TaxTMI 
TaxTMI 
2017 (11) TMI 444
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....mises, a writ petition was filed by the Respondents-herein before the Calcutta High Court, in which it was prayed that a Writ of Mandamus be issued commanding the Appellants to make payment of service tax for the aforesaid premises. The learned single Judge by his judgment dated 15.5.2014, referred to the aforesaid Clause 6 in the deed of lease between the parties, and further went on to refer to a judgment of the Delhi High Court in Pearey Lal Bhawan Association v. M/S. Satya Developers Pvt. Ltd., (2010) 173 DLT 685, in which it was held that as the authorities in that case did not visualize that a service tax levy would be made in respect of lease or rentals of commercial properties and that since the levy was made effective only from 2007 onwards, it was held that as service tax is essentially an indirect tax, the user of the premises who avails the service has to bear it. This being the case, on the facts of that case, it was held that the lessee should be made to pay service tax. A judgment of the Allahabad High Court dated 16.01.2013 in M/s Bhagwati Security Services (Regd.) v. Union of India, to the same effect was also followed by the learned single Judge. The single Judge,....
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.... provided - "..... (zzzz) to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or for furtherance of, business or commerce." 7. Under Section 66, as it stood substituted by the Finance Act of 2007, the tax was leviable in the following manner: "66. Charge of service tax - There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of taxable services referred to in sub-clauses (a), (d), (e), (f), (g,) (h), (i), (j),(k), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), (zh), (zi), (zj), (zk),(zl), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzf), (zzg), (zzh), (zzi), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), (zzy), (zzz), (zzza), (zzzb), (zzzc), (zzzd), (zzze), (zzzf), (zzzg,) (zzzh), (zzzi), (zzzj), (zzzk), (zzzl), (zzzm), (zzzn), (zzzo), (zzzp), (zzzq), (zzzr), (zzzs), (zzzt), (zzzu), (zzzv), (zzzw), (zzzx), (zzzy), (zzzz), (zzzza), (zzzzb), (zzzzc), (zzzzd), (z....
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....ervices notified under sub-section (2) of section 68 of the Act, means,- ....... (E) in relation to services provided or agreed to be provided by Government or local authority except,- (a) renting of immovable property, and (b) services specified sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994, to any business entity located in the taxable territory, the recipient of such service; ...... (ii) in a case other than sub-clause (i), means the provider of service." 11. Under Rule 4 of the aforesaid Rules, every person liable to pay service tax is to apply for registration under the Act, and under Rule 7, every such assessee shall submit a half yearly return in the relevant form prescribed therein. 12. A reading of the Act and the Rules, therefore, makes it clear that "assessee", as defined, means the person liable to pay service tax under the Act. In the present case, we are concerned with the taxable service of renting of immovable property. It is clear that under Section 66B, the levy of service tax at the rate of 12% is on the value of the service of renting of immovable property that is provided or agreed to be provided by one perso....
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....lopment activities forming part of retailing sector. Service sector is today occupying the centre stage of the Indian economy. It has become an industry by itself. In the contemporary world, development of service sector has become synonymous with the advancement of the economy. Economists hold the view that there is no distinction between the consumption of goods and consumption of services as both satisfy the human needs. 5. In the late seventies, the Government of India initiated an exercise to explore alternative revenue sources due to resource constraints. The primary sources of revenue are direct and indirect taxes. Central excise duty is a tax on the goods produced in India whereas customs duty is the tax on imports. The word "goods" has to be understood in contradistinction to the word "services". Customs and excise duty constitute two major sources of indirect taxes in India. Both are consumption specific in the sense that they do not constitute a charge on the business but on the client. However, by 1994, the Government of India found revenue receipts from customs and excise on the decline due to WTO commitments and due to rationalisation of duties on commodities. T....
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....sumption of goods and consumption of services are similar as they both satisfy human needs. Today with the technological advancement there is a very thin line which divides a "sale" from "service". That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in on account of the activity undertaken by the professional like tax planning,....
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....962 Supp. (2) SCR 1 at 20-21, this Court was faced with the challenge of the levy of a retrospective excise duty. One of the arguments made against the levy of such duty is that excise duty being indirect, which is that it is ultimately to be passed on to the consumer, a retrospective levy would be ultra vires the legislative competence of Parliament as it could not possibly be passed on. This argument was repelled in the following terms: "There is no doubt that excise duties have been referred to by the economists and in the judgments of the Privy Council as well as in the Australian decisions as an instance of an "indirect tax", but in construing the expression "duty of excise" as it occurs in Entry 84 we are not concerned so much with whether the tax is "direct" or "indirect" as upon the transaction or activity on which it is imposed. In this context one has to bear in mind the fact that the challenge to the legislative competence of the tax-levy is not directed to the imposition as a whole but to a very limited and restricted part of it. This challenge is confined (a) to the operation of the tax between the period March 1, 1951, and April 28, 1951, and (b) even in regard to t....
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....a tax would be one further instance of such inability to pass on, which does not alter the real nature or true character of the duty." 21. It is thus clear that the judgments of this Court which referred to service tax being an indirect tax have reference only to service tax being an indirect tax in economic theory and not constitutional law. The fact that service tax may not, in given circumstances, be passed on by the service provider to the recipient of the service would not, therefore, make such tax any the less a service tax. It is important to bear this in mind, as the main prop of Shri Jaideep Gupta's argument is that service tax being an indirect tax which must be passed on by virtue of the judgments of this Court, would make the recipient of the service the person on whom the tax is primarily leviable. 22. Let us now examine some of the judgments relating to another indirect tax, namely excise duty. Like service tax, excise duty is also in the economic sense, an indirect tax. The levy is on manufacture of goods; and the taxable person is usually the manufacturer of those goods. In the matter of the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation....
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....to note from this judgment is that the expression "levy" would include "assessment", though it would not include "collection". This being the case, it is clear that the expression "primarily leviable upon the lessor" makes it clear that the lessor should be the person upon whom levy takes place - in the sense that "assessment" has to be of such person. "Levy", in all cases of indirect taxes, is never upon an individual - it is upon a specific aspect of what is sought to be taxed. In the case of a service tax, like the present, the activity of renting out immovable property is sought to be taxed. Therefore, when the expression "primarily leviable" is used in relation to a person and not an activity, it has reference to the assessee upon whom assessment is made under the Act. Thus construed, it is clear that, in the present case, the person liable to pay the tax, who is the assessee under the said Act, in all cases like the present, is only the service provider and not the recipient of the service. 26. Shri Gupta then referred to Section 83 of the Finance Act, 1994, by which Section 12B of the Central Excise Act, 1944, so far as may be, would apply in relation to service tax as it a....
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....ces. The Court, however, is not unmindful of the circumstance that service tax is a species of levy which the parties clearly did not envision, while entering into their arrangement. It is not denied that leasing, and renting premises was included as a "service" and made exigible to service tax, by an amendment; the rate of tax to be collected, is not denied. If the overall objective of the levy - as explained by the Supreme Court, were to be taken into consideration, it is the service which is taxed, and the levy is an indirect one, which necessarily means that the user has to bear it. The rationale why this logic has to be accepted is that the ultimate consumer has contact with the user; it is from them that the levy would eventually be realized, by including the amount of tax in the cost of the service (or goods)." 30. In an appeal to the Division Bench of the Delhi High Court, the Delhi High Court was more specific in rejecting the plea that service tax should be borne by the lessor. Thus, the Division Bench in Satya Developers Pvt. Ltd. and Ors. v. Pearey Lal Bhawan Association and Ors, (2015) 225 DLT 377 stated: "31. Thus a contract has to be construed by looking at the do....
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....s shall be made by the Lessor or be entertained by the Lessee. xxx xxx xxx 9. COVENANTS OF THE LESSEE The Lessee, for itself, its successors and permitted assigns and to the intent that its obligations may continue through the term hereby created, but not exceeding the Initial Term, covenants with the Lessor as follows: xxx xxx xxx (d) To pay all taxes necessary for carrying on its business within the Premises, other than municipal taxes and other related property taxes." 32. An arbitration award construed the aforesaid clauses stating that service tax would have to be paid by the lessor. This, according to the Division Bench, was not a possible construction inasmuch as the Division Bench bifurcated taxes that were payable by the lessor and the lessee. Clause 7 being confined to property taxes and clause 9 referring to taxes other than property taxes, the judgment of the Division Bench stated: ".........Thus, Clause 7.1 is clearly confined to property taxes or other outgoings in respect of the 'premises'. It has to be a tax on the premises or the property. Such a tax may be of any nature whatsoever and thus even a new tax on the premises would be covered by th....