TMI Blog2019 (2) TMI 1868X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, the present contract work awarded to the petitioner was rightly not treated by the respondents to be a contract for doing original work - Thus, the present contract in question was not an original works contract and therefore, it could only have been treated as a contract work for maintenance, repairs, and renewal, entailing service tax on 70% of the component of the gross value of the contract. It is clarified herein that this finding is limited to the interpretation of contract between the parties herein, and this finding is not intended to be a conclusive determination for interpretation of taxable entry under Service Tax as the Revenue has not been heard on the point. Whether as per the Contract Agreement between the parties, the share of service tax payable by the respondents could have been passed on to the petitioner, thereby giving right to the respondents to make the necessary deduction of service tax from the bills, including running account bills, payable to the petitioner? - HELD THAT:- Under clause-36A of the Conditions of Contract, there appears to be a departure from the language used in Clause 36(i)(a) of the said Conditions of Contract on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he considered opinion that there was no contractual agreement between the parties so as to saddle the petitioner with the service tax liability which was statutory levied on the respondent. Thus, as per the contract agreement between the parties, the share of service tax payable by the respondents could not have been passed on to the petitioner and therefore, the respondents did not get any right to make deduction of service tax (liability of the respondents 50% share of service tax) from the bills payable to the petitioner. Thus, the respondents are restrained from deducting service tax (liability of the respondents 50% share of service tax) from the bills of the petitioner - the respondents are directed to refund the amount of service tax (liability of the respondents 50% share of service tax) already deducted from the running account bills of the petitioner within a period of 3 (three) months from the date of receipt of certified copy of this order - petition allowed in part. - W. P. (C) No. 4138 of 2016 - - - Dated:- 26-2-2019 - KALYAN RAI SURANA J. Dr. Ashok Saraf , Senior Advocate, P. Das , A. Goyal , S. P. Sarma , Z. Islam and P. Baruah for the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice tax was not included in the DSR rates and further claiming that as his contract work was an original work of fitting new roofing material by replacing the old AC/CGI roof, therefore, as per Notification No. 24/2012-ST dated 06.06.2012, and Service Tax (Determination of Value) Rules, 2006, the petitioner was liable to pay Service Tax only on 40% of the gross bill amount charged in the running account bills for the works done towards the levy, demand and payment of service tax. In this regard, the petitioner had relied on the definition of original work , as explained in the said notification dated 06.06.2012. It was projected that service tax on the works allotted to the petitioner was incorrectly considered as the repairing works and therefore, Service Tax was wrongly deducted from the running account bills at the rate of 70% of the gross value of such bills instead of computing service tax at the rate of 40% of the gross value of the bill towards service levy, demand and payment of service tax, as such, the petitioners had requested the respondents to reconsider the deduction of service tax for the work carried out by the petitioner and to refund the service tax which had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even include service tax. It is submitted that as per Clause 36A of the Conditions of Contract, it was agreed between the parties that the tendered rates shall be inclusive of all taxes and levies payable under the respective statutes and, as such, only such taxes which was payable by the petitioner could have been considered or treated to be the liability of the petitioner under the applicable statute. Hence, it is submitted that 50% of the total service tax payable for the tender work was the statutory liability of the respondents, as such, by virtue of the said clause 36A, the respondents could not have deducted such amount from the running account bills of the petitioner by expanding the meaning of the words inclusive of all taxes to mean and include the service tax liability, the onus of which was payable by the respondents. In this regard, by referring to the Notification No. 30/2012- Service Tax dated 20.06.2012, the learned senior counsel for the petitioner has referred to column 9 of the table contained therein, whereby in respect of services provided or agreed to be provided in service portion in execution of works contract 50% of the service tax was payable by the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the said statute. Therefore, it is submitted that the respondents have incorrectly proposed to impose service tax on original works at the rate of 70% instead of 40% of the total amount charged for the works contract. 8. The learned senior counsel for the petitioner has also submitted that in Clause 36A of the Conditions of Contract it is provided that All tendered rates shall be inclusive of all taxes and levies payable under the respective statutes . In this connection it is submitted that for the purpose of the determination of such liability, three ingredients must be satisfied, firstly, there should be a valid levy under the taxing statute; secondly, there must be a determination with regard to the liability of the person upon whom tax is to be imposed; and thirdly, the liability of making payment of such tax would then accrue. Under such circumstance, it is submitted that the Clause 36A providing for rates to be inclusive of tax and levies payable, it could only mean and include the money payable by the petitioner as service tax under the Service Tax Act and it would not deem to include even the service taxes liability, the onus of paying of which was statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 9.3 of the Terms and Conditions of the Contract in question in the said case, wherein unlike the present case, it was provided that the contractor shall bear and pay all taxes, duties and other liabilities in connection with discharge of his obligation under the order. Accordingly, it is submitted that in the said case, as per the contract, the contractor had undertaken to bear and pay all taxes, but in contrast, in the present case in hand, the contract between the parties had bind the parties to be liable to bear their own liability in respect of taxes payable under the respective statutes, as such, it excluded the taxable liability payable and dischargeable by the respondents. 12. The points required to be determined in this petition, according to this Court, are two:- a. Whether under the contract terms of the contract between the parties, the contract work in question was a original works contract or a contract work for repair and maintenance as provided under Clause (A) and (B) of Sub-Rule (ii) of Rule 2-A and Sub- clause (ii) of Clause (a) of Explanation-1 of the Service Tax (Determination of Value) Rules, 2006? b. Whether as per the Contract Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as a contract work for maintenance, repairs, and renewal, entailing service tax on 70% of the component of the gross value of the contract. It is clarified herein that this finding is limited to the interpretation of contract between the parties herein, and this finding is not intended to be a conclusive determination for interpretation of taxable entry under Service Tax as the Revenue has not been heard on the point. Point of determination No.(b): 14. In order to appreciate the point, the relevant Clauses36 and 36A of the Conditions of Contract is quoted below:- Clause 36. (i) Sales-tax or any other tax on materials in respect of this contract shall be payable by the contractor and Food Corporation of India shall not entertain any claim whatsoever in this respect. (ii) The contractor shall deposit royalty and obtain necessary permit for supply of the red bajri, stone, kankar etc. from local authorities. (iii) If pursuant to or under any law, notification or order any royalty, cess or the like becomes payable by the FCI and does not any time become payable by the Contractor to the State Government. Local authorities in respect of any material used by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the taxing notification No. 30/2012- Service Tax dated 20th June, 2012, the onus of paying service tax is required to be shared at the ratio of 50:50 between the respondents and the petitioner, being the person receiving service and the person providing the service. Therefore, viewed from the said angle, the notification envisages that the petitioner would be required to bear only his 50% share of service tax and the remaining 50% share of service tax would be borne by the respondents. However, on a comparative reading of Clause 36 of the Conditions of Contract, it is seen that it clearly contains that sales tax or any other tax on materials in respect of the said contract shall be payable by the contractor. Therefore, under clause-36A of the Conditions of Contract, there appears to be a departure from the language used in Clause 36(i)(a) of the said Conditions of Contract on the ground that it envisages that the entire sales tax or any other tax levied on materials was to be borne by the petitioner, which is conspicuously absent in Clause 36A, inter-alia, providing that the tendered rates would be inclusive of all taxes payable under respective statutes. Thus, tax as envisage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was introduced into the Act by Madhya Pradesh Act 23 of 1963. That provision would have relevance only in respect of the assessment for the year 1963-1964. Section 7-A says: No dealer shall collect any amount, by way of sales tax or purchase tax, from a person who sells agricultural or horticultural produce grown by himself or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or otherwise, when such produce is sold in the form in which it was produced, without being subjected to any physical, chemical or other process for being made fit for consumption save mere dehusking, cleaning, grading or sorting. 7 . In these appeals, it is not necessary to examine the relevance of that provision. But that provision does any give only statutory power to collect sales tax as such from any class of buyers. There is no other provision in the Act which confers such a power on the dealers. Unless the price of an article is controlled, it is always open to the buyer and the seller to agree upon the price to be payable. While doing so it is open to the dealer to include in the price the tax payable by him to the Government. If he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of bills. 4 . Clause 9.3 thereof read as follows: 9.3. The Contractor shall bear and pay all taxes, duties and other liabilities in connection with discharge of his obligations under this order. Any income tax or any other taxes or duties which the company may be required by law to deduct shall be deducted at source and the same shall be paid to the Tax Authorities for the account of the Contractor and the Company shall provide the Contractor with required Tax Deduction Certificate. 34 . If we look into this clause 6.0, we find that the obligations of the contractor are defined and spelt out in minute details. Clause 6.0 is split into 33 sub-clauses, and it provides for obligations of the contractor in various situations concerning the clearance of consignments, and the services to be provided by the respondent as the handling contractor wherefrom the tax liability arises. The contractor is made responsible for pilferage, any loss or misplacement of the consignments also. Clause 9.0 which deals with payment of bills, provides in clauses 9.1 and 9.2 that the bills will be prepared on the basis of the actual operations performed and the materials accounted o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement with the respondent handling contractor that the burden of any tax arising out of obligations of the Respondent under the contract would be borne by the respondent. 40 . If this clause was to be read as meaning that the Respondent would be liable only to honour his own tax liabilities, and not the liabilities arising out of the obligations under the contract, there was no need to make such a provision in a bilateral commercial document executed by the parties, since the Respondent would be otherwise also liable for the same. 41 . In Bank of India (supra) one party viz. the bank was responsible for the formulation of the Voluntary Retirement Scheme, and the employees had only to decide whether to opt for it or not, and the principle of contra proferentem was applied. Unlike the VRS scheme, in the present case we are concerned with a clause in a commercial contract which is a bilateral document mutually agreed upon, and hence this principle can have no application. Therefore, clause 9.3 will have to be read as incorporated only with a view to provide for contractor's acceptance of the tax liability arising out of his obligations under the contract. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed as 50% in respect of services provided or agreed to be provided in service portion in execution of works contract, being the liability the person receiving the service, there was no clause in the contract agreement by a virtue of which it can be said that there was a binding contract between the parties by virtue of which the burden of the tax liability falling upon the respondents would be borne by the petitioner, this Court is of the considered opinion that there was no contractual agreement between the parties so as to saddle the petitioner with the service tax liability which was statutory levied on the respondent. 19. Hence, the point of determination number (b) is answered by holding that as per the contract agreement between the parties, the share of service tax payable by the respondents could not have been passed on to the petitioner and therefore, the respondents did not get any right to make deduction of service tax (liability of the respondents 50% share of service tax) from the bills payable to the petitioner. 20. In view of the discussions above, this writ petition stands partly allowed by (i) restraining the respondents from deducting service tax (liab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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