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TMI Blog2017 (11) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, the taxable event is the purchase of paddy, whereas the taxable person , who is the person liable to pay the tax, is the purchaser - In the present case, therefore, the taxable event is the provision of the service of renting out immovable property, and the taxable person , that is the person liable to pay tax, is the service provider, namely the lessor. The fact that service tax may not, in given circumstances, be passed on by the service provider to the recipient of the service would not, therefore, make such tax any the less a service tax. It is important to bear this in mind, as the main prop of Shri Jaideep Gupta s argument is that service tax being an indirect tax which must be passed on by virtue of the judgments of this Court, would make the recipient of the service the person on whom the tax is primarily leviable. Though in law and under clause 6 of the lease deed the Appellant is not required to pay service tax, we are loathe to upset the finding of the learned single Judge based upon a letter by the Appellant to the Respondent in which the Appellant has expressly stated that it was liable to pay service charges - the the case is in favor of appellant on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the Appellants i.e. the Union of India would be liable to pay the said tax. 3. An appeal to the Division Bench yielded the same result. The Division Bench, in the impugned judgment dated 9.9.2014, referred to various provisions of the Finance Act, 1994 and adopted the same reasoning as that of the learned single Judge and, therefore, held that Clause 6, if properly construed, would yield the same result as was found by the learned single Judge and, therefore, dismissed the appeal. 4. Shri A.K. Sanghi, learned senior counsel appearing on behalf of the Appellants, has referred in detail to various provisions of the Finance Act, 1994 along with amendments thereto and has argued that the person primarily liable to pay service tax under the Act read with the Service Tax Rules, 1994, is the service provider i.e. the lessor in the present case. He, therefore, stated that on a proper reading of Clause 6, it is clear that service tax being primarily leviable on the lessor within the meaning of Clause 6, would have to be borne by the lessor alone and not his client. 5. On the other hand, Shri Jaideep Gupta, learned senior counsel appearing on behalf of the Respondents, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (zzzzr) (zzzzs) (zzzzt),(zzzzu), (zzzzv) (zzzzv) and (zzzzw) of clause (105) of section 65 and collected in such manner as may be prescribed: Provided that the provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint. 8. On and from 1.7.2012, under Section 66B, the tax was levied in the following manner: 66B. Charge of Service Tax - There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. It is this last Section with which we are directly concerned as the lease deed between the parties is dated 1.9.2012. 9. Section 68 is important and reads as follows:- 68. Payment of service tax . (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66B in such manner and within such period as may be prescribed. (2) Notwithstanding anything contained in subsection (1), in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note reads - payment of service tax , makes it clear that it is the person providing the taxable service to another, who is to pay service tax at the rate specified in Section 66B, in such manner and within such period as may be prescribed, unless otherwise specified by the Central Government. Therefore, the person liable for paying service tax is to be determined on a reading of the Rules. 13. When we come to the Rules, it is clear that under Rule 2(1)(d), the person liable for paying service tax, where the service of renting immovable property is agreed to be provided by the Government, is the provider of such service. Even in a converse situation, which is the situation in the facts of the present case, it is the provider of the service alone, who is liable for paying service tax. 14. The question with which we are faced is the meaning to be given to the expression primarily leviable on the lessor in Clause 6 of the deed of lease dated 1.9.2012. 15. This Court has, in several judgments delineated the extent of and the meaning of service tax. Thus, in Tamil Nadu Kalyana Mandapam Assn v. Union of India Ors., (2004) 5 SCC 632 at 637, this Court held as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... introduced the new concept of service tax by imposing tax on services of telephones, non-life insurance and stockbrokers. That list has increased since then. Knowledge economy has made services an important revenue earner. Findings ( i) Meaning of service tax 22. As stated above, the source of the concept of service tax lies in economics. It is an economic concept. It has evolved on account of service industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of the Finance Act, 1994, the Central Government derived its authority from the residuary Entry 97 of the Union List for levying tax on services. The legal backup was further provided by the introduction of Article 268-A in the Constitution vide the Constitution (Eighty-eighth Amendment) Act, 2003 which stated that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new Entry 92-C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition to the goods manufactured or produced or sold. Thus, service tax is imposed every time service is rendered to the customer/client. This is clear from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted. 39. The same view is reiterated broadly in the earlier judgment of this Court in Godfrey Phillips India Ltd. v. State of U.P . [(2005) 2 SCC 515] in which a Constitution Bench observed that in the classical sense a tax is composed of two elements: the person, thing or activity on which tax is imposed. Thus, every tax may be levied on an object or on the event of taxation. Service tax is, thus, a tax on activity whereas sales tax is a tax on sale of a thing or goods. 18. It is thus clear, on a conspectus of the authorities of this Court, that service tax is an indirect tax, meaning thereby that the said tax can be passed on by the service provider to the recipient of the service. Being a tax on service, it is not a direct tax on the service provider but is a value added tax in the nature of a consumption tax on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricted to the imposition of the additional duty of six annas per lb. which was levied, beyond the eight annas per lb. collected from the appellants by virtue of the Finance Bill under the provisions of the Provisional Collection of Taxes Act, 1931. It would seem to be rather a strange result to achieve that the tax imposed satisfies every requirement of a duty of excise in so far as the tax operates from and after April 28, 1951, but is not a duty of excise for the duration of two months before that date. Learned Counsel conceded, as he had to, that even on the decision relied upon by him, the fact that owing to the operation of economic forces it was not possible for the taxpayer to pass on the burden of the tax, did not alter the nature of the imposition and detract from its being a duty of excise . For instance, the state of the market might be such that the duty imposed upon and collected from the producer or manufacture might not be capable of being passed on to buyers from him. Learned Counsel urged that this would not matter, as one had to have regard to the general tendency of the tax and the expectation of the taxing authority and to the possibility of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .I.R. 1939 Federal Court 1, the Federal Court decided, through Chief Justice Maurice Gwyer, that excise duty under the Government of India Act, 1935 is a power to impose duty of excise upon the manufacturer of excisable articles at the stage of or in connection with manufacture or production. In a separate judgment, Jayakar J. held that all duties of excise are levied on manufacture of excisable goods and can be levied and collected at any subsequent stage up to consumption. 23. In R.C. Jall vs. Union of India, 1962 Supp. (3) SCR 436 at 451, this Court after referring to the judgment in Central Provinces and Berar Sales (supra) and certain other judgments held: With great respect, we accept the principles laid down by the said three decisions in the matter of levy of an excise duty and the machinery for collection thereof. Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applies in relation to a duty of excise. Section 12B is set out hereinbelow: 12B - Presumption that incidence of duty has been passed on to the buyer - Every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods. 27. Based on this Section, Shri Gupta has argued, in support of the Division Bench judgment, that since there is a presumption that the incidence of duty has been passed on to the buyer , who is the recipient of the service in the present case, unless the contrary is proved, such passing on shall be deemed in law to have occurred and, therefore, it is the Appellant before us who is the person on whom the duty is primarily leviable. This argument, which found favour with the Division Bench, is again incorrect for the basic reason that the reason for extending Section 12B of the Central Excise Act to service tax is for the reason that when refund of service tax is claimed in case the tax paid is found to be in excess or not payable at all, the same cannot be made over to the assessee unless the assessee proves that the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by looking at the document as a whole and the meaning of the document has to be what the parties intended to give to the document keeping the background in mind and conclusion that flouts business commonsense must yield unless expressly stated. In the present case it will also have to borne in mind whether the parties intend to include taxes which were not contemplated at the time of the agreement as indubitably the agreements between the parties in the three suits were entered into prior to the Finance Act, 2007 coming into force w.e.f. June 01, 2007. xxx xxx xxx 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on the premises would be covered by this clause and absolves the lessee of the liability in this behalf, this clause nowhere envisaging an indirect tax of the nature of a service tax. The aforesaid view is further reinforced by Clause 9 (d) which in fact puts the responsibility on the lessee to pay all taxes necessary for carrying on its business within the premises other than the municipal taxes and related property taxes. Thus, any tax on the business activity is on the lessee and the only exclusion made is of municipal tax and related property taxes for which there is a specific Clause 7.1. It is not as if there is a singular clause relating to taxes in the agreement being the Lease Deed which puts the burden on the lessor alone. The nature of taxes if bifurcated into two categories; one borne by the lessor and the other to be borne by the lessee. The aforesaid becomes important in the context of the nature of service tax which is a tax on the commercial activity and to that extent would, thus, fall within the parameters of Clause 9 (d) and not Clause 7.1. We thus have not the slightest of doubt that these are not clauses which can brook of any two interpretations, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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