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SC : Lease-deed reigns over statutory prescription; Lessee to discharge tax, despite lessor's liability

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  • SC rules on the ‘person liable to pay service tax’ under a lease arrangement between the Govt. (lessee) and lessor; Referring to relevant statutory provisions viz., the Finance Act & Service Tax Rules, SC observes that it is the provider of service alone who is liable for paying service tax and accordingly, rejects lessor’s contention that service tax being nothing other than value added tax on consumption of service, levy under Finance Act, as amended, would fall upon lessee;
  • On a conspectus of authorities of Apex Court such as Tamil Nadu Kalyana Mandapam Assn vs. Union of India & Others, All India Federation of Tax Practitioners & Ors. vs. Union of India & Ors. and Association of Leasing & Financial Service Companies vs. Union of India, SC observes that service tax is an indirect tax i.e. it can be passed on by the service provider to service recipient;
  • Remarks, “The fact that service tax may not, in given circumstances, be passed on by the service provider to the recipient of the service would not, therefore, make such tax any less a service tax.”;
  • Reiterating that taxable event and taxable person are distinct concepts, SC states that in present case, “taxable event” is provision of service of renting of immovable property, while “taxable person” is person liable to pay tax, i.e. service provider, viz. the lessor;
  • Further, referring to Apex Court judgment in Peekay ReRolling Mills (P) Ltd. vs. Assistant Commissioner & Anr, SC observes that the expression “primarily leviable upon the lessor” in the lease deed makes it clear that lessor should be the person upon whom levy takes place – in the sense that “assessment” has to be of such person;
  • Rejects lessor’s reliance on Section 12B of Central Excise Act r/w Section 83 of Finance Act which speaks about presumption that incidence of duty has been passed onto the buyer, stating that this provision is a part of machinery for refund and cannot determine as to who is the person primarily liable to service tax;
  • However, in light of the sanction letter issued by Govt. undertaking to bear the obligation of registration charges, stamp duty, service tax etc. (if applicable) towards hiring of lease premises in present case, SC loathes to upset the finding of Single Judge Bench of Calcutta HC; Accordingly, SC refuses to exercise discretion under Article 136 of Constitution of India in favour of the Govt., but sets aside the impugned Division Bench judgment which had upheld Single Judge ruling, on law : SC
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