Service tax burden under a lease may be passed to the lessee where contract and tax scheme so provide.

Under the lease terms and the service tax framework, the lessees were required to bear the service tax component of the rent and reimburse the lessor. The lease deed allocated taxes primarily leviable on the lessor to the lessor, while taxes primarily leviable on the occupier were to be paid by the Government, and the contemporaneous Government of India terms also recorded that service tax, if applicable, was the lessee's liability. Treating service tax as an indirect levy on the service recipient, the reasoning drew on Section 83 of the Finance Act, 1994 and Sections 12A and 12B of the Central Excise Act, 1944 to support passing the burden to the user of the service.

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Issues: Whether, under the lease and the governing service tax framework, the lessees were liable to bear the service tax component of the rental and reimburse the lessor.

Analysis: The lease deed required the lessor to pay taxes primarily leviable upon the lessor and provided that taxes primarily leviable upon the occupier would be paid by the Government. The contemporaneous terms communicated by the Government of India also recorded that service tax, if applicable, was the liability of the lessee. Service tax was treated as an indirect levy on the service recipient, and the reasoning relied on the statutory scheme reflected in Section 83 of the Finance Act, 1994 and Sections 12A and 12B of the Central Excise Act, 1944 to conclude that the burden could be passed on to the user or recipient of the service.

Conclusion: The lessees were held liable to bear the service tax and to reimburse the petitioner, and the writ petition succeeded.

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