2012 (10) TMI 685 - HC - Service Tax

Court rules in favor of plaintiff, awards service tax recovery with interest, totaling Rs. 9,91,311.83.

The court held that there was no agreement regarding the payment of service tax in the lease deed. The plaintiff was entitled to recover service tax from ... Recoverability of service tax from service recipient - statutory presumption under Section 83 read with Sections 12A and 12B of the Central Excise Act - contractual determination of incidence of tax - limitation under Article 23 of the Limitation Act - award of interest under Section 3 of the Interest Act, 1978Recoverability of service tax from service recipient - statutory presumption under Section 83 read with Sections 12A and 12B of the Central Excise Act - contractual determination of incidence of tax - The plaintiff is entitled to recover service tax paid in respect of the leased premises from the defendant notwithstanding absence of an express agreement shifting the liability to the lessee. - HELD THAT: - The lease clause relied upon by the defendant (Clause 4(v) and the schedule) confines 'municipal taxes, rates, charges and other outgoings' to those determined by Municipal/Local authorities and does not extend to service tax levied by the Union. Sections 12A and 12B of the Central Excise Act, applied to service tax by Section 83 of the Finance Act, create a statutory presumption that the service provider passes on the incidence of the tax to the recipient. While the contract may, if it so provides, allocate the burden differently, no such express agreement appears in the deed before the Court. Applying the statute and the authorities cited, the Court held that the service provider (lessor) has the legal right to recover service tax from the service recipient (lessee) even absent an express contractual reimbursement clause. [Paras 9, 12]Plaintiff entitled to recover service tax from the defendant; the lease terms do not exclude such recovery.Limitation under Article 23 of the Limitation Act - effect of subsequent judicial decision on running of limitation - Service tax amounts paid between 31.3.2008 and 5.2.2009 are barred by limitation and cannot be recovered. - HELD THAT: - Article 23 prescribes three years' limitation for suits to recover money paid for another. The deposits made between 31.3.2008 and 5.2.2009 fell outside the three year period from the date of filing (17.2.2012). The later judicial invalidation of notifications or subsequent statutory amendment does not stop or revive the running of limitation once it has commenced; Section 9 of the Limitation Act prevents subsequent events from stopping time already begun to run. [Paras 13, 14]Amounts deposited between 31.3.2008 and 5.2.2009 are time barred and not recoverable.Award of interest under Section 3 of the Interest Act, 1978 - calculation and temporal limitation of interest claim - The plaintiff is entitled to recover service tax deposited between 5.3.2009 and 6.9.2012 and interest at 6% per annum on the portion of deposits that had become due by 2.5.2011; the Court fixed the decree and future interest if not paid within four weeks. - HELD THAT: - On the basis of the affidavit of deposits and the Court's findings on limitation, the recoverable principal was confined to service tax deposited between 5.3.2009 and 6.9.2012. Notices and letters earlier sent by the plaintiff, including one dated 2.5.2011 requesting payment with interest, satisfy the requirement for claiming interest under Section 3(b) of the Interest Act in respect of amounts due by that date. No notice claiming interest was proved for later deposits; accordingly interest was awarded only on the portion of deposits up to 2.5.2011 and fixed at 6% per annum for the period specified. The Court directed that if the decretal amount is not paid within four weeks it shall carry pendent lite and future interest at 6% per annum. [Paras 15, 16]Plaintiff entitled to recover principal for deposits between 5.3.2009 and 6.9.2012 and interest as awarded; decretal amount to carry future interest if unpaid after four weeks.Final Conclusion: Decree entered for the plaintiff for recovery of the service tax sums found recoverable (service tax deposited between 5.3.2009 and 6.9.2012) together with interest as awarded; amounts deposited between 31.3.2008 and 5.2.2009 held time barred; decretal amount to bear pendent lite and future interest at 6% per annum if not paid within four weeks. Issues Involved:1. Liability to pay service tax on rent.2. Entitlement of the plaintiff to any amount from the defendant.3. Whether the suit is barred by limitation.Issue-wise Detailed Analysis:1. Liability to Pay Service Tax on Rent:The primary issue was whether the lease deed between the parties addressed the payment of service tax and who was liable for it. Clause 4(v) of the lease deed specified that municipal taxes, rates, charges, and other outgoings determined by local authorities were to be paid by the lessor or lessee as per the schedule. Clause 7 in the schedule stated these were to be borne by the lessor only. However, since the lease deed was executed before the imposition of service tax (effective from 1.6.2007), it did not specifically address service tax. The court concluded that service tax, being a tax on services levied by the Union of India, was not covered under the term 'outgoings' as defined in the lease deed. Therefore, there was no agreement regarding the payment of service tax.The court further examined whether, in the absence of an agreement, the landlord could recover service tax from the tenant. It referenced Sections 12A and 12B of the Central Excise Act, applied to service tax via Section 83 of the Finance Act, which create a statutory presumption that the service tax is passed on to the recipient of the service. The court held that these provisions gave the service provider a legal right to recover service tax from the recipient, even without an explicit agreement. This view was supported by precedents, including the Madras High Court's decision in *All India Tax Payers Welfare Association v. Union of India* and the Delhi High Court's decision in *Pearey Lal Bhawan Association v. Satya Developers Pvt. Ltd.*2. Entitlement of the Plaintiff to Any Amount from the Defendant:The plaintiff sought recovery of Rs.14,08,553/- towards arrears of service tax and Rs.6,07,390/- as interest, totaling Rs.20,15,943/-. The court determined that the plaintiff was entitled to recover service tax from the defendant, except for amounts barred by limitation. The court awarded the plaintiff Rs.9,74,922/- for service tax deposited between 5.3.2009 and 6.9.2012.Regarding interest, the court noted the absence of an agreement on interest payment but referred to Section 3 of the Interest Act 1978, which allows courts to award interest. The court awarded interest at 6% per annum on the amount of Rs.3,45,049/- deposited between 05.03.2009 to 02.05.2011, from 2.5.2011 to the filing of the suit, amounting to Rs.16,389.83. Thus, the total amount recoverable by the plaintiff was Rs.9,91,311.83.3. Whether the Suit is Barred by Limitation:The suit was filed on 17.2.2012. The court applied Article 23 of the Limitation Act, which provides a three-year limitation period for money paid for the defendant. Payments made between 31.3.2008 and 5.2.2009 were thus barred by limitation. The court rejected the plaintiff's argument that the limitation period was affected by the legal challenges to the service tax notifications and amendments, citing Section 9 of the Limitation Act, which states that once time begins to run, it cannot be stopped by subsequent events.Order:The court decreed the recovery of Rs.9,91,311.83 in favor of the plaintiff against the defendant, with no order as to costs. If the amount was not paid within four weeks, it would carry pendent lite and future interest at 6% per annum.