Summary
A government lessee disputed service-tax liability under a lease allocating taxes primarily leviable on each party. The Court held that the service provider was the statutory taxpayer and Clause6 ordinarily placed the burden on the lessor. Nevertheless, the Union’s express pre-lease letters undertaking to bear service tax led the Court to refuse discretionary relief on the facts.
Issues
- Whether the indirect nature of service tax made the lessee the person primarily liable under Clause6.
- Whether the presumption of passing on incidence changed statutory taxpayer identity.
- Whether the Union’s express letters justified leaving the payment result undisturbed.
Provisions considered
- Sections66B and68; Service Tax Rules,1994 Rule2(1)(d), Finance Act, 1994For the rental service at issue, the lessor as provider was the taxable person liable to pay; economic incidence and statutory liability were distinct. (¶¶ 8–13, 18, 24–25)
- Section12B as applied through Finance Act Section83, Central Excise Act, 1944The passing-on presumption concerned refund machinery and did not identify the person primarily liable for service tax. (¶ 26–27)
Held
- Service tax is economically indirect and may be passed on, but that does not require every contract to shift its burden to the recipient. The taxable event and taxable person are distinct. In this rental transaction, the lessor was the statutory taxpayer. (¶ 18–25)
- Clause6’s reference to taxes primarily leviable on a party referred to the person assessed and liable under the statute. Under that clause the Union was not required to pay this service tax. The refund-related passing-on presumption did not alter that conclusion, and other lease decisions depended on their particular terms. (¶ 24–33)
- The sanction letter of27April2012 and communication of30April2012 expressly placed service-tax liability on the lessee. In light of that undertaking, the Court declined Article136 relief despite correcting the High Court’s legal reasoning. The Division Bench judgment was set aside on law, but the Union’s appeal failed on these facts. (¶ 34–36)
Result
Appeal disposed of: Division Bench reasoning set aside on law, but appeal failed on the facts because the Union had expressly undertaken to bear service tax in its letters; discretionary relief refused.