2023 (5) TMI 723 - HC - Service Tax

Lessor Not Liable for Service Tax; LIC Must Reimburse Petitioner for Taxes Paid Since 2017 Under Lease Terms.

The HC ruled that the lessor was not obliged to pay service tax under the lease agreement with the lessee, LIC, as the tax pertains to services availed, ... Refusal to honour the liability of paying the service tax (on the part of LIC) - It is the contention of petitioner that he was merely the service provider and since the tax is payable by the person, who had availed the services i.e., the tenant, his only obligation, in law, was to collect the tax and remit it to the Department - obligation to pay the service tax by virtue of the provisions of Chapter V of Finance Act No. 1994 - HELD THAT:- As could be seen from clause VI (1) of the lease agreement, it is specifically stated that rent was inclusive of municipal as well as other taxes as are assessed and levied without any reduction of income tax at source under Section 194-I. Thus, the rent was inclusive of the municipal and other taxes which are assessed and levied on only the property and there is no obligation on the landlord to pay the service tax which is a tax, which is admittedly not levied on the property - As could be seen from this clause also, the lessor i.e., the petitioner was obliged to pay all the rates, taxes, ground rent, assessments and the outgoings payable to the municipality or any other Government departments in respect of the entire schedule property as applicable. It thus, makes it clear that whatever tax that was payable on the property, the petitioner became liable to pay the taxes. However, admittedly, service tax is not a tax which is payable on the property, but is a tax payable on the value of the services availed. It is therefore clear that the clauses in the lease agreement would not entitle the LIC to contend that he would not be liable to pay the service tax - The terms of the lease did not provide for the landlord to pay the service tax which, as stated above, is a separate tax levied on the value of the services availed and not on the property. It is, therefore, clear that the endorsements issued by the LIC refusing to pay the service tax paid by the petitioner are illegal and cannot be sustained. Though the person who provides the service, i.e., lessor, is liable to pay tax, he is entitled to pass on this liability to the recipient of the service - it is the obligation of the lessor to collect the service tax and thereafter remit it to the Department. A lessee being the person who avails of service cannot deny his liability to pay the service tax, especially an instrumentality of the State i.e., to the LIC. This argument is therefore rejected. It is to be borne in mind that the LIC being an instrumentality of the State should not take up technical pleas and attempt to evade its liability to pay a tax which it is bound to pay in the eye of law. Since the LIC is held liable to pay the service tax, the service tax paid by the petitioner shall be paid by the LIC to the petitioner within a period of one month from the date of receipt of a copy of this order - petition allowed. Issues involved: Interpretation of lease agreement terms regarding payment of service tax, liability of service tax payment, obligation of lessor and lessee, applicability of judgments on service tax liability.Summary:Interpretation of Lease Agreement Terms:The petitioner, as the owner of a building leased to LIC, claimed that the service tax liability rested with LIC. However, LIC argued that the lease terms obligated the petitioner to pay all applicable taxes, including service tax.Liability of Service Tax Payment:The High Court analyzed the lease agreement clauses and determined that the petitioner was not obliged to pay service tax, as it is a tax on services availed, not on the property. The Court emphasized that the lease terms did not explicitly require the landlord to pay service tax.Obligation of Lessor and Lessee:Referring to a Supreme Court judgment, the Court clarified that while the lessor is liable to pay service tax, they can pass on this liability to the lessee. Therefore, the lessor, in this case, was responsible for collecting and remitting the service tax to the Department.Applicability of Judgments on Service Tax Liability:The Court rejected LIC's argument that it was not liable to pay service tax, emphasizing that LIC had been paying the tax since November 2017. The Court directed LIC to reimburse the service tax, interest, penalty, and late fee paid by the petitioner within one month.This judgment highlights the importance of interpreting lease terms accurately in determining the responsibility for paying service tax and reaffirms the obligation of lessors to collect and remit service tax to the authorities.