TMI Blog2023 (8) TMI 997X X X X Extracts X X X X X X X X Extracts X X X X ..... vy is an indirect one, which necessarily means that the user has to bear it. The rationale, why this logic is to be accepted is that the ultimate consumer has contact with the user and it is from them that the levy would ultimately be realized by including the amount of tax in the cost of service or goods. Another Division Bench of this Court in Raghubir Saran [ 2013 (6) TMI 587 - DELHI HIGH COURT] , held that service tax is neither a property tax nor outgoing in respect of the premises, but is a tax on the commercial activity carried on. Pertinently, the Division Bench was dealing with Clause 7.1 of the Lease Deed therein, which placed the responsibility of paying property taxes and other outgoings on the lessor and the Court held that Clause 7.1 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. It is true that when the Lease Deeds were executed by the parties, there was no stipulation with respect to service tax and this was introduced later by the Finance Act, 2007. However, in view of the judgements of this Court holding that the legislative intent is quite clear that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or grant of pendente lite interest on the decretal amount for the lease period w.e.f. 01.06.2007 to 30.05.2015. Plaintiff seeks pendente lite interest on the service tax deposited for the said period @ 18% per annum. Since both the appeals arise out of a common judgment and the issues are inextricably linked, they were heard together and are being decided by this common judgment. 2. At the outset, learned counsel for the Respondent apprises the Court that deficient court fees, directed by the Trial Court in paragraph 52 of the impugned judgment has been deposited and hands over a photocopy of the e-Court receipt, reflecting the said payment. The document is seen by the counsel for the Bank and he is satisfied by the compliance. The receipt is taken on record and shall form a part of the paper books in the present appeals. 3. Factual matrix to the extent relevant and necessary is that Plaintiff had let out the basement and ground floor of the premises bearing No.499, Kohat Enclave, Pitampura, Delhi to the erstwhile Centurion Bank of Punjab Ltd., now amalgamated with the Bank, for carrying out its business of banking. Premises was initially leased out vide Lease Deed dated 07.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax in view of the terms of the lease as claimed by the defendant? OPD. 2. Relief. 7. Significantly at the time of framing the issues, Court recorded that since the issues arising in the suit were purely legal and Lease Deed was an admitted document, no evidence was required and accordingly, listed the matter for final arguments. Later, vide order dated 07.12.2015, suit was transferred to the Trial Court on account of enhancement of pecuniary jurisdiction of District Courts. The Trial Court, after hearing arguments, decreed the suit in favour of the Plaintiff holding him entitled to recovery of service tax with future interest, declining however, to grant pendente lite interest. 8. The prime and the only argument pressed by the learned counsel for the Bank is that the Trial Court failed to appreciate that Clause 7 of the Lease Deed dated 22.12.2009 had two components: (a) property tax, municipal tax and all other outgoings in respect of the subject premises were payable by the lessor; and (b) in case of any future increment in taxes, only the difference will be borne by the Bank. Therefore, as per the agreement between the parties, as reflected from the Lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax regime. 10. Learned counsel for the Plaintiff, per contra, argues that the legal issue that arises for consideration in the present appeals is squarely covered by the judgments of the learned Single Judges of this Court in Pearey Lal Bhawan Association v. M/s Satya Developers Pvt. Ltd., 2010 SCC OnLine Del 3649 and M/s Meattles Pvt. Ltd. v. HDFC Bank Ltd., 2012 SCC OnLine Del 5508. Both the judgments were upheld by the Division Bench by a common judgement in appeals being RFA No.59/2021 RFA No.196/2021 reported as Satya Developers Pvt. Ltd. v. Pearey Lal Bhawan Association, 2015 SCC OnLine Del 12756. To the same effect is the judgement of the Division Bench of this Court in Raghubir Saran Charitable Trust v. Puma Sports India Pvt. Ltd., 2013 SCC OnLine Del 1972. In all these judgements it is held that it is the lessee who has to bear the liability of service tax and not the lessor. In fact, in Pearey Lal (supra), the learned Single Judge has also held that while the contracts between the parties speak of lessor s liability to pay municipal, local and other taxes, however, service tax is a tax which parties did not envision while entering into the arrangements and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Deposits/Mutual Funds/PPF account, etc. and would have earned substantially from the deposits. 13. I have heard learned counsels for the parties and examined their respective submissions. 14. Indisputably, no evidence was led by the parties before the Trial Court since it was recorded by the Court, while framing issues that the matter involved only a legal issue and Lease Deed was an admitted document. The issues that arises for consideration is: (a) whether the burden of service tax should be borne by the lessor i.e. the service provider or the lessee i.e. the service recipient; and (b) whether Plaintiff is entitled to pendente lite interest and if so, for what period. 15. Having heard the respective counsels and examined the matter, in my view, Plaintiff is right in his submission that the controversy is covered on all four corners by the judgments of this Court, relied by him, as aforementioned. 16. I may first refer to the judgment of the learned Single Judge of this Court in Pearey Lal (supra), where the Plaintiff filed two suits being CS(OS) Nos.1016/2008 and 1018/2008, seeking declaration that Defendant was liable to bear the service tax liability in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as both satisfy the human needs. In late seventies, Government of India initiated an exercise to explore alternative revenue sources due to resource constraints. The primary sources of revenue are direct and indirect taxes. Central excise duty is a tax on the goods produced in India whereas customs duty is the tax on imports. The word goods has to be understood in contradistinction to the word services . Customs and excise duty constitute two major sources of indirect taxes in India. Both are consumption specific in the sense that they do not constitute a charge on the business but on the client Similarly, in All India Taxpayers Welfare Association v. Union of India Ors., (2006) (4) STR 18) it was held that: 9. The provider of service is an assessee under s.65 of the Finance Act, 1994 and he has to collect service tax from the users of service as contemplated under ss. 12A and 12B of the central Excise Act. In this context, it is necessary to refer that s. 12A of the Central Excise Act contemplates that notwithstanding anything contained in this Act or any other law for the time being in force, every person who is liable to pay duty of excise on any goods s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y this logic has to be accepted is that the ultimate consumer has contact with the user; it is from them that the levy would eventually be realized, by including the amount of tax in the cost of the service (or goods). 15. It would be noteworthy to recollect Section 64-A of the Sale of Goods Act, 1930, which visualizes and provides for situations where levies of tax are imposed after the contract (for sale of goods) is entered into. The provision prescribes that: 64-A. In contracts of sale, amount of increased or decreased taxes to be added or deducted. - (1) Unless a different intention appears from the terms of the contract, in the event of any tax of the nature described in sub-section (2) being imposed, increased, decreased or remitted in respect of any goods after the making of any contract for the sale or purchase of such goods without stipulation as to the payment of tax where tax was not chargeable at the time of the making of the contract, or for the sale or purchase of such goods tax-paid where tax was chargeable at that time, - (a) if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or any part of such tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice tax and if so, who under which term of the said deed is liable to pay the said tax. Clause 4(v) of the lease deed reads as under:- The municipal taxes, rates, charges and other outgoings in respect of the demised premises that would be determined/fixed/varied from time to time by the Municipal Corporation/Municipality/Gram Panchayat or any other local authority shall be paid by the Lessor or the Lessee as specified/stipulated in the schedule annexed herewith and shall keep the other party indemnified at all times against the same. Clause 7 in the schedule to the lease deed reads as under:- Monthly payment of To be borne by the Lessor only. Corporation/Municipal rates, Charges, taxes cessess and all other outgoings 6. Since the lease deed having been executed on 9.6.2004 and the service tax having been levied retrospectively with effect from 1.6.2007, it is obvious that the payment of service tax could not have been in contemplation of the parties at the time this deed was executed. Therefore, there could have been no agreement between the parties specifically with respect to payment of service tax. The question which then arises is as to whether ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tenancy premises and the liability of the defendant cannot be increased by recovering the amount of service tax from it. 8. Vide Section 83 of Finance Act, the provisions of Section 12A and 12B of Central Excise Act have been applied in relation to service tax as they apply to excise. Section 12A of Central Excise Act provides that every person who is liable to pay duty of excise on any goods shall, at the time of clearance of the goods, prominently indicate in all the documents relating to assessment, sales invoice, and other like documents, the amount of such duty which will form part of the price at which such goods are to be sold. Section 12B of the said Act provides that every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods. 9. As a result of application of the provisions contained in Section 12A and 12B of Central Excise and Salt Act 1944 in relation to service tax, there is a statutory presumption that the person paying the service tax has passed on the liability to the recipient of the service. The legislative i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise Act relied upon by the learned Single Judge applies only to refund of duty and does not provide for the liability of the consumer to pay service tax. Section 68 of the Finance Act, 1994 and 1997 provided for collection of service tax which term has been changed by the Finance Act of 1998 and the liability has been fixed on the service provider to pay the service tax. By the lease agreement the parties had contracted that taxes would be borne by the lessor and PLBA cannot now wriggle out of the terms of the contract. Section 67 of the Finance Act provides for valuation of the service tax which would be included in the gross amount charged by a service provider which provision has been ignored by the learned Single Judge. The case of Satya is covered by the decision of Supreme Court reported as (2011) 13 SCC 497 Ultra Tech Cement Ltd. (Earlier Ultratech Cemco Ltd.) v. State of Maharashtra Reliance is also placed on the decisions reported as 2012 (26) STR 289 SC Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, 2011 (22) STR 387 Max New York Life Insurance Co. Ltd. v. Insurance Ombudsman and 2011 (22) STR 5 MP Ravishankar Jaiswal v. Jabalpur Development Authority Referring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any liability by PLBA as no such liability existed. The words shall continue to pay all or any tax in the lease agreement indicates that the liability of the lessor was confined only to the existing levies which already stood imposed at the time of execution of lease deed. Reliance is placed on the decision reported in (2007) 7 SCC 527 All India Federation of Tax Practitioners v. Union of India, (2011) 2 SCC 352 Association of Leasing and Financial Service Companies v. Union of India, 182 (2011) DLT 548 (FB), Home Solutions Retails (India) Ltd. Union of India 15. Shri Balbir Singh, Senior Advocate who had been requested to assist this Court in this matter points out that the three essentials of a taxing statute are chargeability, receivability and assessment component. Service tax being an indirect tax, though leviable on the consumer of the services however, there is no mechanism by which the government can recover the same from the consumer. Thus the liability of payment of the service tax has been fixed on the service provider, that is, the lessor to be recoverable from the recipient, that is, the lessee. Referring to Section 64A of Sales of Goods Act, 1930 it is stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and consumption of services as both satisfy the human needs. It was noted that Value Added Tax (in short VAT ) which is a general tax applies in principle to all commercial activities involving production of goods and provision of services. The Supreme Court held that VAT is a consumption tax as it is borne by the consumer and Service Tax is a VAT which in turn is destination based consumption tax. The Supreme Court noted that just as excise duty is a tax on value addition on goods, Service tax is on value addition by rendition of services. Broadly Services fall into two categories, namely, property based services and performance based services. Property based services cover service providers such as architects, interior designers, real estate agents, construction services, mandapwalas etc. and the later being services provided by stock-brokers, practising chartered accountants, practising cost accountants, security agencies, tour operators, event managers, travel agents etc. 17. In the decision reported as AIR 2012 SC 2829 Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran it was held: 26. As far as the submission of shifting of tax liability is concerned, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities clearly incidental to the use of such vacant land; (c) land used for educational, sports, circus, entertainment and parking purposes; and (d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities. Explanation 2. For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce; 19. Section 83 of the Finance Act, 2007 makes certain provisions of the Central Excise Act, 1944 as in force from time to time applicable in relation to Service Tax as they apply in relation to a duty of excise: 83. Application of certain provisions of Act 1 of 1944: The provisions of the following section of the Central Excise Act, 1944 (1 of 1944), as in force from time to time, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise : - 9C, 9D, 11B, 11BB, 11C, 12 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act 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 common sense must yield unless expressly stated. In the present case it will also have to borne in mind whether the parties intend to include taxes which were not contemplated at the time of the agreement as indubitably the agreements between the parties in the three suits were entered into prior to the Finance Act, 2007 coming into force w.e.f. June 01, 2007. 33. In the agreement between HDFC Bank and Meattles Clause 4(v) imposes liability of municipal taxes, rates, charges and other outgoings in respect of the demised premises that would be determined/fixed/varied from time to time by the Municipal Corporation/Municipality/Gram Panchayat or any other local authority only. It is well settled that the Municipal Corporation, Municipality, Gram Panchayat or local authority is distinct from the government and thus the clause inter se the parties cannot be said to cover the exemption of HDFC Bank to pay to Meattles service tax paid by it to the government pursuant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 12A and 12B of Central Excise and Salt Act, 1944, gives legal right to the service provider to recover the service tax paid by him from the recipient and had the legislative intent been otherwise, there was no occasion to apply these provisions to service tax. 20. Another Division Bench of this Court in Raghubir Saran (supra), held that service tax is neither a property tax nor outgoing in respect of the premises, but is a tax on the commercial activity carried on. Pertinently, the Division Bench was dealing with Clause 7.1 of the Lease Deed therein, which placed the responsibility of paying property taxes and other outgoings on the lessor and the Court held that Clause 7.1 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. 21. Perusal of the impugned judgment passed by the Trial Court shows that the Trial Court considered the case of the parties in the backdrop of the judgments of this Court, mentioned above and decreed the suit. Relevant paras of the impugned judgment are as follows, for ready reference:- 26. The tax liabilities are however conceived by the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel that the existing property tax, municipal tax and all other outgoings in respect of premises were payable by lessor i.e. the plaintiff in the present case. However, it has to be kept in mind that in case of any future increment, the lessee i.e. the defendant bank had agreed to bear the additional amount of the property tax, municipal tax and all other outgoings, as levied or increased by the concerned authorities. xxxx xxxx xxxx xxxx 34. In the humble opinion of this court the intention of the parties was that the plaintiff shall bear the existing tax(es), however the defendant shall bear the future increment in taxes. Though there was no clear stipulation as regards the imposition of new tax like service tax imposed subsequently, however if the analogy of clause 7 is extended to the new tax, said new tax is an increase in taxes which the plaintiff has to pay and as per agreement between the parties should be borne by the defendant bank. 35. As already observed, the imposition of service tax was not contemplated by the parties at the time of entering into agreements dated 07.05.2007 and 22.12.2009, however any future increment in the taxes was to be borne by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he service tax is to be ultimately borne by the recipient of the service, though it is the service provider who is statutorily liable to pay the said tax to the exchequer, the Appellant must fail in its challenge in the present Appeal. Courts have also negatived the contention of the service recipient in those cases that the service provider can recover the service tax from the recipient of the service only by entering into an agreement with him in this regard and in the absence of such an agreement, the liability cannot be shifted to the recipient of the service. It was held that Section 83 of the Finance Act read with Sections 12A and 12B of Central Excise and Salt Act, 1944, gives ample legal right to the service provider to recover the amount of service tax paid by him from the recipient of the service and had that not been the legislative intent, there would have been no occasion to apply Sections 12A and 12B of Central Excise and Salt Act, 1944 in relation to service tax. It was further held that even in the absence of Sections 12A and 12B of Central Excise and Salt Act, 1944 in relation to service tax, nothing prevented the service provider from entering into an agreement wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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