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TMI Blog2013 (6) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Act, 1994 incorporating in Section 65 (105), a sub-Clause (zzzz). The effect of this clause was the imposition and attraction of service tax qua rent received from renting of immovable properties for commercial purposes. 3) The appellant as a consequence of the aforesaid, included service tax element of 12.36% on all rental bills and cess thereon from June, 2007 onwards. 4) The respondent, however, refused to pay the service tax component on the basis that under Clause 7.1 of the Lease Deed, such liability had to be borne by the appellant. A demand notice was issued by the appellant on 27.12.2007 calling upon the respondent to pay the service tax liability till December, 2007 but the respondent refused to oblige and the appellant paid the service tax to avoid prosecution and penalty. 5) In view of the Arbitration Clause 16.2 of the Lease Deed, the appellant served a notice dated 12.01.2008 to the respondent invoking the arbitration clause qua the aforesaid dispute. There was no concurrence over the appointment of an Arbitrator which resulted in the appellant filing an application under Section 11 of the Arbitration & Conciliation Act, 1996 ( the said Act for short) before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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. ... ... ... ... 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: ... ... ... ... ... (d) To pay all taxes necessary for carrying on its business within the Premises, other than municipal taxes and other related property taxes. 8) Learned counsel for the appellant, conscious of the limitation on the contours of the controversy and the jurisdiction of this Court under S. 37 of the 1996 Act while dealing with an arbitral award, sought to plead that though the complete dispute revolved only around clauses of the Lease Deed referred to aforesaid, the interpretation sought to be put forth by the Arbitrator could not be countenanced as it was not a plausible view. The submission, thus, was that even though in matters of interpretation of such clauses due deference should be given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not attach to the appellant. Clause 7.1 was held to reflect the intentions of the parties that the appellant would bear the incidence of all taxes and the view of the Arbitrator was held to be a plausible one. 11) Learned counsel for the appellant sought to contend before us that service tax by its very nature is an indirect tax on the service rendered. Thus, though the service provider may be the Assessee for purposes of identification and collection of the tax, but the ultimate burden thereof has to be borne by the service recipient. 12) Learned counsel referred to the judgment in All India Federation of Tax Practitioners v. Union of India; (2007) 7 SCC 527 to advance the plea that the service tax is akin to a Value Added Tax (VAT) which in turn is a destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer. The relevant paras are as under:- 6. At this stage, we may refer to the concept of Value Added Tax (VAT), which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, service tax is imposed every time service is rendered to the customer/client. This is clear from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted. 14) Learned counsel for the Appellant also sought to point out the infirmity in the Award to the extent that the Division Bench judgment in Home Solutions Retail India Ltd v. Union of India & Ors. 158 (2009) DLT 722 (DB) was held to cover the matter in issue even though, the only controversy dealt with by the Division Bench was qua the vires of the levy and not the inter se rights and liabilities of the service provider and the service recipient. Moreover, a Full Bench judgment in Home Solutions Retails (India) Ltd. v. Union of India &Ors.; 182 (2011) DLT 548 (FB) had overruled the judgment of the Division Bench given on 23.09.2011 well before the passing of the award. Similarly, the interim order relied upon in the award passed by the Division Bench on 18.05.2010 was set aside by the Supreme Court vide orders dated 10.01.2011 and 04.02.2011 in SLP (Civil) Nos. 16960/2010 and 982 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has a contract with the user; it is from them that the levy would eventually be realized by including the amount of tax in the cost of service. 17) The judgments relied upon by the learned single Judge were sought to be distinguished on the principle that in those cases levy was in existence at the time of the execution of the contract and was thus in specific contemplation of the parties and so provided for. In Rashtriya Ispat Nigam Limited v. M/s Dewan Chand Ram Saran; 2012(4) SCALE 588, it was contended that the levy was in existence at the time of execution of the contract. In Numaligarh Refinery Ltd. v. Daelim Industrial Co.Ltd.; (2007) 8 SCC 466 the countervailing duty imposed vide Customs Tariff (Amendment) Act, 1994 and the agreement inter se the parties specifically provided that the contractor would pay all taxes and duties including customs duties. Thus, there was specific provision made qua custom duties apart from the fact that the duty though non-existent at the time of submission of the bid, had come into force prior to the finalization of the contract. 18) The submission of the learned counsel for the appellant thus was that service tax is not akin to a property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner, and which are also, in general, charged on the property. (see Stock v. Meakin; {1900} 1 Ch 683, CA, followed in Surtees v.Wood house {1903} 1 KB 396, CA) 21) The other aspect emphasized by learned counsel for the respondent was that the expression outgoings is not in consonance or ejusdem generis with the words property tax. Such a course of action it was pleaded was permissible only if general words are preceded by a clause or wordings which together form a genus but can have no application in a case where there is mention of single species such as property tax in the present case. In this behalf, reference was made to United Towns Electric Co. Ltd. v. Attorney General for Newfoundland; All England Law Reports Annotated (1939) 1 All ER 423. The appellant/company there was incorporated for purposes of supplying electricity in certain towns in Newfoundland and was made liable for water rates on all lands and buildings owned by it in these towns, but was otherwise, exempted from taxation. Subsequently, income tax came to be levied in Newfoundland and the Company was sought to be assessed for the taxes. The company claimed exemption from income tax by virtue of the exemptions fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir opinion, there is no room for the application of the principle of ejusdem generis in the absence of any mention of a genus, since the mention of a single species - for example, water rates - does not constitute a genus. In Article 12 of the Constitution, the bodies specifically named are the Executive Governments of the Union and the States, the Legislatures of the Union and the States, and local authorities. We are unable to find any common genus running through these named bodies, nor can these bodies be placed in one single category on any rational basis. The doctrine of ejusdem generis could not, therefore, be, applied to the interpretation of the expression ―other authorities‖ in this article. 23) Learned counsel also referred to Section 64A of the Sale of Goods Act, 1930 for the scenario where a new levy is introduced which is not in contemplation or is expressly provided in a contract and in such an eventuality, it has to be inferred as per the terms of the contract governing the parties. The said provision reads as under:- 64-A. In contracts of sale, amount of increased or decreased taxes to be added or deducted.-(1) Unless different intention appears from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the contract. The opinion of the arbitral Tribunal/Arbitrator normally should be final even if it is a plausible view and not the only possible view. However, if a plain reading of the clauses conveys a completely different meaning, then it is not for the arbitral Tribunal/Arbitrator to interpret the same as per its whims and fancies,since the arbitral Tribunal/Arbitrator is a creature of the contract itself. The complete controversy in our view hinges on two aspects What is the nature of service tax? How would one read Clause 7.1 qua clause 9(d)? 27) As far as the nature of the service tax is concerned, the issue is no more res integra and if one may say, the parties are ad diem that it is an indirect tax. The observations in All India Federation of Tax Petitioners case (supra) makes it clear that service tax is a VAT which in turn is a destination based consumption tax being on the commercial activity. Thus, it is not a charge on the business but on the consumer and thus has to be levied only on the service provider. This is the reason why there is a distinguishing feature inasmuch as a property let out for residential purposes does not attract service tax, but the tax i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in Halsbury's Laws of England that the expression outgoings has to be given a wide connotation cannot be disputed. However, in our view, Clause 7.1 does not envisage that any nature of indirect taxation has to be borne by the lessor. The aforesaid view has been formulated by us as the reference is to a specific property tax. Apart from this, the expression used other outgoings has to be read in the context of in respect of the premises . This is followed by an expression of wider connotation when it says that it may be of whatsoever nature and as may be payable and levied from time to time including revisions thereof and putting a prohibition on the lessor from claiming contribution towards such taxes, cesses, levies or increases. 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 Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmon species. Clause 7.1 thus only deals with taxes which are relatable to the property and not the activity carried out in the premises, which is on what service tax is levied. 33) We may also note that a Division Bench of this Court in RFA (OS) No.64/2012 M/s Vasari India Pvt. Ltd v. Ghanshyam Dass Soni & Anr. decided on 20.07.2012 in the context of a plea of the tenant that he was not liable to pay service tax and the same was the liability of the landlord, observed as under:- 6. Having admitted not having paid the rent as claimed in the plaint, it is apparent that the first defence taken in the preliminary objection No.1 that the tenant was not liable to pay service tax is a defence prohibited by law inasmuch as service tax on commercial rented properties is an indirect tax and the jurisprudence on indirect tax tells us that the primary liability of the landlord to pay the tax to the Income Tax Authorities can be passed on to the tenant, for the reason as per the law it is the commercial use by the tenant which enhances the utility to the tenant with respect to the property which attracts service tax on commercial properties. It is apparent that the defence taken in prelimina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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