The main legal point established in the judgment is the interpretation of the liability of the service recipient for payment of service tax and interest under the Finance Act, 1994, based on contractual obligations and statutory provisions.

S. B. SINHA, J.

( 1 ) LEAVE granted. A limited notice was issued to the effect as to whether the appellant" kerala State Electricity Board, the service recipient, within the meaning of provisions of Finance Act, 1994, levying service tax, is liable to pay any interest on the amount of tax due to the respondent.

( 2 ) THE question involved in this appeal arises out of a judgment and order dated 25. 7. 2006 passed by a Division Bench of the High Court of kerala at Ernakulam whereby the appeal filed by the respondent herein from the judgment and order of the Customs Excise and Service Tax Appellate tribunal, Circuit Bench at Cochin in Final Order No. 477 of 2005, Appeal no. ST/36/2004 was allowed.

( 3 ) THE basic fact of the matter is not in dispute. Appellant herein entered into an agreement with M/s. SNC Lavlin Inc. Montreal, Canada (Foreign company) in relation to various projects for obtaining consultancy services from them. The relevant clauses of the said agreement are as under :-

"16. 1 " SNC Lavaline and all its expatriate personnel shall be responsible for timely and prompt filing of all returns, estimates, accounts, information and details complete and accurate in all respects as may be required under the applicable laws/regulations in India before the appropriate authorities in India. In case SNC lavaline or any of its expatriate personnel do not comply with the above tax requirements, which results in any penalty, interest or additional liability, the same shall be borne by SNC Lavaline. 16. 2 " SNC Lavaline shall provide KSE Board the relevant orders/notices of demand, invoices, appellate orders and other relevant information as the proof of the actual tax liability to be borne by kse Board, sufficiently in advance to enable kseb to take appropriate action in this connection. 16. 3 " SNC Lavaline and its expatriate personnel, if required by KSEB, shall contest appeals against any assessment/demand of an appropriate authority before such authority at the request of and cost expenses of KSEB".

( 4 ) DESPITE the said contractual commitments, the appellant failed and/or neglected to pay service tax on behalf of foreign company. It, on the other hand, raised a dispute that having regard to the purported statutory obligations of the service provider as contained in the Act and the Rules framed, it was not liable to pay any service tax.

( 5 ) BY reason of the impugned judgment, the Division Bench of the kerala High Court construing the provisions of the Act in the light of the terms of the contract entered into by and between the appellant and the foreign company opined that the liability in that regard was on the appellant and not on the foreign company.

( 6 ) MR. T. L. V. Iyer, learned senior counsel, in support of this appeal, inter alia, urged that the liability to pay interest and penalty being statutory one, the service provider was responsible therefor and not the service recipient.

( 7 ) MR. R. G. Padia, learned senior counsel appearing on behalf of the respondent, on the other hand, would support the impugned judgment.

( 8 ) THE period for which the service tax was due is August 1998 to september 2002. Under the agreement, indisputably, the appellant was responsible to make payment of the service tax on behalf of the foreign company.

( 9 ) SECTION 65 of the Finance Act, 1994 provides for levy of service tax on the services specified therein. Section 66 of the Act provides that the rate of tax shall be twelve per cent of the value of taxable services specified therein and collected in such manner as may be prescribed. Section 68 of the Act puts the burden of payment of tax on the service provider. Sections 68 (2), 69 (1), 71 and relevant parts of Sections 73 and 75 of the Finance Act, 1994 which are material for the purposes of this case, read as under :

"68. (2) Notwithstanding anything contained in sub-section (1), in respect of any taxable service notified by the Central Government in the Official gazette