2014 (5) TMI 1226 - HC - Companies Law

Direction to make payment of the service tax component of the monthly rentals - HELD THAT - In view of the decisions of the Supreme Court in the case of ABL INTERNATIONAL LTD. ANR. VERSUS EXPORT CREDIT GUARANTEE CORPORTION OF INDIA LIMITED ORS. 2003 (12) TMI 584 - SUPREME COURT and in the case of HARBANSLAL SAHNIA AND ANR. VERSUS INDIAN OIL CORPN. LTD. AND ORS. 2002 (12) TMI 564 - SUPREME COURT the point as to whether a writ petition impeaching contractual obligations despite availability of a forum for resolution of disputes and differences by arbitration would be maintainable is no longer res integra. The facts surfacing from the writ petition do not require investigation into any disputed question of fact; rather the point involved is simple, -who between the first petitioner and the respondents in terms of the agreement between the parties is liable to bear the service tax. Insofar as the decision in BHAGWATI SECURITY SERVICES (REGD.) VERSUS UNION OF INDIA 2013 (11) TMI 649 - ALLAHABAD HIGH COURT is concerned it appears that a writ petition was presented before the Allahabad High Court by the petitioner against Union of India and the BSNL authorities. Under the agreement security services were to be provided to the respondent no. 2. Service tax was demanded but was denied on the ground that the same was not contemplated in the agreement. Turning to the facts of the present case it appears that clause 6 extracted supra delineated the respective obligations of the lessor and the lessees. The parties agreed that the rates and taxes primarily leviable upon the occupier would be paid by the Government. That the respondents were not oblivious of their obligation to bear service charge is reflected from the letter dated April 30 2012 - it is not a case that if obligation to make payment of service tax arises the respondents would have discretion to foist the responsibility on the lessor (the first petitioner). Liability to bear service tax being that of the person receiving service there can be no escape from the conclusion that the respondents are liable to bear service tax. The first petitioner is entitled to writs/orders in terms of prayers a and b extracted supra with the only modification in regard to the rate of interest i.e. interest @ 10% instead of 18% - Petition allowed.

Summary

Issues:
Interpretation of lease agreement terms regarding payment of service tax by lessees, maintainability of writ petition challenging contractual obligations, liability for service tax between lessor and lessees.

Analysis:
1. Interpretation of Lease Agreement Terms:
The case involved a dispute over the liability for paying service tax on a leased property. The lease agreement between the parties did not explicitly mention service tax, but a letter from the Government of India specified that the lessees were liable for registration charges, stamp duty, and service tax if applicable. The court analyzed the agreement and the letter to determine that the lessees were obligated to bear the service tax as it is a tax primarily leviable upon the person receiving the service.

2. Maintainability of Writ Petition:
The respondent argued that the writ petition challenging the non-payment of service tax was not maintainable as it amounted to a breach of contract, and the dispute should be resolved through arbitration as per the terms of the agreement. However, the court relied on previous judgments to establish that the issue of liability for service tax was a straightforward contractual interpretation matter, not requiring a detailed investigation into disputed facts, and hence, the writ petition was maintainable.

3. Liability for Service Tax:
The court referred to decisions of the Delhi High Court and the Allahabad High Court to support its finding that service tax is a statutory liability imposed on the person receiving the service, and the service provider acts as a collecting agency. In this case, the court held that the lessees were liable to pay the service tax based on the terms of the agreement and the communication from the Government of India specifying their responsibility for service tax if applicable.

4. Decision and Order:
The court ruled in favor of the petitioner, directing the respondents to pay the service tax component of the lease rent along with arrears. The rate of interest was modified, and a deadline was set for the payment of arrears. The judgment clarified the liability for service tax, emphasizing the obligation of the lessees to bear such taxes as per the terms of the lease agreement and the communication from the Government of India.

Overall, the judgment provided a detailed analysis of the contractual obligations regarding service tax payment, the maintainability of the writ petition, and the legal principles governing the liability for service tax in lease agreements.