2014 (1) TMI 457 - HC - Service Tax

Contractual agreement between the service provider and service receiver - who will bear the burden of service tax - partial reverse charge after 1.7.2012 - Deduction of 50% of the Service Tax - Liability of 12% leviable under Section 66B - Service Tax not separately charged or shown in the Bills raised by the contractors - Reverse Charge Mechanism - Section 68 - Held that - one does not know, whether all the members of the petitioner Association are individual contractors, HUF or Partnership firm or are body corporates. In the absence of said material on record, the very foundation of applicability of the said Notification falls on the ground and cannot be decided in the present case. The entire dispute raised by the petitioner Association that the liability to pay Service Tax to the extent of 50% has been fixed on the service receiver, namely the Nigam, therefore, the respondent-Nigam should bear the 50% of the tax liability on its own and cannot deduct the same from the bills of the contractors depends upon the terms of contract itself, but since no material has been placed on record in this regard, therefore, this Court cannot be expected to decide such academic and hypothetical questions, which essentially depend upon the intricate terms of the contract. Prima facie, since Section 68(1) of the Act affixed the liability to pay the Service Tax on a person providing the taxable service, the liability to pay such tax would be on the contractors and the Notification No. 30/2012, dated 20-6-2012 dividing the liability to pay such Service Tax to the extent of 50% by both service providers and service receivers, which is issued under Section 68(2) of the Act, quoted above, will not absolutely absolve the petitioner contractors from their liability to bear the entire Service Tax liability - taxable event is the providing of service, which in the present case would be point of time of execution of works contract itself, which is prior to 1-7-2012. Mere payment of such Bills for work already done after 1-7-2012 would not alter the applicability of law as applicable to the petitioner contractors prior to 1-7-2012. For this reason also the action of respondent-Nigam cannot be challenged by the petitioner-Association on the basis of change of legal position after 1-7-2012. Court finds no ground to decide the academic questions raised in the writ petition even of interpretation of provisions of law and Notification, since such questions are merely academic and hypothetical questions and no proper factual foundation or relevant evidence is available on record to decide such questions, which are essentially the questions of facts based on terms of the contract. The individual contractor can very well raise these questions either before the assessing authority, who implement those provisions of Service Tax of Central Excise Department and if they have lis against the respondent-Nigam, the arbitration clause in the contract can take care of such disputes - Decided against the petitioner association.

Summary

Issues Involved:
1. Liability to pay Service Tax under Clause 36C of the contract.
2. Applicability of Notification No. 30/2012 regarding Service Tax liability.
3. Legality of deductions made by the respondent-Nigam from contractors' bills.
4. Maintainability of the writ petition by the petitioner-Association.
5. Availability of alternative remedies such as arbitration.

Detailed Analysis:

1. Liability to pay Service Tax under Clause 36C of the contract:
The petitioner argued that according to Clause 36C of the general conditions of the contract, the respondent-Nigam was liable to pay the Service Tax, as the clause only mentioned the contractor's responsibility for Royalty or other taxes on materials. However, the court found this argument misconceived, stating that Clause 36C does not absolve contractors from their liability to pay Service Tax. The clause stipulates that "Royalty or other tax on materials, issued in the process of fulfilling the contract, payable to the government under rules in force, will be paid by the contractor himself." Therefore, the liability to pay Service Tax remains with the contractors.

2. Applicability of Notification No. 30/2012 regarding Service Tax liability:
The petitioner contended that under Notification No. 30/2012, dated 20-6-2012, both the service provider and service receiver were liable to pay 50% of the Service Tax. The court noted that the notification was applicable to services provided or agreed to be provided in the execution of works contracts by individuals, HUFs, or partnership firms to business entities registered as body corporates. The court emphasized that the applicability of this notification depends on the specific terms of the contract and the nature of the entities involved. Since the petitioner did not provide sufficient details about the contractors or the contracts, the court could not determine the applicability of the notification.

3. Legality of deductions made by the respondent-Nigam from contractors' bills:
The petitioner claimed that the respondent-Nigam's action of deducting 50% of the Service Tax from the contractors' bills was illegal, especially for contracts executed before 1-7-2012. The court found that the contractors were raising bills inclusive of the Service Tax liability without separately charging it, which justified the respondent-Nigam's deductions. The court also noted that the introduction of the "Reverse Charge Mechanism" under Notification No. 30/2012 was intended to prevent the pilferage of Service Tax and ensure its proper payment to the public exchequer.

4. Maintainability of the writ petition by the petitioner-Association:
The respondent-Nigam raised preliminary objections regarding the maintainability of the writ petition, arguing that the petitioner-Association cannot espouse the cause of individual contractors. The court agreed, stating that the writ petition involved several disputed questions of facts and that the terms of each contract needed to be individually examined. The court also noted that the petitioner-Association did not provide sufficient material or details about the contracts and contractors involved, making the petition hypothetical and academic.

5. Availability of alternative remedies such as arbitration:
The respondent-Nigam pointed out that an arbitration clause existed in each contract, providing an alternative remedy for resolving disputes. The court concurred, stating that disputes regarding the liability to pay Service Tax and the terms of the contract should be raised before an arbitrator or the assessing authority under the Finance Act, 1994. The court emphasized that such questions are better suited for resolution through arbitration or individual assessments rather than a writ petition.

Conclusion:
The court dismissed the writ petition, stating that it was not maintainable due to the lack of proper factual foundation and the availability of alternative remedies. The court also found no merit in the petitioner's arguments on the liability to pay Service Tax and the legality of the deductions made by the respondent-Nigam. The court emphasized that the issues raised were academic and hypothetical, and the petitioner-Association did not have the locus standi to file the writ petition.