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TMI Blog2015 (10) TMI 2667X X X X Extracts X X X X X X X X Extracts X X X X ..... orce w.e.f. June 01, 2007. In the agreement between HDFC Bank and Meattles Clause 4(v) imposes liability of municipal taxes, rates, charges and other outgoings in respect of the demised premises that would be determined/fixed/varied from time to time by the Municipal Corporation/Municipality/Gram Panchayat or any other local authority only. It is well settled that the Municipal Corporation, Municipality, Gram Panchayat or local authority is distinct from the government and thus the clause inter se the parties cannot be said to cover the exemption of HDFC Bank to pay to Meattles service tax paid by it to the government pursuant to the Finance Act, 2007. Appeal dismissed - decided against appellant. - RFA (OS) 24-25/2011 - - - Dated:- 13-10-2015 - MR. PRADEEP NANDRAJOG AND MR. MUKTA GUPTA, JJ. For The Appellant : Mr.J.K.Mittal, Advocate with Mr.Rajveer Singh, Ms.Krishna Nandan Kumar And Mr.Raman Kapur, Sr.Advocate instructed by Mr.R ishab Raj Jain, Ms.Pallavi Deepika, Advocates For The Respondent : Mr.Simran Mehta, Advocate with Mr.Prabhat Kalia, Advocate And Mr.Deepak Bashta, Advocate MUKTA GUPTA, J. 1. Pearey Lal Bhawan Association (in short PLBA ) fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II (1) That the Lessor to pay all rates, taxes, ground rent, house-tax charges, fire-fighting tax, easements and outgoing charges imposed or payable to the MCD, L DO, DDA or Government in respect of the demised premises payable by the Lessor and discharge all its obligations well in time . 5. In CS (OS) No.512/2012 Meattles claimed to be the lessor of the demised premises bearing Nos.3909-3912, Hamilton Road, Mori Gate, Kashmere Gate, New Delhi measuring approximately 2700 sq.ft of built up area on the ground floor leased out to HDFC Bank vide the registered lease deed dated November 25, 2004. The issue again raised was in relation to the service tax net w.e.f June 01, 2007 vide notification No.23/2007-ST dated May 22, 2007 and Finance Act, 2007. 6. In the written statement filed HDFC Bank also claimed that in terms of Clause 4(v) of the lease agreement it was not liable to pay the service tax as agreed between the parties which is reproduced as under: The municipal taxes, rates, charges and other outgoings in respect of the demised premises that would be determined/fixed/varied from time to time by the Municipal Corporation/Municipality/Gram Panchayat or any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he service tax from the defendants. 11. Learned counsel for Satya contends that the learned Single Judge erroneously relied upon the provisions of Sales of Goods Act, 1930 which have no application to service tax. Section 12B of the Central Excise Act relied upon by the learned Single Judge applies only to refund of duty and does not provide for the liability of the consumer to pay service tax. Section 68 of the Finance Act, 1994 and 1997 provided for collection of service tax which term has been changed by the Finance Act of 1998 and the liability has been fixed on the service provider to pay the service tax. By the lease agreement the parties had contracted that taxes would be borne by the lessor and PLBA cannot now wriggle out of the terms of the contract. Section 67 of the Finance Act provides for valuation of the service tax which would be included in the gross amount charged by a service provider which provision has been ignored by the learned Single Judge. The case of Satya is covered by the decision of Supreme Court reported as 2011 (13) SCC 497 Ultra Tech Cement Ltd. (Earlier Ultratech Cemco Ltd.) vs. State of Maharashtra and Anr . Reliance is also placed on the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the service provider has not assumed the burden of paying the service tax and the liability would be that of the service recipient. The fact that execution of the lease deed dated October 09, 2006 precedes the imposition of tax liability, there was no possibility of any conscious assumption of any liability by PLBA as no such liability existed. The words shall continue to pay all or any tax in the lease agreement indicates that the liability of the lessor was confined only to the existing levies which already stood imposed at the time of execution of lease deed. Reliance is placed on the decision reported in (2007) 7 SCC 527 All India Federation of Tax Practitioners Ors.vs. Union of India Ors. , 2011 (2) SCC 352 Association of Leasing and Financial Service Companies vs. Union of India Ors. , 182 (2011) DLT 548 (FB), Home Solutions Retails (India) Ltd Union of India Ors. 14. Shri Balbir Singh, Senior Advocate who had been requested to assist this Court in this matter points out that the three essentials of a taxing statute are chargeability, receivability and assessment component. Service tax being an indirect tax, though leviable on the consumer of the services h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns including companies, associations, firms, body of individuals etc. Service sector contributes about 64% to the GDP. It noted that in contemporary world, development of service sector has become synonymous with the advancement of the economy and the Economists hold the view that there is no distinction between the consumption of goods and consumption of services as both satisfy the human needs. It was noted that Value Added Tax (in short VAT ) which is a general tax applies in principle to all commercial activities involving production of goods and provision of services. The Supreme Court held that VAT is a consumption tax as it is borne by the consumer and Service Tax is a VAT which in turn is destination based consumption tax. The Supreme Court noted that just as excise duty is a tax on value addition on goods, Service tax is on value addition by rendition of services. Broadly Services fall into two categories, namely, property based services and performance based services. Property based services cover service providers such as architects, interior designers, real estate agents, construction services, mandapwalas etc. and the later being services provided by stock-broke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereto; and ( iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, but does not include- ( a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes; ( b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land; ( c) land used for educational, sports, circus, entertainment and parking purposes; and ( d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities. Explanation 2.-For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce; 18. Section 83 of the Finance Act, 2007 makes certain provisions of the Central Excise Act, 1944 as in force from time to time applicable in relation to Service Tax as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be treated as part of the incorporating Act. The obvious advantage of a legislation by incorporation is that the judicial precedents and discussions on the earlier enactment apply to the later enactments. 22. Section 83 of the Finance Act 2007 though a legislation by incorporation also takes care of non-applicability of future amendments as it provides for applicability of the relevant sections of the Central Excise Act 1944 as in force from time to time i.e. the future amendments in the provisions of the Central Excise Act would also be applicable mutatis Mutandis to Service Tax. As noted above, Section 12B of the Central Excise Act which applies to the Service Tax raises a presumption that the incidence of duty has been passed to the buyer unless the contrary is proved. Thus in the absence of a contract for the liability of a service tax, it will be presumed that the same has been passed over to the service recipient. 23. Based on the rule of equity similar provision exists in the Sales of Goods Act, 1930, that is, Section 64A. The Supreme Court in the decision reported as 2007 (8) SCC 466 Numaligarh Refinery Ltd.vs.Daelim Industries Co.Ltd held that whether a party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as 1997 (5) SCC 536 Mafatlal Industries Ltd. Ors.vs. Union of India Ors . a nine judges Bench of the Supreme Court of India while dealing with the claim of refund held that the same was maintainable by virtue of declaration contained in Article 265 of the Constitution of India as also under Section 72 of the Contract Act subject to one exception. Noting that the duties under the Central Excise and Customs are indirect taxes and supposed to be and are permitted to be passed on to the buyers it was held: 80. For the purpose of this discussion, we take the situation arising from the declaration of invalidity of a provision of the Act under which duty his been paid or collected, as the bases, inasmuch as that is the only situation surviving in view of our holding on (I) and (II). In such cases the claim for refund is maintainable by virtue of the declaration contained in Article 265 as also under Section 72 of the Contract Act as explained hereinbefore subject, to one exception : where a person approaches the High Court or Supreme Court challenging the constitutional validity of a provision but fails, he cannot take advantage of the declaration of unconstitutionality obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he person claiming the refund has passed on the burden of duty to another. In other words, the person claiming the refund has not really suffered any prejudice or loss. If so, there is no question of reimbursing him. He cannot be re compensated for what he has not lost. The loser, if any, is the person who has really borne the burden of duty; the manufacturer who is the claimant has certainly not borne the duty notwithstanding the fact that it is he who has paid the duty. Where such a claim is made, it would be wholly permissible for the court to call upon the petitioner/plaintiff to establish that he has not passed on the burden of duty to a third party and to deny the relief of refund if he is not able to establish the same, as has been done by this Court in I.T.C. In this connection, it is necessary to remember that whether the burden of the duty has been passed on to a third party is a matter within the exclusive knowledge of the manufacturer. He has the relevant evidence - best evidence - in his possession. Nobody else can be reasonably called upon to prove that fact. Since the manufacturer is claiming the refund and also because the fact of passing on the burden of duty is wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed it is evident whether the service tax liability has been agreed not to be passed on to the recipient of the service would depend on the interpretation of clauses entered into between the parties. Before adverting to the relevant clauses inter se the parties in the present case it would be appropriate to note a few decisions on the interpretation of a contract. 28. The House of Lords in [1998] 1 WLR 896 Investors Compensation Scheme Ltd. vs. West Bromwich Building Society summarized the principle of interpretation of contractual documents as under: ( 1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. ( 2) The background was famously referred to by Lord Wilberforce as the matrix of fact, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argely from the words of Longmore LJ in Absalom (on behalf Lloyd's Syndicate 957) v. TCRU Ltd (2005) EWCA Civ 1586 at (7), (2006) 1 All ER (Comm) 375 at (7), (2006) 2 Lloyd's Rep 129, and based upon submissions to me by counsel, which I had approved, in the recent case of Reilly v. National Insurance *Guarantee Corporation Ltd (2008) EWHC 722 (Comm) at (13), (2008) 2 All ER (Comm) 612 at (13), was again the subject matter of agreement, and I repeat and incorporate it : ( a) Ordinary Meaning. There is a presumption that the words to be construed should be construed in their ordinary and popular sense, since the parties to the contract must be taken to have intended, as reasonable men, to use words and phrases in their commonly understood and accepted sense. (See also para (7)(i)-(iii) in the judgment of Longmore LJ and in particular: The object of the inquiry is not necessarily to probe the real intention of the parties, but to ascertain what the language they used in the document would signify to a properly informed observer . ) ( b) Businesslike Interpretation. It is an accepted canon of construction that a commercial document, such as an insurance po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus the clause inter se the parties cannot be said to cover the exemption of HDFC Bank to pay to Meattles service tax paid by it to the government pursuant to the Finance Act, 2007. 33. As regards the lease deed and the agreement of maintenance of common services and facilities between Satya and PLBA Clause 5 of the lease deed as noted above provides that the lessor shall continue to pay all or any taxes, levies or charges imposed by the MCD, DDA, L DO and or Government, Local Authority etc. By use of the words Lessor shall continue to pay it is evident that the parties contemplated the existing taxes, levies or charges and not future. Even as per the agreement of maintenance of common service facilities though the same has no application to the service tax however, still the said clause II(1) cannot be said to exclude HDFC Bank from paying future service tax. 34. In view of the discussion aforesaid the judgments and the decrees passed by the learned Single Judge in the three suits are upheld. Appeals are dismissed. Parties will bear their own costs. 35. We place on record our appreciation for the valuable assistance rendered by Mr. Balbir Singh, Senior Advocate/learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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