TaxTMI 
TaxTMI 
2014 (9) TMI 457
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.... leased out the said premises to the Respondent by a lease deed dated 25th April, 2007. The lease was for an initial period of 60 months which was renewable at the sole option of the Respondent for a further period of 48 months on the same terms and conditions. For the initial period of 36 months the rent was fixed at Rs. 19 lakhs per month. For the remaining 24 months, the rent was agreed to be enhanced at 20% to Rs. 22,80,000. In the event of renewal, the rent payable for the initial period of 12 months out of the 48 months was to remain at Rs. 22,80,000. 3. The lease stood terminated by consent of both the parties on 30th September, 2011 and the premises was handed over to the Petitioner. The last rent paid to the Petitioner was Rs. 22,80,000/- per month. By virtue of the Finance Act, 2007 an amendment was introduced in the Finance Act, 1994 ('Finance Act') by incorporating in Section 65(105) a sub-clause (zzzz). By virtue of the said amendment the renting of immovable property for commercial purposes was defined to be a 'taxable service' and attracted Service Tax. Consequent upon the said amendment, the Petitioner in its rent bill for June, 2007 sent to the Respondent inc....
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....nding in the Supreme Court. 6. It may also be noted that the question of the liability to pay Service Tax for the subsequent period from 1st April, 2009 to 30th September, 2011 has been referred to a separate arbitration. 7. By the impugned Award dated 14th December, 2011 the learned Arbitrator interpreted Clause 7.1 of the lease deed as requiring the Petitioner to bear the liability of all property taxes and other outgoing to including the Service Tax liability. The learned Arbitrator distinguished the decision of the learned Single Judge of this Court in Pearey Lal Bhawan Association v. Satya Developers Pvt. Ltd. 173 (2010) DLT 685 = 2011 (23) S.T.R. 213 (Del.) on the ground that Clause 7.1 of the lease deed in the present case was differently worded from the relevant clauses of the lease deed in that case. The Petitioner's claim against the Respondent for reimbursement of the Service Tax paid by it for the period 1st June till 31st December, 2007 was accordingly dismissed. Submissions of counsel 8. Mr. Simran Mehta, learned counsel for the Petitioner, referring to Clause 7.1 of the lease deed, submitted that the intention of the parties was that the liability ....
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....Clause 7.1 covers only those taxes and levies which are payable 'on the premises' and not on a 'service' in respect of the premises. It is submitted that the words 'other outgoings' had to be read ejusdem generis with the words 'property tax' and not other kinds of indirect taxes like Service Tax which was not even in the contemplation of the parties at the time of the execution of the lease deed. 10. Mr. Mehta points out that since the Award was not pronounced by the learned Arbitrator for more than a year after final arguments were heard on 7th July 2010, the Petitioner had filed in this Court OMP No. 919 of 2011 under Section 14(l)(a) read with Section 15(2) of the Act for terminating the mandate of the learned Arbitrator. The impugned Award was passed on 14th December 2011, two days after the above petition was listed for hearing on 12th December 2011. Notice was issued on 13th December 2011 returnable on 4th January 2012. It is submitted that it is not a mere coincidence that an Award which was pending for over a year came to be pronounced within two days of the first listing of the above petition. It is, accordingly, submitted that the learned Arbitrator did not act fai....
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....me Court in Rajasthan State Electricity Board, Jaipur v. Mohan Lal - AIR 1967 SC 1857. The words in the lease deed had to be interpreted to give effect to the intention of the parties. Reliance was placed on the decisions in Brett v. Rogers - (1897) 1 QBD 525, Farlow v. Stevenson - (1900) 1 Ch. 128 and Greaves v. Whitmarsh, Watson & Co. Limited - (1906) KBD 340. Lastly, reliance is placed on Section 64A of the Sale of Goods Act ('SGA') whereby a liability to pay any future tax that was not in existence at the time of making the contract would be inferred as per the terms of the contract governing the parties. Reliance is also placed on the decision in Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. - (2007) 8 SCC 466 which held that where a new levy is introduced which was not in existence at the time of entering into the agreement, the party which has agreed to bear the tax has to pay the new levy. The interpretation of the clauses of the agreement was within the domain of the Arbitrator. Relying on the decision in H.P. State Electricity Board v. R.J. Shah and Company - (1999) 4 SCC 214 it is submitted that the construction of the terms of the contract does not amount to an....
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....le service' has only a limited bearing as far as the present case is concerned. The decision of the Full Bench upholding the validity of sub-clause (zzzz) of Section 65(105) of the Finance Act in Home Solutions-2 is pending consideration in the Supreme Court. If the provision is upheld, the question would still arise whether in terms of Clause 7.1 of the lease deed in the present case the liability to pay the Service Tax is that of the Petitioner or the Respondent. However, in the event that the amendment is struck down by the Supreme Court, the question of the Respondent paying any Service Tax on the lease rentals would not arise since the invalidity of the provision would attach from the inception of its enactment. In that event, the only question would be whether the Petitioner can seek refund of the Service Tax it has already paid. Such a question is at this stage hypothetical and in any event not within the scope of the present proceedings. 17. Given the above position, the parties could have awaited the decision of the Supreme Court on the issue of constitutional validity before proceeding with the arbitration. However, it appears that the Petitioner has itself not chal....
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.... tax could well be an "outgoing" 'in respect of the premises' although it pertains to the use of the premises and is not a tax 'on the premises'. In Brett v. Rogers it was held that the words "duties imposed in respect of the premises" are wide enough to include the expenses incurred by the landlord for replacing a new drain under the Public Health (London) Act, 1891 which was enacted after the commencement of the lease. 20. Turning to the decision in Pearey Lal Bhawan Association v. Satya Developers Pvt. Ltd. it is seen Clause 5 and Clause II (1) of the lease deed in that case were not identical to Clause 7.1 in the present case. The said clauses read as under : "5. That the lessor shall continue to pay all or any taxes, levies or charges imposed by the MCD, DDA, L&DO and or Government, Local Authority etc". II (1) That the Lessor to pay all rates, taxes, ground rent, house-tax charges, firefighting tax, easements and outgoing charges imposed or payable to the MCD, L&DO, DDA or Government in respect of the demised premises payable by the Lessor and discharge all its obligations well in time". 21. The expression "outgoing charges" in Clause II(1) cannot be said t....
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....ntract". Therefore it is the contract, and not the nature of the levy, which will determine which party, the service provider or recipient, is liable to bear the burden of service tax. 24.1 In Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. the question that arose was the liability to pay the countervailing excise duty which was not specifically provided for in the clauses of the contract and was imposed after the execution of the contract. The relevant clauses in the said contract were Clause 2(b) and 6 which read as under :- "2 (b) All taxes and duties in respect of job mentioned in the aforesaid contracts shall be the entire responsibility of the contractor.... "6. It is specifically understood and agreed between the parties hereto that if there is any liability towards taxes/duties (including customs duty on foreign component of supply portion) as may be assessed/claimed/demanded by the Indian or foreign authorities concerned, it shall be the sole responsibility/liability of the contractor to pay all such taxes/duties and that the owner shall not be responsible at all for the payment of such taxes/duties..." 24.2 As regards Section 64A of the SGA it was obs....
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....r risks regarding taxes arising out of the obligations of the contractor are assumed by the contractor. 26. As far as the submission of shifting of tax liability is concerned, as observed in paragraph 9 of Laghu Udyog Bharati (Supra), Service Tax is an indirect tax, and it is possible that it may be passed on. Therefore, an assessee can certainly enter into a contract to shift its liability of service tax. Though the Appellant became the assessee due to amendment of 2000, his position is exactly the same as in respect of Sales Tax, where the seller is the assessee, and is liable to pay Sales Tax to the tax authorities, but it is open to the seller, under his contract with the buyer, to recover the Sales Tax from the buyer, and to pass on the tax burden to him. Therefore, though there is no difficulty in accepting that after the amendment of 2000 the liability to pay the Service Tax is on the Appellant as the assessee, the liability arose out of the services rendered by the Respondent to the Appellant, and that too prior to this amendment when the liability was on the service provider. The provisions concerning Service Tax are relevant only as between the Appellant as an asses....