Service tax on leased property may be passed on to the lessee unless the lease expressly excludes reimbursement.

Service tax on renting of immovable property is an indirect tax on the service, not a tax on the property itself. Although the service provider is liable to remit it to the department, the burden may be contractually passed on to the recipient. Lease clauses making rent inclusive of municipal and other property taxes do not, by themselves, exclude reimbursement of service tax paid by the lessor. Unless the lease expressly allocates that liability otherwise, the lessee may be required to reimburse the service tax and allied amounts borne by the lessor.

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Issues: Whether, on the terms of the lease deed and the nature of service tax, the lessee was liable to reimburse the service tax and other amounts paid by the lessor.

Analysis: The lease deed made the rent inclusive of municipal and other taxes assessed on the property and required the lessor to pay property-related outgoings. Service tax, however, was not a tax on the property but an indirect tax levied on the value of the service of renting out immovable property. The taxable event and the taxable person were distinct, and although the service provider was liable to pay the tax to the department, the incidence could be passed on to the recipient of the service. The lessee could not avoid reimbursement of the tax burden merely by relying on the lease terms. The refusal to reimburse the service tax paid by the lessor was therefore unsustainable.

Conclusion: The lessee was liable to reimburse the service tax and allied amounts paid by the lessor, and the challenge to such liability failed.

Ratio Decidendi: Service tax on renting of immovable property is an indirect tax on the service and, though payable by the service provider, its incidence may be contractually passed on to the recipient; lease clauses covering property taxes do not exclude liability to reimburse service tax unless expressly provided.

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