2015 (4) TMI 967 - HC - Service Tax

Reimbursements of service tax from the recipient of services - terms of the contract agreement - service recipient refused to reimburse by letter dated 21.10.2010 - Held that - True, it is that the service provider has the right to collect the said tax from the person to whom service is provided but so far as the Excise and Service Tax Department is concerned, it holds the provider of service as liable to pay the service tax. There is no provision in the said Act for recovery or reimbursement of any service tax by the service tax provider from the person to whom the service is provided. Thus, it is the liability of service provider to pay the service tax arising in the course of the provision of service and to provide for its collection in the contract which it enters into with the person who is recipient of the service. Provisions of Section 64A of the Sale of Goods Act, 1930 cannot be applied to the provision of any service and the liability for tax thereupon as the said provision is specifically confined to the payment of tax in respect to any taxable events in relation to goods and not with regard to services. The taxes, in fact, have been specified as duty of Customs or Excise and any tax on the sale or purchase of goods. The service tax evidently is not upon any contract for sale of goods. It is purely leviable on a contract for provision of service. - More over even in Section 64A of the Sale of Goods Act, 1930 liability of benefit of imposition of new tax or increase or decrease in taxes is subject to there being a different intention appearing from the terms of the contract and the same is not absolute. It is only when the contract is silent on the point that the benefit of liability for increase or decrease on the price of goods on account of such taxes will have to go to the respective party. Service tax was not leviable at the relevant time on works contract (when the contract was excuted) but the same would also be deemed to have been included in view of the clear provision that the rate should be inclusive of direct or indirect elements. Thus, the said provision can only be interpreted to mean that any future increase or decrease of tax or levy of a new tax with regard to item of the contract would be entirely to the benefit or be the liability of the contractor and the same would not have any effect on the rates and service. There does not appear to be any ambiguity in the said provisions. The provisions, in fact, go further to show that it was the tenderer s duty to get it clarified before submitting the tender and thereafter there would be no scope for any doubt or ambiguity regarding non-inclusion of any ingredient of work in the rate. Since service tax had become leviable from 1.6.2007, for the period after 1.6.2007 the liability for the same would fall upon the petitioners and it is not open to the petitioners to claim any such refund from the respondent-Board in the absence of any agreement to the contrary or any provision in the Finance Act, 1994 with respect to the same. - Decided against assessee.

Summary

Issues Involved:
1. Reimbursement of service tax paid by the petitioners.
2. Interpretation of contract clauses regarding tax liabilities.
3. Applicability of Section 64A of the Sale of Goods Act, 1930.
4. Liability of service tax under the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Reimbursement of service tax paid by the petitioners:
The petitioners sought a direction for the respondents to reimburse Rs. 3,04,596/- paid as service tax for services provided to the Bihar State Electricity Board. The petitioners argued that the service tax is a statutory liability that should be borne by the service recipient, not the service provider. They relied on a judgment from the Allahabad High Court in Bhagwati Security Services (Regd.) Vs. Union of India, which held that service tax is essentially a tax on the person to whom service is provided and should be reimbursed by them.

2. Interpretation of contract clauses regarding tax liabilities:
The petitioners contended that Clause 1 of Chapter-X of the Agreement was ambiguous and should be interpreted against the Board. They cited the Supreme Court's decision in Bank of India Vs. K. Mohandas, which states that unclear contract terms should be interpreted against the party that formulated them. The petitioners argued that the contract did not explicitly state that they would bear the liability for service tax, thus the Board should reimburse them.

3. Applicability of Section 64A of the Sale of Goods Act, 1930:
The petitioners invoked Section 64A of the Sale of Goods Act, asserting that the liability for new taxes or increases in existing taxes should fall upon the respective party unless the contract states otherwise. They argued that since the service tax was imposed after the contract was signed, the Board should reimburse the service tax paid. However, the court found that Section 64A applies specifically to goods, not services, and thus could not be extended to cover service tax liabilities.

4. Liability of service tax under the Finance Act, 1994:
The court examined the provisions of the Finance Act, 1994, which introduced service tax. Section 68 clearly states that the liability to pay service tax is on the service provider. The court noted that the service provider has the right to collect the tax from the service recipient, but the statutory obligation to pay the tax lies with the service provider. The court emphasized that there is no provision in the Finance Act for the recovery or reimbursement of service tax by the service provider from the service recipient.

Conclusion:
The court concluded that the liability to pay service tax falls upon the service provider, and there is no statutory or contractual basis for the petitioners to claim reimbursement from the respondent-Board. The court found no ambiguity in Clause 1 of Chapter-X of the Agreement, which required the tenderers to include all direct and indirect costs, including tax liabilities, in their quoted rates. Consequently, the writ application was dismissed, and the petitioners were held liable for the service tax paid.