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

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 tax liability to Respondent No.5. The High Court ruled that the transaction did not fall within taxable "airport services" before a certain date and directed the appellant to pay the bank guarantee cost. The Supreme Court upheld this decision, stating the appellant's insistence on the bank guarantee made them responsible for its cost.

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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 property
The 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 guarantee
The 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.

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