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2014 (9) TMI 457 - HC - Service TaxRenting of immovable property - contractual obligation - Service tax to be born by the tenant or landlord - Arbitrator has interpreted Clause 7.1 of the lease deed to mean that the Service Tax liability in respect of the renting of the premises would be that of the Petitioner (landlord) - Held that - In a given case, a service provider may well decide to undertake the burden of Service Tax itself without passing it on to the service recipient. What the intention of the parties in that regard is can be determined only by examining the relevant clause in the agreement they execute. Even Section 64A of the Sale of Goods Act (SGA) is useful in understanding the importance of the contract governing the parties. It opens with the words unless a different intention appears to the terms of the contract . Therefore it is the contract, and not the nature of the levy, which will determine which party, the service provider or recipient, is liable to bear the burden of service tax. In the present case, the wording of Clause 7.1 of the lease reflects the intention of the parties that it is the Petitioner who would bear the incidence of all taxes. In light of the decision in Rashtriya Ispat Nigam Ltd. v. M/s. Dewan Chand Ram Saran 2012 (4) TMI 457 - Supreme Court of India , the view of the learned Arbitrator that in terms of Clause 7.1 of the lease deed, the Service Tax liability is that of the service provider, i.e. the Petitioner, is a plausible one. - Decided against the petitioner.
Issues Involved:
1. Delay and Bias in Pronouncing the Award 2. Service Tax Liability Interpretation Detailed Analysis: 1. Delay and Bias in Pronouncing the Award: The petitioner argued that the delay in pronouncing the award and alleged bias by the Arbitrator should invalidate the award. The Court noted that although the delay of nearly ten months in pronouncing the award after final arguments is concerning, it does not by itself constitute sufficient ground for setting aside the award if it is otherwise reasoned. The Court found no factual or legal foundation to support the allegation of bias and thus did not entertain the plea. The impugned award was found to be detailed and reasoned, thus the Court did not find the delay to vitiate the award. 2. Service Tax Liability Interpretation: The central issue was whether the Service Tax liability for renting the premises should be borne by the petitioner or the respondent as per Clause 7.1 of the lease deed. The Arbitrator interpreted Clause 7.1 to mean that the petitioner was liable for Service Tax. The petitioner argued that Service Tax was not contemplated at the time of executing the lease deed and should be borne by the beneficiary of the service. The respondent contended that the service provider must pay Service Tax unless the contract specifies otherwise. Clause 7.1 of the lease deed stated that the lessor (petitioner) shall be liable to pay property taxes and other outgoings in respect of the premises, including any revisions, and no claim for contribution towards such taxes, cesses, levies, or increases shall be made by the lessor or entertained by the lessee (respondent). The Court found that the expression "other outgoings" was wide enough to include Service Tax, and there was no scope for reading it ejusdem generis with "property tax." The words "taxes, cesses, levies, or increases" indicated a wide range of possible levies. The Court distinguished the present case from Pearey Lal Bhawan Association v. Satya Developers Pvt. Ltd., noting that the clauses in that case were not identical to Clause 7.1. The expression "outgoing charges" in the earlier case did not have the same connotation as "other outgoings" in the present case. The Court also referred to Section 64A of the Sale of Goods Act, which emphasizes the importance of the contract terms in determining tax liability. The Court upheld the Arbitrator's interpretation that the petitioner was liable for Service Tax, as Clause 7.1 was wide enough to include such liability. The decisions in Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. and Rashtriya Ispat Nigam Ltd. v. M/s. Dewan Chand Ram Saran supported the view that the contract terms determine the liability for Service Tax. Conclusion: The petition was dismissed with costs of Rs. 5,000 to be paid by the petitioner to the respondent within four weeks. The Court found no ground for interference under Section 34 of the Arbitration and Conciliation Act, 1996.
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