Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles SMS News Highlights
        Home        
Extracts
Home List
← Previous Next →

Union of India & Ors. Versus Bengal Shrachi Housing Development Limited & Anr.

2017 (11) TMI 444 - SUPREME COURT OF INDIA

Renting of immovable property - levy of service tax - lease rentals - who is liable to bear the burden of tax i.e. the provider of services (lessor) or the recipient of services (the lassee) - scope of agreement - lease (rent) deed does not refer to service tax. - Held that: - It is 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 ta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

vent” is the purchase of paddy, whereas the “taxable person”, who is the person liable to pay the tax, is the purchaser - In the present case, therefore, the “taxable event” is the provision of the service of renting out immovable property, and the “taxable person”, that is the person liable to pay tax, is the service provider, namely the lessor. - 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, theref .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ge 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 - the the case is in favor of appellant on law, but is against the appellant on facts - appeal dismissed - decided against appellant. - Civil Appeal No.9952 of 2017 - Dated:- 7-11-2017 - Mr. R.F. Nariman And Mr. Sanjay Kishan Kaul JJ. JUDGMENT R.F. Nariman, J. 1. The present appeal arises from service tax payable under a clause in the deed of lease dated .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and taxes primarily leviable upon the occupier shall be paid by the Government. 2. Since disputes and differences arose between the parties as to who was liable to pay service tax for the aforesaid commercial premises, a writ petition was filed by the Respondents-herein before the Calcutta High Court, in which it was prayed that a Writ of Mandamus be issued commanding the Appellants to make payment of service tax for the aforesaid premises. The learned single Judge by his judgment dated 15.5.20 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e tax is essentially an indirect tax, the user of the premises who avails the service has to bear it. This being the case, on the facts of that case, it was held that the lessee should be made to pay service tax. A judgment of the Allahabad High Court dated 16.01.2013 in M/s Bhagwati Security Services (Regd.) v. Union of India, to the same effect was also followed by the learned single Judge. The single Judge, therefore, held that liability to bear service tax being that of the recipient of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Judge and, therefore, dismissed the appeal. 4. Shri A.K. Sanghi, learned senior counsel appearing on behalf of the Appellants, has referred in detail to various provisions of the Finance Act, 1994 along with amendments thereto and has argued that the person primarily liable to pay service tax under the Act read with the Service Tax Rules, 1994, is the service provider i.e. the lessor in the present case. He, therefore, stated that on a proper reading of Clause 6, it is clear that service tax b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Tax Act of 1994, as amended, would fall upon the lessee. In any case, according to the learned counsel, on a reading of various judgments of this Court, it is clear that the person on whom this tax is primarily leviable is the lessee and that, therefore, it is the Appellant who should bear this tax. 6. Having heard learned counsel for both the parties, it is necessary to first advert to the relevant statutory provisions. Service tax was introduced by Chapter 5 of the Finance Act of 1994. Under .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

herance of, business or commerce. 7. Under Section 66, as it stood substituted by the Finance Act of 2007, the tax was leviable in the following manner: 66. Charge of service tax - There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of taxable services referred to in sub-clauses (a), (d), (e), (f), (g,) (h), (i), (j),(k), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), (zh), (zi), (zj), .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

zzzzd), (zzzze), (zzzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzj), (zzzzk), (zzzzl), (zzzzm), (zzzzn), (zzzzo), (zzzzp),(zzzzq) (zzzzr) (zzzzs) (zzzzt),(zzzzu), (zzzzv) (zzzzv) and (zzzzw) of clause (105) of section 65 and collected in such manner as may be prescribed: Provided that the provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint. 8. On and from 1.7.2012, under Section 66B, the tax was levied in the following manner: 66 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd reads as follows:- 68. Payment of service tax. - (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66B in such manner and within such period as may be prescribed. (2) Notwithstanding anything contained in subsection (1), in respect of such taxable service as may be notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate spec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es, 1994 have been made in exercise of powers under the rule making Section, namely, Section 94 of the Finance Act, 1994 which came into force on 1.4.1994. Rule 2(1)(d) is important from our point of view and reads as follows:- 2. Definitions (1) In these rules, unless the context otherwise requires, - …. (d) "person liable for paying service tax", - (i) in respect of the taxable services notified under sub-section (2) of section 68 of the Act, means,- ……. (E) in r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

x is to apply for registration under the Act, and under Rule 7, every such assessee shall submit a half yearly return in the relevant form prescribed therein. 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 val .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the person liable for paying service tax is to be determined on a reading of the Rules. 13. 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. 14. The qu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

id purpose. The said tax is on the service and not on the service provider. However, under Section 68 of the Finance Act, 1994 as amended by the Finance Act, 1997 read with Rule 2(1)(d)(ix) of the Service Tax Rules, 1994, the service provider (in the present case the mandap-keeper) is expected to collect the tax from the client utilizing his services. 16. In All India Federation of Tax Practitioners & Ors. v. Union of India & Ors., (2007) 7 SCC 527 at 536, 542, this Court held as follows .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

opment activities forming part of retailing sector. Service sector is today occupying the centre stage of the Indian economy. It has become an industry by itself. In the contemporary world, development of service sector has become synonymous with the advancement of the economy. Economists hold the view that there is no distinction between the consumption of goods and consumption of services as both satisfy the human needs. 5. In the late seventies, the Government of India initiated an exercise t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

client. However, by 1994, the Government of India found revenue receipts from customs and excise on the decline due to WTO commitments and due to rationalisation of duties on commodities. Therefore, in the year 1994-1995, the then Union Finance Minister introduced the new concept of service tax by imposing tax on services of telephones, non-life insurance and stockbrokers. That list has increased since then. Knowledge economy has made services an important revenue earner. Findings (i) Meaning o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in the Constitution vide the Constitution (Eighty-eighth Amendment) Act, 2003 which stated that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new Entry 92-C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption of services as both satisfy human needs. It is this economic conce .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

India, (2011) 2 SCC 352 at 367-368, this Court under the caption nature and character of service tax held as follows:- 38. In All-India Federation of Tax Practitioners case [(2007) 7 SCC 527] this Court explained the concept of service tax and held that service tax is a value added tax ( VAT , for short) which in turn is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an e .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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. 39. The same view is reiterated broadly in the earlier judgment of this Court in Godfrey Phillips India Ltd. v. State of U.P. [(2005) 2 SCC 515] in which a Constitution Bench observed that in the classical sense a tax is composed of two elements: the person, thing or activity on which tax is imposed. Thus, every tax may .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he 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. Thus, in Babu Ram Jagdish Kumar & Co. v. State of Punjab, (1979) 3 SCC 616, this Court made it clear that, in the case of a purchase tax, the taxable event is the purchase of paddy, whereas the taxable person , who is the person liable to pay the tax, is the purchaser. In the present case, therefore .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

within the province in order to the raising of a revenue for provincial purposes ). 20. In Chhotabhai Jethabhai Patel and Co. v. The Union of India and Anr.,1962 Supp. (2) SCR 1 at 20-21, this Court was faced with the challenge of the levy of a retrospective excise duty. One of the arguments made against the levy of such duty is that excise duty being indirect, which is that it is ultimately to be passed on to the consumer, a retrospective levy would be ultra vires the legislative competence of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

transaction or activity on which it is imposed. In this context one has to bear in mind the fact that the challenge to the legislative competence of the tax-levy is not directed to the imposition as a whole but to a very limited and restricted part of it. This challenge is confined (a) to the operation of the tax between the period March 1, 1951, and April 28, 1951, and (b) even in regard to this limited period, it is restricted to the imposition of the additional duty of six annas per lb. which .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that even on the decision relied upon by him, the fact that owing to the operation of economic forces it was not possible for the taxpayer to pass on the burden of the tax, did not alter the nature of the imposition and detract from its being a "duty of excise". For instance, the state of the market might be such that the duty imposed upon and collected from the producer or manufacture might not be capable of being passed on to buyers from him. Learned Counsel urged that this would no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nts may be brought about by the operation of other laws which Parliament might enact, such for instance, as control over prices. If in such a situation where the price which the producer might charge his buyer is fixed by the statute, say under the Essential Supplies Act, and a "duty of excise" is later imposed on the manufacturer, it could not be said that the duty imposed would not answer the description of an "excise duty". Learned Counsel had really no answer to the situa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

duty. 21. 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 t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ral Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 RCP, A.I.R. 1939 Federal Court 1, the Federal Court decided, through Chief Justice Maurice Gwyer, that excise duty under the Government of India Act, 1935 is a power to impose duty of excise upon the manufacturer of excisable articles at the stage of or in connection with manufacture or production. In a separate judgment, Jayakar J. held that all duties of excise are levied on manufacture of excisable goods and can b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the dut .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

x. The tax that is levied on service may be collected either from the service provider or the recipient of the service. The person assessed to tax, who is primarily liable to pay the tax is, on the facts of this case, the lessor. 25. Shri Gupta cited a judgment of this Court in Peekay Re- Rolling Mills (P) Ltd. v. Assistant Commissioner and another, (2007) 4 SCC 30, for the well worn distinction between levy and collection of a tax. What is important to note from this judgment is that the expres .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng out immovable property is sought to be taxed. Therefore, when the expression primarily leviable is used in relation to a person and not an activity, it has reference to the assessee upon whom assessment is made under the Act. Thus construed, it is clear that, in the present case, the person liable to pay the tax, who is the assessee under the said Act, in all cases like the present, is only the service provider and not the recipient of the service. 26. Shri Gupta then referred to Section 83 o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

27. Based on this Section, Shri Gupta has argued, in support of the Division Bench judgment, that since there is a presumption that the incidence of duty has been passed on to the buyer , who is the recipient of the service in the present case, unless the contrary is proved, such passing on shall be deemed in law to have occurred and, therefore, it is the Appellant before us who is the person on whom the duty is primarily leviable. This argument, which found favour with the Division Bench, is ag .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on the incidence of the tax to the recipient of the service. This Section, which is part of the machinery for refund, can in no way help Shri Gupta to determine as to who is the person primarily liable to pay service tax which has to be determined on a reading of the Act and the Rules. 28. Shri Gupta then relied upon the judgment of the learned Single Judge in Pearey Lal (supra). In that case, clause 5 of the lease deed read as follows: 5. That the lessor shall continue to pay all or any taxes, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

other taxes, in at least two places. The Court, however, is not unmindful of the circumstance that service tax is a species of levy which the parties clearly did not envision, while entering into their arrangement. It is not denied that leasing, and renting premises was included as a "service" and made exigible to service tax, by an amendment; the rate of tax to be collected, is not denied. If the overall objective of the levy - as explained by the Supreme Court, were to be taken into .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

service tax should be borne by the lessor. Thus, the Division Bench in Satya Developers Pvt. Ltd. and Ors. v. Pearey Lal Bhawan Association and Ors, (2015) 225 DLT 377 stated: 31. Thus a contract has to be construed by looking at the document as a whole and the meaning of the document has to be what the parties intended to give to the document keeping the background in mind and conclusion that flouts business commonsense must yield unless expressly stated. In the present case it will also have .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or any taxes, levies or charges imposed by the MCD, DDA, L&DO and or Government, Local Authority etc. By use of the words "Lessor shall continue to pay" it is evident that the parties contemplated the existing taxes, levies or charges and not future. Even as per the agreement of maintenance of common service facilities though the same has no application to the service tax however, still the said clause II(1) cannot be said to exclude HDFC Bank from paying future service tax. A rea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dgment of the Division Bench of the Delhi High Court in Raghubir Saran Charitable Trust v. Puma Sports India Pvt. Ltd., 2013 SCC OnLine Del 1972, decided on 15.5.2013. In this judgment, clauses 7 and 9 of the lease deed read as follows: 7. MAINTENANCE, 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ary 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ew 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

…… 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Discussion Forum
what is new what is new
 


Share:            

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version