Direction to service recipient to pay service tax to service provider.

PJ/Case Law/2014-15/2398

Case:-M/S INTROSPECTIVE DETECTIVE PRIVATE LTD & ANOTHER VERSUS GENERAL MANAGER, BSNL, GORAKHPUR & OTHERS

Citation:-2009-TIOL-646-HC-ALL-ST

Brief Facts:-By means of the present writ petition, the petitioner who is providing service by way of security guards to BSNL, Gorakhpur, have sought a direction to the respondents to pay entire service tax along with 18% interest and penalty to the petitioners, which is payable to Central Excise, Division Gorakhpur as demanded by Central Excise Department through notice dated 8th October, 2004 (Annexure-4 to the writ petition).
The facts of the case lie in a narrow compass and are almost undisputed. The petitioner as an assessee is registered agency under Section 69 of Finance Act, 1994 with the office of Superintendent Central Excise Urban –II, Gorakhpur being registration No. 38/DA/IDA/RUII/GKP/2002. The said agency is already registered with the office of District Labour Officer, Gorakhpur. The petitioner claims that it is a registered firm with the Registrar of Society Registration (Chit & Fund Office), Gorakhpur since 1990. It entered into an agreement with the respondents No. 1, 2 and 4 on 12th August, 1998 for providing security guards initially for period of 16th August, 1998 to 12th August, 1999. The said period was extended upto 30th June, 2000.
The petitioner was served with notice issued by Assistant Commissioner, Central Excise and Service Tax Board, Gorakhpur to appear in person, if so desired, and pay the service tax for the period of April, 1999 to June, 2000 amounting to Rs.93,510/- as service tax. The petitioners asked the B.S.N.L. authorities to pay the said amount to them so that the service tax as demanded by the Excise Department may be deposited. However, the B.S.N.L. authorities asked the petitioner first to deposit the amount and then the said amount dues shall be released to the petitioner.
Being aggrieved by the said action of the B.S.N.L. authorities, the present writ petition has been filed. When the writ petition was taken up earlier, the following order was passed on 27th April, 2006:-
Sri N.P. Shukla represents respondents No. 1, 2 and 4. Respondent No. 3 and 5 are represented by Sri R.K. Misra. They may file their counter affidavit within a month. List thereafter.
From the letter dated 7.4.2005, enclosed as annexure-6 to this writ petition, it appears that the respondents No. 1, 2 and 4 are not disputing their liability to pay service tax to the petitioner. However, the respondent No. 1, 2 and 4 are insisting by that letter that first service tax should be deposited by the petitioner with the Central Excise Department and, only thereafter the amount of service tax will be paid by the BSNL to the petitioner, who is providing security service to the BSNL.
This kind of a precondition does not appear to be justified. Therefore, as interim direction is issued to the respondents No. 1, 2 and 4 to make payment of the service tax at the prescribed rate to the petitioner without insisting upon the condition that the petitioner must first deposit the same within the Central Excise Department.

Appellant contentions:-Learned counsel for the petitioner submits that in view of the stand taken by the B.S.N.L. in paragraph-12 of the counter affidavit, the B.S.N.L. be directed to pay service tax to the petitioner.
For ready reference, paragraph-12 of the counter affidavit is reproduced below:
12. That the content of para 14 of the writ petition are not correct as stated hence denied. It is stated that though the respondent are liable to pay the service tax and are always ready to pay it but it could not be paid directly to petitioner due to the reason as stated in above para. In fact the actions of the petitioners are totally illegal and arbitrary were as the actions of the respondents are totally correct.

Respondent contentions:- A counter affidavit has been filed on behalf of the B.S.N.L. sworn by Shri Babu Lal, wherein the B.S.N.L. has not denied its liability to pay the service tax. On the other hand, they have expressed their willingness to pay service tax.

Reasoning of Judgment:-We have given a careful considerations to the submissions made by learned counsel for the petitioner and we find sufficient force therein.
The B.S.N.L. is not disputing its liability to pay the service tax. This being so, they are required to pay the service tax amount to the petitioner so that the petitioner may deposit the same with Excise Department.
In the result, the writ petition succeeds and is allowed.
A writ of mandamus is issued commanding the BSNL, namely No. 1,2 and 4 to pay the service tax amount to the petitioner and also pay the interest for the late payment at the rate of 18%. The petitioner is directed to deposit the service tax amount with the Central Excise Department.
So far as, penalty notice issued by the Central Excise Department is concerned, we find that the petitioner was prevented by sufficient cause in not depositing the service tax in time.
In view of the above, we set aside the penalty notice issued to the petitioner. Consequently, the penalty proceedings are quashed.

Decision:- Appeal allowed.

Comment:-The crux of this case is that as the liability of service tax is ultimately on the service recipient, the same is required to be paid by them to the service provider. Hence, the High Court gave direction to BSNL to pay service tax amount to the petitioner and also pay the interest for the late payment at the rate of 18%. Moreover, it was concluded by the High Court that penalty cannot be levied on appellant as there was willingness to pay service tax but the appellant was precluded from paying service tax due to peculiar circumstances.

Prepared by: Hushen Ganodwala

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PJ/Case Law/2014-15/2398

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