2022 (3) TMI 11 - HC - Service Tax

Reimbursement of service tax - works contract - maintainability of petition in view of the express term in the agreement dated 20.07.2015 that any claim exceeding ₹ 50,000/- related to the contract shall be decided by the Civil Court of competent jurisdiction - Whether the respondent University is liable to reimburse the service tax to the petitioner? - HELD THAT - It is clear that by 01.03.2014 i.e., on the date of approval of the estimates by the Executive Council and by 09.03.2015, i.e., the date on which tender notification NIT No.08/DU/Engg/2014-15 was issued, the exemption of service tax was in force. However, by 20.07.2015, the date on which agreement was entered into by the parties, the exemption on service tax was withdrawn by the Central Government. It appears, in this peculiar factual background, perhaps the parties have not mentioned in the agreement as to who has to bear the service tax. Therefore, the statute has to be referred to know about the liability - A perusal of sub-section (1) of Section 68 of the Finance Act, 1994, would show that generally a service provider has to pay service tax to the Department. Section 68(2) introduced the concept of reverse charge mechanism under which the service recipient is liable to pay tax and be assessed to tax. Be that it may, a plain reading of section 68(1) will reveal the petitioner in this case being the service provider has to pay service tax to the Department. However, it must be noted that service tax is an indirect tax and the burden of the tax can be passed on to service recipient provided the parties agreed upon to this effect. It is clear that irrespective of the fact who has to pay the service tax under statute, the parties by contract can fix the liability on any one between them. It goes without saying that if the contract is silent as in the instant case, one has to necessarily fall back on the statute to fix the liability. As rightly contended by the learned Standing Counsel for respondents, the agreement dated 20.07.2015 is silent on the liability of service tax being born by whom. Therefore, primarily the petitioner is responsible to pay the service tax - it is only an act of recommendation which has to be approved by the Executive Council. The same was not ratified by the Executive Council after ascertaining the legal opinion. Therefore, the petitioner cannot, as a matter of right, claim that the respondents should reimburse the service tax paid by him. Whether the writ petition is not maintainable in view of the express term in the agreement dated 20.07.2015 that any claim exceeding ₹ 50,000/- related to the contract shall be decided by the Civil Court of competent jurisdiction? - HELD THAT - It is true that in the Articles of agreement dated 20.07.2015, clause No.3 shows that all claims above ₹ 50,000/- in value shall be decided by the Civil Court of competent jurisdiction by way of a regular suit. On the strength of this term, it is argued by the respondents that the writ petition is not maintainable. This argument has no much force for the reason that the claim of the petitioner is not for the contractual amount agreed upon by the parties. On the other hand, he claims the refund of the service tax which, in my view, cannot be termed as a contractual amount so as to drive the petitioner to the Civil Court. So the writ petition is maintainable. The Writ Petition is devoid of merits and accordingly dismissed.

Summary

Issues Involved:
1. Liability of the respondent University to reimburse the service tax to the petitioner.
2. Maintainability of the writ petition in view of the contractual clause requiring claims above ?50,000 to be decided by a Civil Court.

Detailed Analysis:

Issue 1: Liability of the respondent University to reimburse the service tax to the petitioner

The petitioner, a Class-I contractor, completed the construction of a Library Building for the respondent University. The Works & Buildings Committee recommended the payment of service tax as a statutory requirement, and the petitioner paid the service tax on multiple bills. Despite this, the respondent University did not reimburse the service tax, leading to the writ petition.

The court examined the sequence of events and relevant statutory provisions. Initially, the service tax exemption for educational institutions was in force but was withdrawn by a subsequent notification. The agreement between the petitioner and the respondent University did not specify who would bear the service tax liability. According to Section 68 of the Finance Act, 1994, the service provider is generally liable to pay the service tax unless otherwise agreed upon in the contract.

The court noted that the Building Committee's recommendation for reimbursement was not ratified by the Executive Council. The petitioner argued that service tax is an indirect tax and should be borne by the service recipient, but the court held that in the absence of a contractual clause, the petitioner is primarily responsible for paying the service tax. Therefore, the respondent University is not obligated to reimburse the service tax paid by the petitioner.

Issue 2: Maintainability of the writ petition in view of the contractual clause requiring claims above ?50,000 to be decided by a Civil Court

The agreement included a clause stating that claims exceeding ?50,000 should be decided by a Civil Court. The respondent University argued that this clause rendered the writ petition non-maintainable. However, the court distinguished the claim for reimbursement of service tax from other contractual claims, stating that the service tax claim is not a contractual amount but a statutory obligation. Therefore, the writ petition is maintainable.

Conclusion:

The court concluded that the writ petition is devoid of merits and dismissed it, stating that the petitioner cannot claim reimbursement of the service tax as a matter of right due to the absence of an express term in the contract and the non-ratification of the Building Committee's recommendation by the Executive Council. The court also held that the writ petition is maintainable despite the contractual clause requiring claims to be decided by a Civil Court.