Service tax recovery under lease deeds upheld where later statutory levy could be passed on to the lessee, with limited pendente lite interest.

A later-imposed service tax under lease deeds could be recovered from the lessee where the contractual language covered property-related outgoings and did not exclude future statutory levies, and where the statutory scheme permitted the tax burden to be passed on from the service provider to the recipient. The lessor was therefore entitled to recover the tax from the service recipient. On interest, pendente lite interest was confined to the period after institution of the suit, so no interest was allowed for any earlier period; compensation for wrongful retention of money was awarded only from the date of filing until payment at the rate considered appropriate on the facts.

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Issues: (i) Whether the burden of service tax under the lease deeds fell on the lessor or could be recovered from the lessee. (ii) Whether the plaintiff was entitled to pendente lite interest on the service tax amount.

Issue (i): Whether the burden of service tax under the lease deeds fell on the lessor or could be recovered from the lessee.

Analysis: Service tax was treated as an indirect, destination-based consumption tax. The lease covenants covered existing property-related taxes and outgoings, but the levy of service tax was a later statutory incidence not contemplated when the agreements were executed. The statutory scheme and the prior decisions relied upon recognised that, although the service provider is liable to remit the tax to the exchequer, the burden may be passed on to the service recipient, and the contractual language did not exclude such recovery in respect of future tax increases or later-imposed levies.

Conclusion: The service recipient lessee was held liable to bear the service tax, and the lessor could recover the amount.

Issue (ii): Whether the plaintiff was entitled to pendente lite interest on the service tax amount.

Analysis: Interest was confined to the period after institution of the suit. The Court held that the plaintiff could not claim pendente lite interest for any period before filing the suit, but was entitled to compensation for wrongful retention of money from the date of institution until payment, at the rate found appropriate on the facts.

Conclusion: Pendente lite interest was allowed only from 06.12.2013 to 30.05.2015 at 12% per annum.

Final Conclusion: The bank's challenge to recovery of service tax failed, while the plaintiff obtained limited relief on interest, resulting in a modified affirmation of the trial court decree.

Ratio Decidendi: In a lease governing property-related taxes, a later-imposed service tax may be recovered by the service provider from the service recipient where the contractual language and the statutory scheme show that the tax burden can be passed on, and pendente lite interest may be granted only for the period after institution of the suit.

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