Urgent: service tax: renting of immovable property
sahil gupta
(Querist) 04 April 2013
This query is : Resolved
Dear Experts,
A Hotel space in a shopping Mall at Indore (MP) was given on Leave and Licence basis in 2006. terms and conditions of agreement states that "any kind of taxes, levies and other taxes shall be payable by Licensor".
A supplementary agreement was entered into parties after applicability of Service tax by Govt of India by amendment in Finance Act in 2007.
Another supplementary agreement was entered into parties in 2008.
In both of these supplementary agreements, the earlier terms were applicable as to liability of tax.
Now, a legal issue as to taxation has occured as to burden of Service Tax lies on Licencee or Licensor.
Licencee insists that as Licensor has agreed that "all taxes are payable by Licensor under leave and licence (2006) and same conditions were agreed in suppl. agreement in 2007 & 2008. Hence Service Tax is to be paid by Licensor.
Licensor insists that as the terms and conditions does not states that "all direct and indirect taxes are to be paid by Licensor" hence licencee is liable to pay service tax and moreover this fact is seconded by the fact that as the supplementary agreement was entered in year 2007 and 2008, it is nowhere mentioned that Service tax is to be paid by Licensor.
Licensor rely on following precedents:
PEAREY LAL BHAWAN ASSOCIATION Vs M/s SATYA DEVELOPERS PVT LTD 2011-TIOL-114-HC-DEL-ST held as under:
Service Tax - Renting of Immovable Property - Service recipient is required to pay the Service Tax to the service provider even if the contract did not specifically mention it; it is the service which is taxed, and the levy is an indirect one, which necessarily means that the user has to bear it.”
and In All India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 52 it was held “Service tax is an indirect tax levied on certain services provided by certain categories of person including companies, associations, firms, body of individuals, etc.
The obligation regarding performance of a contract was not decided, visualised by parties at time of entering into contract, in tis case the obligation of parties shall be as per prevailing law.
Legal notice has been issued by Licensor which has been replied by Licencee. To support Licensor's case, Pls guide in the above stated facts what else plea can be raised by the Licensor.
Incase experts have dealt with similar case or are in knowledge of any precedent, pls provide the same.
Thanks in advance
Raj Kumar Makkad
(Expert) 04 April 2013
The plea raised by licensor in the given case on the basis of certain case laws as mentioned in the query is perfect though the entire liability of the taxation has been burdened upon him as per license agreement.
The word all taxes mentioned in the agreement represents only those taxes which is a liability of the landlord/owner of a property like water tax, municipal tax, sewerage tax etc and not those taxes which specifically are based upon the consumption of a service. Such liability cannot be shifted by licensee towards licensor on the basis of the agreements.
Your case is very good and licensee is fully liable to pay service tax irrespective of the language of the agreements.
You can search out the relevant case law on indiankanoon.org.
sahil gupta
(Querist) 05 April 2013
Thanks for your reply sir..
Even our stand is same that Licensor is liable to pay Direct tax.. but all indirect taxes like Service Tax has to be borne by Licencee.
I would like to add that:
Licencee also insists that as per rulings from Honble Apex Court, the liability to pay Service tax can be shifted from Licencee to Licensor hence as per terms and conditions of agreement, (above mentioned- all taxes....) Licensor is liable to pay Service Tax.
I have tried to search for precedents, but could nt find any (except above quoted)..
Pls provide the same incase any of the experts have dealt with similar nature of case.
CA Ayush Agrawal
(Expert) 05 April 2013
As far as service tax is concerned, you can mutually settle who is going to pay service tax.
but goverment must receive service tax from service provider only.
sahil gupta
(Querist) 05 April 2013
1. There has been a lengthy round of verbal as well as written discussions, still no mutual settlement can be arrived at between parties.
2. I know that Service provider has to submit Service Tax to the Govt. but what incase Service Recipient doesn't wish to pay the Service Tax amount to Service Provider?
CA Ayush Agrawal
(Expert) 05 April 2013
IN THAT CASE ALSO SERVICE PROVIDER HAS TO PAY WHETHER HE GETS THE TAX AMT OR NOT.
bot in this case, little calculation will chang.
like say service of rs. 100, you have to charge say 12.36% service tax, means 12.36 Rs. i.e. 112.36/-.
but got only 100, so in this case, it will be understood that 100 Rs. is including service tax and service provider has to pay service tax as
100/112.36*12.36 = 11 Rs. to goverment and accordingly service tax invoice need to be modified.
sahil gupta
(Querist) 05 April 2013
Thanks..
Talking about the legal aspect, does Contract Act anywhere impliedly/ expressly anywhere provides that "The obligation regarding performance of a contract was not decided, visualized by parties at time of entering into contract, in tis case the obligation of parties shall be as per prevailing law."
Any other precedent to Apex Court on the point that Service Tax being Indirect Tax, to be paid by Licencee in our case. (I could find out only High Court's ruling, trying hard to find Apex Court's verdict)
Adv k . mahesh
(Expert) 06 April 2013
in your case only judgement will help try to find out
