.

Issue 4: Implementation of a resolution regarding service tax payment
The Court refused to direct the respondent to implement a resolution regarding service tax payment, as it may be reviewed and lacks legal validity. The Court held that interference in the matter of enforcing the resolution was unwarranted.

Issue 5: Jurisdiction of the Court in contractual disputes
The Court concluded that the question of reimbursement for service tax under the contract should be decided by a competent court based on evidence and contractual terms. The Court declined to intervene in the contractual dispute at that stage and dismissed the petition, suggesting the petitioner seek appropriate remedies through the competent authority.

In summary, the Court dismissed the petition, emphasizing the petitioner's liability to pay service tax as the service provider and declining to enforce a resolution or interfere in contractual matters, directing the petitioner to seek remedies through the appropriate legal channels.