Jayanta Kumar Biswas, J.:— The appellants in the MAT are aggrieved by a decision of a single Judge dated May 15, 2014 allowing the respondents' WP No. 4085 (W) of 2014 under Article 226 of the Constitution of India.
Under a lease dated September 1, 2012 the appellants rented certain immovable property owned by the respondents. Clause 6 of the lease deed is quoted below:-
“6. The lessor/lessors shall pay all rates, taxes, assessment, charges and other outgoings whatsoever of every description which under the statutes are primarily leviable upon the lessor and shall keep the premises free from all encumbrances and interference in this behalf. Rates and taxes primarily leviable upon the occupier shall be paid by the Government.”
The respondents raised the first lease rent bill dated August 31, 2012 asking the appellants to pay lease rent for the period from September 1, 2012 to September 30, 2012. It was mentioned in the bill that the appellants were liable to pay 12% service tax on the lease rent. The respondents continued to raise bills for lease rent adding 12% service tax on it.
The fourth appellant (The Defence Estates Officer, Kolkata Circle) wrote a letter dated December 11, 2012. While mentioning that he was forwarding a cheque towards payment of lease rent from September 1, 2012 to November 30, 2012 after 10% TDS deduction, the officer informed the first respondent as follows:-
“4. The issue of payment of service tax is under consideration of competent Authority of Govt. of India, and necessary action will be taken after receipt of their decision in this matter.”
In response to the letter of the fourth appellant dated December 11, 2012 the first respondent wrote a letter dated December 14, 2012. While acknowledging receipt of the cheque towards payment of lease rent, the first respondent referred to the relevant provisions of law on service tax and requested the fourth appellant to pay the service tax element in the rent bills.
The respondents continued to raise rent bills charging 12% service tax on the lease rent and the fourth appellant continued to write that the service tax issue was under consideration of the competent authority of the Government of India, and that necessary action would be taken on receipt of decision on the matter from the authority.
The last letter written by the fourth appellant is dated November 25, 2013.
Under the circumstances, the respondents filed the WP on February 7, 2014 seeking a mandamus commanding the appellants to pay the service tax element in the already raised lease rent bills with 18% p.a interest. The appellants contested the WP by filing an affidavit-in-opposition dated March 31, 2014. The respondents filed an affidavit-in-reply dated April 2, 2014.
The appellants, it is submitted, contested the WP contending:-(i) that under the lease the obligation to pay service tax was of the respondents; and (ii) in any case, in view of cl. 16 of the lease, the dispute was to be adjudicated only by the arbitrator.
The single Judge not finding any merit in the appellants' contentions allowed the WP and ordered as follows:-
“14. In the result the writ petition succeeds. The first petitioner is entitled to writs/orders in terms of prayers ‘a’ and ‘b’ extracted supra, with the only modification in regard to the rate of interest i.e interest @ 10% instead of 18%. It is ordered accordingly.
15. On and from June 1, 2014, the lease rent shall be paid by the respondents together with service tax as is chargeable in law, to the first petitioner. Insofar as the arrears are concerned, the respondents shall have time till September 30, 2014 to pay the same with interest @ 10% p.a”
Mr. Bose appearing for the appellants has submitted as follows:-
Relying on the respondents' representation that consequent upon increase in rent rate they would bear the future taxes, the appellants rented the property in question. In the recorded proceedings financial implication was specifically limited to the actual rent liability. Clause 6 of the lease reflected on the agreement and in the clause the respective liabilities of the parties were distinctly specified. The agreement was that the respondents would pay the service tax payable on the lease rent, and that the appellants would not be liable to reimburse the respondents. In view of the decision in Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran, (2012) 5 SCC 306, tax liability shifting is permissible, and this was really the case between the parties. Hence the single Judge holding the appellants liable to pay the service tax committed an error. In any case, there was no reason to order the appellants to pay interest.
Mr. Banerjee appearing for the respondents has submitted as follows:-
The relied on recorded proceedings and documents stated to have reflected on the respondents' representation respecting service tax liability shifting is baseless. The respondents never made any such representation. Clause 6 of the lease specified the parties' respective tax liabilities. It does not say anything about the respondents' any decision or agreement to shift their service tax liability in any manner. In All-India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527 it was clearly stated that service tax introduced by the Finance Act, 1994 was in the nature of an indirect tax. In view of the provisions of s. 12B of the Central Excise Act, 1944, the respondents were entitled to pass on the full incidence of the service tax payable on the lease rent to the appellants, the persons actually enjoying the service. This is also the view taken by the Delhi High Court in an unreported decision dated October 20, 2010 in CS(OS) 1016 of 2008 (Pearey Lal Bhawan Association v. Satya Developers Pvt Ltd). A similar view has been taken by the Allahabad High Court in an unreported decision dated January 16, 2013 in WT No. 870 of 2007 (Bhagwati Security Services v. Union of India). Hence the single Judge was fully justified in holding the appellants liable to pay the service tax mentioned in the rent bills. Since the appellants wrongfully withheld the payment, the single Judge was justified in ordering them to pay the respondents 10% p.a interest on the service tax arrears.
The question involved in the WP was whether the appellants were liable to pay the service tax element mentioned in the lease rent bills.
In view of the provisions of s.65(105)(zzz) of the Finance Act, 1994 there can be no doubt that the service provided and to be provided to the appellants by the respondents by renting of the immovable property in question was and is a taxable service; and that in view of the provisions of s.68 of the Act the respondents providing the taxable service to the appellants were and are under a statutory obligation to pay service tax at the rate specified in s.66 of the Act in the manner and within the period prescribed.
Section 83 of the Finance Act, 1994 is quoted below:-
“83. Application of certain provisions of Act 1 of 1944.
The provisions of the following sections of the Central Excise Act, 1944, as in force from time to time, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise:-
sub-section(2A) of section 5A, sub-section (2) of section 9A, 9AA, 9B, 9C, 9D, 9E, 11B, 11BB, 11C, 12, 12A, 12B, 12C, 12D, 12E, 14, 15, 15A, 15B, 31, 32, 32A to 32P (both inclusive), 33A, 34A, 33EE, 35F, 35FF to 35-O (both inclusive), 35Q, 35R, 36, 36A, 36B, 37A, 37B, 37C, 37D, 38A and 40.”
Section 12B of the Central Excise Act, 1944 is quoted below:-
“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.”
There can be no doubt that service tax payable under s.68 of the Finance Act, 1994 is an indirect tax. This was clearly stated by the Supreme Court in All-India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527. In view of the provisions of s.83 of the Finance Act, 1994, s.12B of the Central Excise Act, 1944 applies in relation to the service tax payable under s.68 of the Finance Act, 1994.
This means that the respondents liable to pay service tax for the service provided and to be provided to the appellants by them were and are entitled in law to pass the full incidence of the service tax on to the appellants. This is the view also of the Delhi High Court. The Allahabad High Court, however, did not deal with the issue in detail.
It is, therefore, evident that the provisions of the Finance Act, 1994 themselves entitled the respondents to pass the full incidence of the service tax payable by them on the lease rent on to the appellants, the persons taking and enjoying the taxable service provided and being provided by the respondents. Hence there can be no doubt that the respondents were and are justified in asking the appellants to pay the full incidence of the service tax payable on the lease rent.
The next question is whether there was any service tax liability shifting agreement between the parties.
In view of the decision in Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran, (2012) 5 SCC 306, there can be no doubt that an assessee liable to pay service tax, an indirect tax, and entitled to pass it on to the person taking the service provided by him, is entitled to enter into a contract to shift his service tax liability.
But we are unable to see how this principle is applicable to the present case. It is not the law that when the assessee decides not to pass on any part of the service tax element to the person whom he provides service, he shifts his service tax liability to himself. In this case, there is no service tax liability shifting agreement between any parties.
The appellants raised the plea of arbitration. The arbitration remedy under cl.16 of the lease was an alternative remedy available to the respondents. They chose to approach the writ court under Article 226 of the Constitution of India. The single Judge entertained the WP and decided it on merits.
The issue in the WP case was whether the appellants were liable to pay the full incidence of the service tax payable on the lease rent. It was to be decided examining the provisions of the Finance Act, 1994; for nothing in the lease specifically dealt with the question. We are, therefore, of the view that by entertaining the WP and deciding it on merits the single Judge did not commit any error. On the facts, there was no reason to relegate the respondents to arbitration.
We are of the opinion that the single Judge rightly held that the appellants were liable to pay the respondents the full incidence of the service tax mentioned in the lease rent bills from time to time. We hold that the lease and the law existing during the period in question and existing today entitled and entitle the respondents to pass the full incidence of the service tax on to the appellants; and that the appellants were and are liable to pay it.
As to interest, we are of the opinion that, on the facts, the appellants wrongfully withholding the payment, even when the respondents clarified the legal position by writing the letter dated December 14, 2012, incurred an obligation to pay interest on the service tax arrears. We are, however, of the view that the single Judge ordered the interest at a higher rate. Having regard to oral information provided by the advocates about bank interest rates during the period, we think 6% p.a interest would have been just and fair.
For these reasons we allow the CAN No. 8341 of 2014, condone the eighteen-day delay in presenting the MAT, direct registration of the MAT, dispose of the inconsequential CAN No. 8346 of 2014 for stay and allow the MAT to the following extent:-
The order of the single Judge is modified declaring that the appellants were and still are liable to pay the full incidence of the service tax payable on the lease rent; and ordering that they shall pay the unpaid service tax element mentioned in the already paid lease rent bills, with 6% p.a interest from the respective bill dates till the payment date, within four weeks from the date this order is sent to the server.
No costs.
Certified xerox.