Service tax liability for rent of commercial property lies with the landlord as the service provider, unless explicitly transferred to the tenant by agreement.

JUDGMENT :

G.Jayachandran, J.

The Appellant and the Respondents are landlord and tenants.

2. O.S.No.5568 of 2017 filed by the landlord for recovery of the service tax with interest paid by the plaintiff/landlord for renting his premises to the defendants/tenants. Relying on the Hon'ble Supreme Court Judgment rendered in Union of India –vs- Bengal Sharchi Housing Dev Ltd. Reported in [( 2018 (1) SCC 311 )], the Trial Court dismissed the suit holding that, the plaintiff/landlord, who is the service provider, cannot get reimbursement of the tax paid from the service receiver, in the absence of specific agreement to that effect.

3. Aggrieved by the dismissal of the suit, the present appeal suit is filed by the plaintiff/landlord on the following grounds:

In the proceeding initiated for fixation of fair rent, the Hon’ble High Court fixed Rs.2,00,000/- as rent per month to be paid on or before 5th of every English calendar month. The respondents were depositing Rs.1,80,000/- p.m. after deducting Rs.20,000/- towards TDS. They were not paying the service charges as per the terms of the agreement entered 22.05.2003 but not renewed, after the expiry of the lease period of 5 years due to pending litigation. The tenants were holding over and by entering into compromise for all other purpose the terms of the expired lease continue to bind on the parties. While so, the agreement of the year 2003 was prior to the service tax regime. Hence, no specific clause found in that agreement fastening the service tax liability on the service receiver nonetheless, Clause 4 of the lease covenant mandates the leasee (tenants) shall pay all charges, payable for consumption of electricity and water and all other outgoing for its business. Relying on the Judgment of the Delhi High Court in Meattles Pvt. Ltd. –vs- HDFC Bank Limited reported in ( MANU/DE/5248/2012 ), the Learned Counsel for the appellant submitted that, the expression ‘all other outgoing charges‘ included service tax payable.

4. Per contra, the Learned counsel for the respondents 1 to 3, 5 to 13 submitted that, to demand reimbursement of the service charge from the tenant of a commercial premises, the landlord ought to have got himself registered with the Service Tax Department and should have obtained Service Tax Registration number. Further, there must be expressed agreement between the landlord and tenant that the tenant, who is service receiver, will pay the service tax.

5. The trial Court after due consideration of the provisions in the Financial Act, 1994 and the judgment of the Hon'ble Supreme Court has rightly held that renting a premises for commercial purpose is a taxable service under Section 65 (90-a) and (105). Section 68 of the FINANCE ACT , 1994 clearly fix the liability for payment of service tax only on the service provider. The respondents in terms of the compromise vacated the premises. Either during negotiation for compromise nor during vacating the premises, the landlord claimed service tax. The terms of the compromise entered between the parties is silent about the shifting of liability on the service receiver.

6. The points for determination are:

(1) Whether the liability to pay the service tax under FINANCE ACT , 1994 for the rent received for a commercial building is on the ‘service provider