2012 (11) TMI 568 - HC - Service Tax

Recovery of service tax from the tenant - consequence of retrospective amendment for levy of service tax on renting - Winding up petition - Circumstances in which a company may be wound up - Held that - . The service tax is not a direct tax. It is an indirect tax. The party in a given case, therefore, may agree to pay the service tax as per the terms and conditions of the agreement. Admittedly, there was no such specific agreement with regard to the payment of the service tax. Principally the Petitioner who had let out the premises was liable for such service tax and not the Respondent. As decided in IBA Health (I) (P.) Ltd. Versus Info-Drive Systems Sdn. Bhd. 2010 (9) TMI 229 - SUPREME COURT OF INDIA while dealing with the concept of bonafide dispute referring to winding up Petition under the Companies Act the amount due and payable should be clear and outstanding on the date of the demand. If any amount, though crystallized, liable to be paid subject to contingencies and/or certain conditions, that just cannot be stated to be the amount due and payable by the Company. Thus it is sufficient to dismiss the Petition as there are disputed questions of facts and the law though revolving around the documents referred and relied by the Petitioner which in no way can assist to settle and/ or crystallize the amount of service tax as claimed from the Respondent.

Summary

Issues:
1. Invocation of Sections 433(e) & 434 of the Companies Act, 1956 due to non-clearance of service tax liability.
2. Constitutional validity challenge of service tax imposition under sub-clause (zzzz) of clause (105) of section 65 read with section 66 of the Finance Act of 1994.
3. Dispute regarding liability for service tax between the Petitioner and Respondent Company.
4. Interpretation of the concept of bonafide dispute in the context of winding up Petition under the Companies Act.

Analysis:
1. The Petitioner invoked Sections 433(e) & 434 of the Companies Act, 1956 against the Respondent Company for not clearing the service tax liability related to the commercial premises leased out. The retrospective application of service tax to rented/licensed premises was highlighted, emphasizing the liability of the service provider, unless agreed otherwise.

2. The constitutional validity challenge of the service tax imposition under sub-clause (zzzz) of clause (105) of section 65 read with section 66 of the Finance Act of 1994 was discussed. The retrospective nature of the service tax and the absence of a specific agreement between the parties regarding the payment of service tax were crucial factors in determining liability.

3. The dispute over the liability for service tax between the Petitioner and Respondent was analyzed. The absence of a specific agreement on service tax payment, coupled with the indirect nature of service tax, led to the conclusion that the Petitioner, as the premises owner, was primarily liable for the service tax, not the Respondent.

4. The interpretation of the concept of bonafide dispute in the context of winding up Petition under the Companies Act was explored. Reference was made to a previous judgment highlighting that the amount due and payable should be clear and outstanding on the date of the demand, and contingent liabilities cannot be considered as amounts due and payable.

5. The judgment dismissed the Petition due to disputed questions of facts and law, emphasizing the lack of clarity on the amount of service tax claimed from the Respondent. The absence of a binding agreement on service tax liability and the disputed nature of the claim led to the dismissal of the Petition, with no costs awarded.