Contractual allocation of service tax burden depends on the parties' wording and the statutory presumption of passing on incidence.

Service tax, treated as an indirect, destination-based consumption tax, may be contractually allocated between contracting parties. By applying Section 83 of the Finance Act, 1994 and the presumption in Section 12B of the Central Excise Act, 1944, the note explains that tax incidence is presumed to have been passed on unless the contract shows a contrary intention; Section 64A of the Sale of Goods Act, 1930 reinforces that approach. The contractual clauses must therefore be construed to determine who bears the burden. On the facts discussed, the clause did not clearly shift liability to the contractor, and the arbitral interpretation was treated as sustainable.

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Issues: Whether service tax liability could be contractually shifted and whether, in the absence of a contrary contractual stipulation, the burden of service tax was presumed to have been passed on to the service recipient.

Analysis: Service tax was treated as an indirect, destination-based consumption tax. By virtue of Section 83 of the Finance Act, 1994, the relevant provisions of the Central Excise Act, 1944, including Section 12B, applied to service tax. Section 12B raised a rebuttable presumption that the incidence of duty had been passed on, and the principle was reinforced by Section 64A of the Sale of Goods Act, 1930. The contractual clauses were therefore required to be construed to ascertain whether the parties intended the tax burden to remain with the contractor or to be borne by the service recipient. On the facts, the clause did not fix the tax liability on the contractor in the manner contended for by the appellant.

Conclusion: The burden of service tax could be shifted by contract, and in the present case the contractual interpretation adopted by the Arbitrator could not be faulted; the challenge failed.

Final Conclusion: The dismissal of the appeals left intact the arbitral view that the service tax burden was not shown to have been contractually cast upon the contractor, and the appellant was not entitled to relief.

Ratio Decidendi: Service tax being an indirect tax, the parties may contractually allocate its burden, and where the contract does not show a contrary intention, the tax is presumed to have been passed on to the service recipient.

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