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2019 (6) TMI 1148 - HC - Service TaxInterpretation of clauses of agreement - reimbursement of service tax - who is liable to bear the service tax - Section 83 of the Finance Act 2007 - HELD THAT - As a legislation by reference sub-Section (2) of Section 64A of the Sales of Goods Act making applicable sub-Section (1) of Section 64A to any duty of Customs or Excise on goods and as a legislation by incorporation Section 83 of the Finance Act making applicable Section 12B of the Central Excise Act to Service Act, Section 64A(1) is applicable to Service Tax - From the provisions as noted and the decisions of the larger benches it is evident that a service tax is a VAT which in turn is a destination based consumption tax and is to be borne by the consumer of goods. Further, unless contracted to the contrary, the consumer of service is liable to refund the said tax to the service provider who in turn is liable to pay to the government. In the instant case, the clause in question does not fix liability on the contractor to pay service tax that apart from, the clause required interpretation and in view of the aforenoted Judgments regarding the interpretation of the contract, view taken by the learned Arbitrator cannot be faulted. Appeal dismissed.
Issues Involved:
1. Challenge to the Arbitration Awards. 2. Interpretation of contractual clauses regarding service tax liability. 3. Application of legal principles regarding service tax and VAT. 4. Presumption of passing the incidence of tax to the buyer. 5. Interpretation of contractual documents. Issue-wise Analysis: 1. Challenge to the Arbitration Awards: The appellant challenged a singular judgment dated 18.02.2019 that dismissed five arbitration petitions under Section 34 of the Arbitration and Conciliation Act, 1996. These petitions challenged five awards of even date. The court found no merit in the appeals and dismissed them in limine without issuing notice to the respondent. 2. Interpretation of Contractual Clauses Regarding Service Tax Liability: The dispute involved five contracts where the respondent was the handling and transport contractor for the appellant. The appellant claimed reimbursement of service tax paid to the respondent, arguing that it was paid by mistake. The relevant contractual clause stated: “All the taxes/levies/fees/charges payable to any Government body/Local body shall be paid by the contractor and no claim what so ever shall be against the Corporation on this account.” The arbitrator ruled that the appellant, as the service recipient, was liable for the service tax and that the respondent had not assumed this liability under the contract. 3. Application of Legal Principles Regarding Service Tax and VAT: The court referenced the Supreme Court decision in All India Federation of Tax Practitioners & Ors. Vs. UOI & Ors., which described service tax as an indirect tax akin to VAT, borne by the consumer. The court noted that service tax, like VAT, is a destination-based consumption tax. 4. Presumption of Passing the Incidence of Tax to the Buyer: Section 83 of the Finance Act, 2007, incorporates certain provisions of the Central Excise Act, 1944, including Section 12B, which presumes that the incidence of duty has been passed on to the buyer unless proven otherwise. This presumption applies to service tax, indicating that unless a contract specifies otherwise, the service recipient is presumed to bear the tax. 5. Interpretation of Contractual Documents: The court discussed principles of contract interpretation, referencing decisions from the House of Lords and the Queen’s Bench Division. It emphasized that the meaning of a contract should be derived from the document as understood by a reasonable person with all relevant background knowledge. The court concluded that the contractual clause in question did not explicitly place the service tax liability on the contractor. Therefore, the arbitrator's interpretation was deemed reasonable and could not be faulted. Conclusion: The court upheld the arbitrator's decision, finding that the contractual clause did not transfer service tax liability to the contractor. The appeals were dismissed, affirming the arbitrator’s interpretation and the legal principles regarding service tax and contractual obligations.
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