Contractual allocation of service tax on leased premises favoured the lessee, and the arbitral award was set aside.

Service tax on renting commercial premises was treated as an indirect tax on the business use of the premises, not as a property-related levy. Reading Clause 7.1 with Clause 9(d), the lease deed allocated property taxes and similar outgoings to the lessor context, while taxes necessary for carrying on business within the premises, other than municipal and related property taxes, fell on the lessee. On that construction, the arbitral tribunal's contrary view was held inconsistent with the contract and not sustainable as a merely plausible interpretation. The arbitral award and the Section 34 orders were set aside, and the service tax liability was held to lie with the lessee.

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Issues: Whether, under the lease deed, service tax on renting of commercial premises was payable by the lessor or the lessee, and whether the arbitral award and the orders under Section 34 of the Arbitration and Conciliation Act, 1996 could be sustained on the interpretation adopted.

Analysis: Service tax was treated as an indirect tax on the commercial activity of providing service and not as a tax on the premises itself. Clause 7.1 of the lease deed was confined to property tax and other outgoings in respect of the premises, which could include taxes relating to the property but not an indirect tax on the use of the premises for business. Clause 9(d) separately required the lessee to pay taxes necessary for carrying on its business within the premises, other than municipal and related property taxes. On a plain reading, the contractual scheme divided tax liability between property-related levies and business-related levies, and service tax fell in the latter category. The interpretation adopted by the arbitral tribunal was found to be inconsistent with the contract, and the court held that the award could not be upheld as a merely plausible view where the clause language admitted only one reasonable construction.

Conclusion: The service tax burden was held to be that of the lessee, and the arbitral award and the Section 34 orders were set aside.

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