2012 (10) TMI 685 - HC - Service Tax

Service tax on the lease rent - period June, 2007 to January, 2012 - liability to pay service tax is on whether lessor or lessee? - Held that - 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. Admittedly, service tax is neither a municipal tax nor a charge, this being a tax on services levied by Union of India. As it can hardly be disputed that in a given case, the lessor may agree to bear the liability of service tax the right of the service provider to recover the amount of service tax from the recipient of the service, in a case where there is no contract between the parties as to who has to ultimately meet this statutory liability. For the reasons stated hereinabove, the plaintiff(lessor) is entitled to recover service tax, to the extent the liability has not become barred by limitation, from the defendant. Whether the suit is barred by limitation? - Held that - Section 9 of the Limitation Act expressly provides that where once time has begun to run, no subsequent disability or inability to institute a suit or make an application stops it. The period of limitation for the deposits made between 31.3.2008 to 5.2.2009 commenced on the date the deposits were made. Since there can be no stopping of the limitation, once it begins to run, the suit having been filed on 17.2.2012 is clearly barred by limitation with respect to service tax deposited between 31.3.2008 to 5.2.2009. What amount the plaintiff is entitled from the defendant? - Held that - Interest on the amount which had become due by 2.5.2011 can be awarded to the plaintiff under Section 3 of The Interest Act 1978. No notice/letter demanding interest was issued after 02.05.2011. Hence, no interest can be granted with respect to amounts deposited thereafter. A perusal of the affidavit filed by the plaintiff shows that it had deposited ₹ 3,45,049/- towards service tax between 05.03.2009 to 02.05.2011. Rest of the deposits were made after sending the letter dated 02.05.2011 and interest was not claimed in any of those letters and notices. In my view, it would be appropriate to award interest to the plaintiff @ 6% per annum on the aforesaid amount. The amount of interest calculated @ 6% per annum with effect from 2.5.2011 till filing of the suit on 17.2.2012 comes to ₹ 16,389.83. Thus, the plaintiff is entitled to recover principal sum of ₹ 9,74,922/- and ₹ 16,389.83, as interest from the defendant.

Summary

Issues Involved:

1. Liability to pay service tax on rent.
2. Entitlement of the plaintiff to any amount from the defendant.
3. Whether the suit is barred by limitation.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax on Rent:

The primary issue was whether the lease deed between the parties addressed the payment of service tax and who was liable for it. Clause 4(v) of the lease deed specified that municipal taxes, rates, charges, and other outgoings determined by local authorities were to be paid by the lessor or lessee as per the schedule. Clause 7 in the schedule stated these were to be borne by the lessor only. However, since the lease deed was executed before the imposition of service tax (effective from 1.6.2007), it did not specifically address service tax. The court concluded that service tax, being a tax on services levied by the Union of India, was not covered under the term "outgoings" as defined in the lease deed. Therefore, there was no agreement regarding the payment of service tax.

The court further examined whether, in the absence of an agreement, the landlord could recover service tax from the tenant. It referenced Sections 12A and 12B of the Central Excise Act, applied to service tax via Section 83 of the Finance Act, which create a statutory presumption that the service tax is passed on to the recipient of the service. The court held that these provisions gave the service provider a legal right to recover service tax from the recipient, even without an explicit agreement. This view was supported by precedents, including the Madras High Court's decision in *All India Tax Payers Welfare Association v. Union of India* and the Delhi High Court's decision in *Pearey Lal Bhawan Association v. Satya Developers Pvt. Ltd.*

2. Entitlement of the Plaintiff to Any Amount from the Defendant:

The plaintiff sought recovery of Rs.14,08,553/- towards arrears of service tax and Rs.6,07,390/- as interest, totaling Rs.20,15,943/-. The court determined that the plaintiff was entitled to recover service tax from the defendant, except for amounts barred by limitation. The court awarded the plaintiff Rs.9,74,922/- for service tax deposited between 5.3.2009 and 6.9.2012.

Regarding interest, the court noted the absence of an agreement on interest payment but referred to Section 3 of the Interest Act 1978, which allows courts to award interest. The court awarded interest at 6% per annum on the amount of Rs.3,45,049/- deposited between 05.03.2009 to 02.05.2011, from 2.5.2011 to the filing of the suit, amounting to Rs.16,389.83. Thus, the total amount recoverable by the plaintiff was Rs.9,91,311.83.

3. Whether the Suit is Barred by Limitation:

The suit was filed on 17.2.2012. The court applied Article 23 of the Limitation Act, which provides a three-year limitation period for money paid for the defendant. Payments made between 31.3.2008 and 5.2.2009 were thus barred by limitation. The court rejected the plaintiff's argument that the limitation period was affected by the legal challenges to the service tax notifications and amendments, citing Section 9 of the Limitation Act, which states that once time begins to run, it cannot be stopped by subsequent events.

Order:

The court decreed the recovery of Rs.9,91,311.83 in favor of the plaintiff against the defendant, with no order as to costs. If the amount was not paid within four weeks, it would carry pendent lite and future interest at 6% per annum.