Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  The GSTN has issued an Advisory dated 21.04.2026 about the introduction of an Offline Tool for the Invoice Management System (IMS)  *  CBIC extends due dates for filing of FORM GSTR 3B  for the month of April 2026 *  Interest cannot be imposed in adjudication order, if not demanded/quantified in show cause notice : Allahabad HC *  Wheelchairs with toileting facility eligible for exemption: CESTAT affirms customs duty exemption to importer *  Industries urge GST council to allow inverted duty refunds on input services *  Tamil Nadu GST dept introduced virtual hearing facility for GST appeals under under section 107 of the TNGST act: detailed guidelines  *  CIC urges authorities to implement GST evasion complaint tracking system *  Even if the assessee opts "NO" for personal hearing in form DRC-06 ,The mandatory requirement under section 75(4) to grant opportunity of hearing cannot be waived:Gujarat High Court  *  Glufosinate imports curbs imposed by govt *  Government extends Re-import period for exported cut & polished diamonds *  CIC flags lack of tracking system for tax evasion complaints,urges GST authorities to improve transparency *  No Custodial Interrogation needed in GST fraud case based on documentary evidence already in Department's Possession : Chattisgarh HC *  Orders under section cannot be sustained if passed without considering the taxpayer's objections and without granting a personal hearing:Gujarat High Court *  Mere cancellation of supplier's registration cannot,by itself,justify denial of ITC or cancellation of the recipient's registration:Bombay High Court *  High Court sets aside GST notice citing factual errors and natural justice violations *  Provisional Bank Attachment under Section. 110 of Customs Act Unsustainable Beyond Statutory period without Extension order: Bombay HC orders to defreeze accounts *  Post Clearance MRP Alteration by Distributor Does not attract Differential Customs Duty: CESTAT *  DGFT Expands scope of 'Screws' classification under RoDTEP Scheme  *  E-way bills surze to all time high of 140.6 million in March *  GST Exemption Allowed on Pure Labour Services for Standalone Houses: AAR  *  GST Payable Only on Margin in Second-Hand Car Sales, Subject to Strict Conditions and No ITC Claim: AAR *  DGFT rolls out procedure for allocation of calcined coke *  GST portal update : Pre-deposit amount now editable in Appeals *  J&K HC declared TMT scrap a 'Specified Good' eligibile for GST refunds under Support Scheme  *  Pigmy agents are employees of banks; no GST can be levied on commission  paid to them : Karnataka HC *  DGFT Revises HS Code Description for Screws Under RoDTEP *  GST Registration Cancellation Invalid Without Proper Service of Notice: Allahabad High Court. *  Bengaluru CGST | GST Backlog Appeals Deadline Fixed at June 30, 2026 *  No Time Bar on Refund of Service Tax for Services Not Rendered: CESTAT  Remands Indiabulls Case for Unjust Enrichment Check. *  Supreme Court Holds Renewable Energy Incentive Must Benefit Generators, Not Be Adjusted in Tariff
Subject News *   Delhi HC Quashes Order, Says Reminder Cannot Validate Improperly Served GST SCN *  KARNATAKA HIGH COURT REMANDS GST SHORTFALL MATTER DUE TO ABSENCE OF PERSONAL HEARING   *  CESTAT cancels confiscation and penalties on imported computer cabinet cases: Custom duty restricted to 111 surplus units *  Deposit of tax during search or investigation cannot be treated as 'Voluntary Payment' : Bombay High Court *  Section 76 of the CGST cannot be invoked where the tax has already been duly deposited, even if through another registration of the same entity: Madras High Court *  Sec 74 allows use of material regardless of source; illegality or flaws in section 67 search do not vitiate valid adjudication: HC *  Inter-State transfer of ITC on Amalgamation permissible as given under section 18(3) read with rule 41 of the CGST rules, 2017: Gujarat High Court *  HC: No GST on commisson paid to Pigmy Agents *  IGST refund denial on illegible bill of lading invalid absent chance to furnish docs; merit reconsideration in appeals directed: HC *  ITC is not admissible on GST paid on leasehold rights of land used fpr setting up an air seperation plant: AAAR,Tamil Nadu *  GST: No penalty under Section 74 after voluntary ITC reversal due to non-existent supplier : High Court *  TN AAAR denies GST ITC on Land Lease under Sec. 17(5)(d) for setting up plant and machinery *  GST proceedings quashed as notices sent to old address, despite updated address in registration *  Importer Can’t Be Penalised for Alleged IGCR Procedural Lapses Without Evidence of Departmental Error: CESTAT *  Structured Healthcare Training Not ‘Charitable Activity’, 18% GST Payable: AAR  *  CESTAT As The Appellate Authority For Central Sales Tax Disputes: A Paradigm Shift Under Finance Act, 2023 *   Rs. 25K Cost Imposed On SGST Joint Commissioner for Attaching Bank  Accounts Without Forming Mandatory “Opinion”: Bombay HC *   Ex-Parte GST Order Without Hearing Violates Natural Justice: Karnataka  High Court Quashes Adjudication and Bank Attachment.  *   Retrospective GST Cancellation Can’t Invalidate Genuine Transactions:  Jaipur Commissioner (Appeals) Quashes Rs. 95,670 ITC Demand. *   GST Pre-Deposit Non-Compliance: Allahabad High Court Allows Appeal  Subject to Rs. 30 Lakh Balance Deposit, Recognises Offline Filing. *  Documentary Nature of Evidence: Allahabad High Court Grants Bail in Rs. 32.66 Crore Fake ITC Fraud Case *  Supreme Court Flags Systemic Bias in Army’s Permanent Commission Process for Women Officers *  Re-Determination of Land Compensation Can Be Based on Appellate Court Awards, Clarifies Scope of S. 28-A: Supreme Court. *  Supreme Court Imposes Rs. 5 Lakh Costs On Rent Authority Officer For Acting Beyond Jurisdiction. *  DGGI Meerut | Court Denies Bail to Accused in Claiming Fake ITC And Export Refunds *  Denial of GST Rate Revision Benefit to Contractor Violates Article 14: Rajasthan HC *  GST Registration Cancellation for Non-Filing of Returns: Gauhati High Court Directs Restoration on Compliance. *   Supreme Court Quashes FEMA Adjudication Orders, Revives Proceedings at  Show Cause Stage. *   Higher Rank, Harsher Punishment Justified: Supreme Court Restores Dismissal  of Bank Manager in Misappropriation Case. *   Limitation for Export Refund to Be Counted from Foreign Exchange Realisation,  Not From Export Invoices Issuance: CESTAT  

Comments

Print   |    |  Comment

PJ/CASE LAW/2015-16/2829

Whether service tax can be reimbursed from service recipient when the rate quoted is inclusive of taxes?

Case:- M/S OIL & NATURAL GAS CORPORATION LTD. V/S SWAPAN KUMAR PAUL
 
Citation:- 2015 (39) S.T.R. 789 (TRIPURA)
 
Brief facts: - This writ appeal by the Oil & Natural Gas Corporation Ltd. (hereinafter referred to as the ONGC) is directed against the judgment dated 13th August, 2008 passed by a learned Single Judge of this Court in W. P.(C) No. 310 of 2007 whereby he allowed the writ petition filed by Sri Swapan Kumar Paul (hereinafter referred to as the petitioner) and directed the ONGC to reimburse the service tax to the writ petitioner.
 
The petitioner provided motor vehicles as motor cabs to the ONGC on a contract basis. Contract has been entered on the basis of Notice Inviting Tender (NIT) which specifically provides that all relevant taxes i.e. Service / Sales tax shall be responsibility of contractor and he himself be liable to pay those taxes. The whole dispute is regarding whether the service provider entitled to ask ONGC to reimburse the service tax which had been paid to revenue.
 
The whole dispute is whether the writ petitioner who was the service provider in the present case was entitled to ask the consumer i.e. the ONGC to reimburse the service tax which it had paid to the revenue.
 
Appellant’s Contention: - There is no manner of doubt that finally the consumer can be asked to pay service tax. However, when NIT was issued which clearly provides that all tax liability including service tax liability shall be paid by the contractor. This clearly meant that the rate to be quoted by the contractor was to be inclusive of the service tax liability. Even though a service tax provider as an assessee may have a right to claim the tax from the customer, there is nothing in law which says that the service provider cannot quote a rate which is inclusive of service tax. With open eyes the contractor quoted a rate knowing fully well that he would have to bear the service tax liability and therefore after having paid service tax amount he cannot claim reimbursement of service tax.
 
Shri Bhowmik, learned senior counsel appearing on behalf of the original writ petitioner submitted that the clause is hit by Section 23 of the Indian Contract Act, 1872. He further provides that the imposition of service tax has been made with a view to increase the revenue of the State and the service provider is the assessee, whose responsibility it is, to collect the tax from the customer. Even if the service provider fails to collect the tax from customer, he is still liable to pay tax to the Central Government in terms of Section 68(3). If service provider had quoted the rate which is inclusive of service tax does not amounts to fraudulent act and does not violates the provision of Finance Act because the assessee is still liable to pay tax to government.
 
Appellant provides that when the contract was extended, then only for the extended period ONGC refunded the tax at applicable rate which does not provides that it has bound to refund the tax for the earlier period also. Since at the time of extension of contract, both the parties agrees to mutually modifying the terms of the contract. There is no law which lays down that the parties to a contract cannot mutually agree to change the conditions of the contract. Moreover, a new work was issued for the extended contract which specifically says that “The service tax will be reimbursed to contractors @ 12.24% on qualifying amount as per existing guidelines upon production of proof of payment of Service Tax to the concerned Govt. Authorities for this work and all other T&C would be applicable as per previous work order.
 
Respondent’s Contention: -On the other hand, the learned AR reiterated the findings of the impugned order and submitted that the Commissioner has considered the issue in detail and arrived at a decision that finally it is the liability of the consumer to pay service tax, when extension of the contract was granted , the ONGC had reimbursed the service tax paid by the writ petitioner and therefore this meant that the ONGC had admitted that it was liable to reimburse the petitioner in respect of service tax liability which arose prior to the extension of the contract also
 
Reasoning of judgment:-It was held that Service tax was imposed by the Finance Act, 1994 and in terms of Section 65(2) of the Act an assessee is a person responsible for collecting the service tax payable under the provisions of this chapter and includes his agent. Section 68(3) lays down that any person responsible for collecting service tax who fails to collect the tax according to the provisions of law shall notwithstanding such failure to collect tax be liable to pay the tax to the revenue. This means that if the service provider fails to collect tax from the consumer he cannot escape his liability to pay tax to the Government. No doubt a person who is providing services is entitled under law to pass on the tax liability to the customer and is entitled to tell the customers that he is liable to pay the service tax. However, the learned single Judge held that the writ petitioner as a matter of right was entitled to claim the reimbursement of the service tax which he had paid to the revenue pursuant to the contract entered into with the ONGC which does not appear to be correct.
With due respect, High Court did not agree with the reasoning given by the learned Single Judge. There is no manner of doubt that finally the consumer can be asked to pay service tax. However, we are dealing here with a case where an NIT was issued and Clause 10.2 of the NIT which has been quoted hereinabove clearly provided that all tax liability including service tax liability shall be paid by the contractor. This clearly meant that the rate to be quoted by the contractor was to be inclusive of the service tax liability. Even though a service tax provider as an assessee may have a right to claim the tax from the customer, there is nothing in law which says that the service provider cannot quote a rate which is inclusive of service tax. The NIT in no uncertain terms laid a condition that the rate should be inclusive of service tax, sale tax and other liabilities. With open eyes the contractor quoted a rate knowing fully well that he would have to bear the service tax liability. After having paid the service tax he cannot turn around and claim that this liability should be paid by the final customer/consumer.
The new work order clearly provided that service tax will be reimbursed to the contractor @ 12.24% on the contract. This amount on the renewed contract was refunded by the ONGC. This however, by no stretch of imagination, can be said to be an admission on behalf of the ONGC to pay service tax for the period prior to the imposition of the condition on 3-11-2006. If the reasoning which the learned single Judge has applied was to be taken to its logical conclusion then the writ petitioner would also not be entitled to higher rates under the very same order dated 3-11-2006.
For the aforesaid reasons, High Court was of the considered view that the learned single Judge erred in holding that the writ petitioner was entitled as a matter of right to claim refund of the service tax. Accordingly, the writ appeal was allowed and the judgment of the learned single Judge dated 13-8-2008 was set aside.
 
Decision:- The crux of this case is that although service tax is a consumption based tax but it cannot be recovered from the service recipient as a matter of right in all situations. When the contract clearly stated that all taxes are to be borne by the contractor, it implied that the service tax was also included in the rate quoted. When the rates being quoted are inclusive of service tax, the service provider cannot force the service receiver to reimburse the service tax paid by the service provider to the government exchequer.
 
Prepared by: Manish Satyani

Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com