IMPORTANT POINT
Renting immovable property is a taxing event the Finance Act 1994 and Service Tax Rules, 1994. However, the person primarily liable to pay service tax would be the lessor and not the lessee.

JUDGMENT :

R.F. Nariman, J.

1. The present appeal arises from service tax payable under a clause in the deed of lease dated 1.9.2012, between the Appellants (lessee) and the Respondents (lessor). By this deed of lease between the lessor and the lessee for a period of three years at a rent of Rs.16,34,967/- per month, it was agreed that:

“6. The lessor/lessors shall pay all rates, taxes, assessment, charges and other outgoings whatsoever of every description which under the statutes are primarily leviable upon the lessor and shall keep the premises free from all encumbrances and interference in this behalf. Rates and taxes primarily leviable upon the occupier shall be paid by the Government.”

2. Since disputes and differences arose between the parties as to who was liable to pay service tax for the aforesaid commercial premises, a writ petition was filed by the Respondents-herein before the Calcutta High Court, in which it was prayed that a Writ of Mandamus be issued commanding the Appellants to make payment of service tax for the aforesaid premises. The learned single Judge by his judgment dated 15.5.2014, referred to the aforesaid Clause 6 in the deed of lease between the parties, and further went on to refer to a judgment of the Delhi High Court in Pearey Lal Bhawan Association v. M/S. Satya Developers Pvt. Ltd., (2010) 173 DLT 685, in which it was held that as the authorities in that case did not visualize that a service tax levy would be made in respect of lease or rentals of commercial properties and that since the levy was made effective only from 2007 onwards, it was held that as service tax is essentially an indirect tax, the user of the premises who avails the service has to bear it. This being the case, on the facts of that case, it was held that the lessee should be made to pay service tax. A judgment of the Allahabad High Court dated 16.01.2013 in M/s Bhagwati Security Services (Regd.) v. Union of India, to the same effect was also followed by the learned single Judge. The single Judge, therefore, held that liability to bear service tax being that of the recipient of the service, there cannot be an escape from the conclusion that the Appellants i.e. the Union of India would be liable to pay the said tax.

3. An appeal to the Division Bench yielded the same result. The Division Bench, in the impugned judgment dated 9.9.2014, referred to various provisions of the Finance Act, 1994 and adopted the same reasoning as that of the learned single Judge and, therefore, held that Clause 6, if properly construed, would yield the same result as was found by the learned single Judge and, therefore, dismissed the appeal.

4. Shri A.K. Sanghi, learned senior counsel appearing on behalf of the Appellants, has referred in detail to various provisions of the Finance Act, 1994 along with amendments thereto and has argued that the person primarily liable to pay service tax under the Act read with the Service Tax Rules, 1994, is the service provider i.e. the lessor in the present case. He, therefore, stated that on a proper reading of Clause 6, it is clear that service tax being “primarily leviable on the lessor” within the meaning of Clause 6, would have to be borne by the lessor alone and not his client.

5. On the other hand, Shri Jaideep Gupta, learned senior counsel appearing on behalf of the Respondents, supported the judgments of the courts below. According to him, on a proper reading of the said clause, since service tax, by its essential nature is an indirect tax, being nothing other than a value added tax on consumption of service, the levy under the Service Tax Act of 1994, as amended, would fall upon the lessee. In any case, according to the learned counsel, on a reading of various judgments of this Court, it is clear that the person on whom this tax is primarily leviable is the lessee and that, therefore, it is the Appellant who should bear this tax.

6. Having heard learned counsel for both the parties, it is necessary to first adver