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

PJ/CASE LAW/2015-16/2829

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

Comments

PJ/CASE LAW/2015-16/2829

Post a Comment

Query