2015 (10) TMI 2667 - HC - Service Tax

Recovery of service tax amount from the service recipient - scope and interpretation of the agreement - Lease agreement - Rent and the maintenance charges - declaration and injunction qua the service tax paid in respect of rented premises - Held that - whether the service tax liability has been agreed not to be passed on to the recipient of the service would depend on the interpretation of clauses entered into between the parties - 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 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. 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 to the Finance Act, 2007. Appeal dismissed - decided against appellant.

Issues Involved:
1. Liability to pay service tax on rent and maintenance charges under lease agreements.
2. Interpretation of lease agreements regarding the payment of service tax.
3. Applicability of statutory provisions to the service tax liability.
4. Entitlement to recovery of service tax paid and interest thereon.
5. Bar of limitation on the suit.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax on Rent and Maintenance Charges:
The plaintiffs sought a declaration that the defendants were liable to pay the service tax on rent and maintenance charges as per the lease agreements. The court noted that service tax is an indirect tax levied on the consumer of services, and the service provider can collect this tax from the service recipient. The court relied on the principle that service tax, being a Value Added Tax (VAT), is a consumption tax borne by the consumer.

2. Interpretation of Lease Agreements Regarding the Payment of Service Tax:
The court examined the clauses in the lease agreements to determine if the parties had contracted for the payment of service tax. In the case of Satya Developers, the lease agreement stated that the lessor would continue to pay existing taxes, levies, or charges, which did not include future taxes like service tax imposed after the agreement. Similarly, in the case of HDFC Bank, the clause referred to municipal taxes and did not cover service tax imposed by the government. The court concluded that the agreements did not exempt the lessees from paying the service tax.

3. Applicability of Statutory Provisions to the Service Tax Liability:
The court discussed the applicability of Section 12B of the Central Excise Act, which presumes that the incidence of duty has been passed on to the buyer unless proven otherwise. This section, applied to service tax through Section 83 of the Finance Act, 2007, supports the presumption that the service recipient bears the tax burden. The court also referred to Section 64A of the Sales of Goods Act, which provides that unless contracted otherwise, the consumer bears the tax liability.

4. Entitlement to Recovery of Service Tax Paid and Interest Thereon:
The plaintiffs were entitled to recover the service tax amounts paid on behalf of the defendants. The court upheld the judgments of the Single Judges, which allowed the plaintiffs to recover these amounts. The court also considered the principle that in the absence of a contrary contract, the consumer of the service is liable to refund the tax to the service provider.

5. Bar of Limitation on the Suit:
The issue of limitation was raised in CS (OS) No.512/2012, but the court did not find the suit to be barred by limitation. The court focused on the substantive issues of tax liability and contractual obligations rather than procedural bars.

Conclusion:
The court upheld the judgments and decrees passed by the Single Judges, affirming that the defendants were liable to pay the service tax on rent and maintenance charges. The court emphasized that service tax is a consumption tax borne by the consumer and that the lease agreements did not exempt the lessees from this liability. The appeals were dismissed, and the parties were ordered to bear their own costs. The court also appreciated the assistance provided by the Amicus Curiae.

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