2014 (12) TMI 413 - SC - Service Tax

High Court and Supreme Court shift service tax liability from Respondent No.5, ruling on taxable 'airport services'

Delhi International Airport Pvt. Ltd. Versus UOI And Others

The High Court initially favored Respondent No.5 in a dispute over service tax on renting immovable property, but an arbitration award shifted the service ... Recovery of cost of bank guarantee furnished by the Respondent No.5 - High Court in [2014 (8) TMI 102 - DELHI HIGH COURT] held that the transaction between the appellant and Respondent No.5 regarding letting out of immovable property would not fall within the taxable service of “airport services” under clause (zzz) of Section 65(105) prior to 01.07.2010 - Held that:- As regards the liability to pay the costs for obtaining the bank guarantee furnished by Respondent No.5 it observed that the appellant was fully aware and had consented to the arrangements as recorded in the award dated 30.03.2011 and as such it was not open for the appellant to seek that Respondent No.5 deposit the entire amount of service tax as the same was contrary to the consent award dated 30.03.2011. It was further observed that despite having such Consent Award in its favour, the appellant insisted on Respondent No.5 securing it by a bank guarantee and as such it is the appellant who must bear the cost for the bank guarantee furnished by Respondent No.5. The High Court thus directed the appellant to pay to Respondent No.5 a sum of ₹ 1.06 crores, being the cost of bank guarantee. Supreme Court affirm the view taken by the High Court. The interest of the appellant was well secured by the Award dated 30.03.2011 which was a Consent Award. Respondent No.5 had an interim order in its favour passed by the High Court and it was only because of the insistence on part of appellant that Respondent No.5 was directed to furnish the bank guarantee. It is, therefore, but logical and consequential that the appellant must bear the costs for securing such bank guarantee. - Decided against appellant. Issues:1. Liability to pay service tax on renting of immovable property.2. Liability to bear the cost for the bank guarantee furnished by Respondent No.5.Analysis:Issue 1: Liability to pay service tax on renting of immovable propertyThe case involved a dispute regarding the levy of service tax on the renting of immovable property. The Finance Act, 2007 introduced the levy of service tax on such services, and subsequent amendments extended the levy retrospectively. The appellant called upon Respondent No.5 to pay the service tax, leading to legal proceedings. The High Court initially passed an interim order in favor of Respondent No.5, restraining the recovery of service tax. Subsequently, an arbitration award recorded that the service tax liability was to be borne by Respondent No.5. The High Court ultimately held that the transaction did not fall within the taxable service of 'airport services' before a certain date. The court's decision was based on the terms of the arbitration award and directed the appellant to pay the cost of the bank guarantee furnished by Respondent No.5.Issue 2: Liability to bear the cost for the bank guaranteeThe High Court considered whether the appellant should bear the cost for the bank guarantee furnished by Respondent No.5. The court observed that the appellant had consented to the arrangements recorded in the arbitration award, which stated that Respondent No.5 was liable to pay the service tax, interest, and penalty. Despite this, the appellant insisted on Respondent No.5 furnishing a bank guarantee. The High Court held that the appellant, having the benefit of the consent award, should bear the cost of the bank guarantee. The court directed the appellant to pay Respondent No.5 the sum of the bank guarantee cost. The Supreme Court affirmed the High Court's decision, stating that the appellant's insistence led to the requirement of the bank guarantee, and thus, the appellant should bear the associated costs. The appeal challenging this direction was dismissed by the Supreme Court.In conclusion, the judgment dealt with the liability to pay service tax on renting immovable property and the responsibility to bear the cost for the bank guarantee. The courts analyzed the terms of the arbitration award, the actions of the parties, and the legal implications of the service tax levy. Ultimately, the Supreme Court upheld the High Court's decision, emphasizing the appellant's role in necessitating the bank guarantee and the associated cost.