2013 (5) TMI 836 - HC - Service Tax

whether the writ petitioner who was the service provider in the present case was entitled to ask the consumer to reimburse the service tax which it had paid to the revenue. it is the liability of the consumer to pay service tax.

Summary

Issues:
1. Whether the service provider is entitled to claim reimbursement of service tax from the consumer.
2. Interpretation of Clause 10.2 of the Notice Inviting Tender (NIT) in relation to service tax liability.
3. Validity of Clause 10.2 in light of the Finance Act and Indian Contract Act.
4. Impact of contract extension on reimbursement of service tax.

Issue 1:
The primary issue in this case is whether the service provider can claim reimbursement of service tax from the consumer. The judgment discusses the responsibility of the assessee to collect service tax and the consequences of failing to do so. It highlights that while the service provider can pass on the tax liability to the customer, there is no legal restriction on quoting a rate inclusive of service tax. The court emphasizes that the contractor, having agreed to bear the service tax liability, cannot later demand reimbursement from the consumer.

Issue 2:
The interpretation of Clause 10.2 of the NIT is crucial in determining the service tax liability. The clause explicitly states that the contractor is responsible for all tax liabilities, including service tax. The court notes that the contractor knowingly quoted a rate inclusive of service tax, indicating acceptance of this liability. Therefore, the contractor cannot subsequently seek reimbursement from the consumer.

Issue 3:
The validity of Clause 10.2 is assessed in light of the Finance Act and the Indian Contract Act. The court rejects the argument that the clause violates the Finance Act, emphasizing that the contractor's liability to pay service tax remains unaffected even if the tax is not collected from the consumer. Additionally, the court dismisses the claim that the clause is contrary to the Indian Contract Act, as it does not fall under any of the unlawful considerations outlined in Section 23 of the Act.

Issue 4:
The impact of the contract extension on the reimbursement of service tax is examined. The court clarifies that parties to a contract can mutually modify its terms, as evidenced by the new work order issued upon contract extension. The reimbursement of service tax in the extended period does not imply liability for the previous period. The court concludes that the contractor is not entitled to claim a refund of service tax and allows the writ appeal, setting aside the judgment of the single Judge.

Overall, the judgment emphasizes the contractual obligations regarding service tax liability, the validity of contract clauses in relation to tax laws, and the implications of contract extensions on reimbursement claims.