2021 (3) TMI 1299 - HC - Service Tax

Reimbursement of service tax payable under the handling contract entered into between the parties - Cargo handling service - stand taken by the Petitioner was that in terms of the contract dated 15th February 2005, the liability to pay service tax was not of the Petitioner - HELD THAT - It is the Petitioner as a service provider, which will have to bear the tax liability arising from the services provided under the contract. The amenability of the service provided by the Petitioner to service tax was not as a result of any change in the law after the date of entering into the contract but much prior thereto. Having entered into the contract with open eyes, the Petitioner should be understood as having undertaken to bear the liability of all taxes statutorily mandated arising from the performance of the service. The service tax being one such indirect tax levyable in terms of the Finance Act, 1996 with effect from 16th August 2002, the question of the Petitioner, in terms of the contract not being liable to bear the burden of service tax, did not arise. The petition is dismissed.

Summary

Issues:
1. Reimbursement of service tax by SAIL to the Petitioner for cargo handling services.
2. Interpretation of the contract clause regarding tax liability.
3. Application of service tax laws to the contract entered into by the parties.
4. Comparison with other contracts where SAIL reimbursed service tax to other service providers.

Analysis:
1. The Petitioner, a firm providing cargo handling services, contested SAIL's refusal to reimburse the service tax under their handling contract. The contract clause in question, Clause 3.2, mandated compliance with all relevant laws, including tax liabilities arising from the services provided.

2. Despite the Petitioner's claim of lack of knowledge regarding service tax applicability, evidence showed that they were aware of the tax liability and even sought reimbursement from SAIL. The Court noted that the contract explicitly placed the tax burden on the service provider, and the Petitioner, having entered the contract knowingly, was bound to bear such statutory tax liabilities.

3. SAIL's consistent stance was that the service tax liability was factored into the contract rate since the rate was inclusive of service tax. The Court emphasized that the Petitioner, having signed the contract after the service tax law was in effect, could not avoid the tax liability as per the contract terms.

4. The Petitioner's argument for reimbursement based on other contracts where SAIL reimbursed service tax to different providers was refuted by SAIL, stating that those contracts predated the service tax applicability. The Court upheld SAIL's position, emphasizing the Petitioner's contractual obligation to bear the service tax burden.

In conclusion, the Court dismissed the writ petition, ruling in favor of SAIL, as the Petitioner was deemed to have accepted the tax liability under the contract terms. The judgment highlighted the importance of understanding and abiding by contractual obligations, including statutory tax liabilities, in service agreements.