Whether Service tax liability on service provider when no contract or agreement requiring payment of service tax by service recipient or not?

PJ/Case Laws/2011-12/1132

Prepared by
CA Rajani Thanvi
Bharat Rathore

Case: RAVISHANKAR JAISWAL Versus JABALPUR DEVELOPMENT AUTHORITY

Citation: 2011 (22) S.T.R. 5 (M.P.)

Issue: Whether Service tax liability on service provider when no contract or agreement requiring payment of service tax by service recipient or not?

Brief Facts:The appellant is a Government Contractorentered in to some agreement with the respondent for construction of residential complex. There is no terms in the agreement about service tax liability. After Execution of the contract was over, The Department issued notices to the appellant to deposit the service tax. The appellant being aggrieved by the said demand, placing reliace upon the the resolution/ subject no. 12 taken up by the Board of Directors of Respondent, has come to this court with a submission that if the respondent has resolved that in the matters wehere there was no condition for payment of service tax then in all such cases where the contact was aleady executed, the service tax would be paid by the respondent but in all ases for future the service tax shall be paid by the contractor.

Appellant’s Contention: The appellant submit that the respondent being the state under Article 12 of the constitution of India is obliged to be honest and, therefore, they were also required to put subject no. 12 in to execution and as they are not putting the said subject no. 12 into execution by writ of mandamus, the respondent be directed to implement the decision and be asked to make the payment of service due upon the appellant to the appellant or the Department. The appellant has also submit that a declaration be granted by this court that the appellant is not liablie to pay service tax pertaining to the demand covered under decision. They have also prayed that a direction to the department be issued to register the appellant under section 69 of finance act. 1994. The department ever after notice has not filed any reply with a submission that they are entitled to recover the tax, in respective of the fact that whoever pays it.

Respondent’s contention:- The respondent submit that under the Finance Act the liability to pay service tax is always upon the service provider and as is in this case the services are being provided by the appellant and appellant is to be held liable. In relation to subject no. 12 and its implementation , it is submitted by respondent that even after passing the said resolution the respondent cannot be held liable to pay tax. And the present is a matter relating to contract and the liability of the parties under the contract, therefore, this court should not interfere in the matter.

Reasoning of Judgment: -The hon’ble high Court heard the parties and have gone through the annexure P/3.

Under section 19 of Finance Act the commercial contracts service tax at the rate of 10.24% is leviable with effect from 10.06.2001 and 16.06.2005. and the construction work was completed between 2005 to 2008 and therefore, section 19 of Finance Act shall apply with full force. Insofar as liablity to pay the tax is concerned it is upon the service provider. It cannot be said that the petitioner is not liable to pay the tax as a service provider.

The appellant has placed his strong reliance upon the judgment of the Apex Court in the matter of ABL International Ltd. and another v. Export Credit Guarantee corporation of India Ltd. and others reported in (2004) 3 SCC 553. It was contended that once the State or an instrumentality of the State is a party to the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India. It was also contended that once it is held that the respondent No.1 under the contract or the resolution is liable to pay the service tax then this Court should issue such a direction.

The appellant has also placed strong reliance upon the judgment of the Supreme court in the matter of All India Federation of Tax Practitioners and others v. union of India and others reported in (2007) 7 SCC 527= 2007 (7) S.T.R. 625 (S.C.) Learned counsel for the petitioner has placed strong reliance upon paragraphs No.6,7 and 22 of this Judgment. The said para graphs read as under: “At this stage we may refer to the concept of “value Added Tax” (VAT), which is a general tax that applies in principle to all commercial activities involving production of goods and provisions of service. Vat is consumption tax as it is borne by the consumer.

The hon’ble High Court view that it is clear that service tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would logically be leviable only on services provided within the country. Service tax is a value added tax.It is an economic concept. It has evolved on account of service industry becoming a major contributor to the GDP of an economy particularly knowledge-based economy. with the enactment of the Finance Act, 1994, the Central Government derived its authority from the residuary Entry 97 of the Union List for levying tax on services. it is important to note that “service tax” is a value added tax which in turn is a general tax which applies to all commercial activities involving production of goods and provision of services. Moreover, VAT is a consumption tax as it is borne by the client.” he only question for consideration is that the petitioner is entitled to recover the amount of service tax from the respondent No.1 either under the common law or under the resolution No.12 relating to the service tax. Once we hold that under the law the liability would be of the petitioner then whether under the contract entered into between the parties the petitioner is entitled to reimbursement will have to be decided by a Court of Competent jurisdiction which can receive evidence hear the parties and decide the matter in accordance with the terms of the agreement. At this stage we are of the opinion that this Court is not required to enter into the contractual dispute. Insofar as implementation of subject No.12/resolution No.12 is concerned assuming the respondent has taken such a resolution then too it would not be possible for a Court of law to direct the respondent No.1 to put into force such resolution which is likely to be reviewed. We refuse to interfere in the matter. In so far as petitioner’s prayer for issuing a direction to the respondent No.2 to register the petitioner under Section 69 of the Finance Act is concerned we can only observe that the petitioner would be free to make an application before the competent authority which shall decide the application in accordance with law.

Judgment:The petition is dismissed.

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