Delhi High Court
Satya Developers Pvt Ltd vs Pearey Lal Bhawan Association on 13 October, 2015
Author: Mukta Gupta
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment Reserved on: October 05, 2015
% Judgment Delivered on: October 13, 2015
+ RFA (OS) 24-25/2011
SATYA DEVELOPERS PVT LTD. ..... Appellant
Represented by: Mr.J.K.Mittal, Advocate with
Mr.Rajveer Singh, Ms.Krishna
Nandan Kumar, Advocates for
appellant.
Mr.Balbir Singh, Sr.Advocate/
Amicus Curiae.
versus
PEAREY LAL BHAWAN ASSOCIATION ..... Respondent
Represented by: Mr.Simran Mehta, Advocate
with Mr.Prabhat Kalia,
Advocate for respondent.
+ RFA (OS) 105/2014
M/S HDFC BANK LIMITED ..... Appellant
Represented by: Mr.Raman Kapur, Sr.Advocate
instructed by Mr.R ishab Raj
Jain, Ms.Pallavi Deepika,
Advocates for the appellant.
Mr.Balbir Singh, Sr.Advocate/
Amicus Curiae.
versus
M/S MEATTLES PRIVATE LIMITED ..... Respondent
Represented by: Mr.Deepak Bashta, Advocate
for respondent.
RFA (OS) 24-25/2011 & 105/2014 Page 1 of 24
CORAM:
HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
HON'BLE MS. JUSTICE MUKTA GUPTA
MUKTA GUPTA, J.
1. Pearey Lal Bhawan Association (in short „PLBA‟) filed two suits
being CS(OS) Nos. 1016/2008 and 1018/2008 against Satya Developers Pvt.
Ltd. (in short „Satya‟) whereas M/s Meattles Private Limited (in short
„Meattles‟) filed CS(OS) No. 512/2012 against M/s HDFC Bank Ltd. (in
short „HDFC Bank‟) seeking declaration and injunction qua the service tax
paid in respect of rented premises.
2. The plaintiffs in the suit sought a declaration holding the defendants
to be liable to pay the service tax leviable on the rent and the maintenance
charges payable under the lease deed executed inter se the parties, recovery
of amount and mandatory injunction requiring the defendants to pay to the
plaintiff service tax of the amount on the lease rentals payable in future.
Thus the three appeals are being disposed off by a common judgment as
they involve common question of law.
3. In CS (OS) Nos.1018/2008 and 1016/2008 Plaintiff PLBA claimed
that it was a registered society and being the owner of the building Pearey
Lal Bhawan located at 2, Bahadur Shah Zafar Marg, New Delhi-110002 had
entered into a registered lease deed dated October 09, 2006 with the
Defendant Satya Developers in respect of an area measuring 500 sq.feet on
the third floor of the premises Pearey Lal Bhawan and in respect of an area
measuring 2818 sq.feet on the ground floor of the premises Peary Lal
Bhawan. On October 16, 2006 the parties entered into a further agreement
for maintenance of common service and facilities. With effect from June
01, 2007 the Central Government by amending Chapter-V of the Finance
Act, 1994 levied service tax on renting of immovable property for business
purposes. It was claimed that the service tax being an indirect tax has to be
deposited by the service provider who was entitled to collect the same from
the user of the service as it was a tax on the service and not on the service
provider.
4. In the written statements filed Satya referring to the following terms
of the lease agreement claimed that the parties have contracted that PLBA
will pay the tax levied by the government and thus it had no liability to pay
the service tax:
"5. That the lessor shall continue to pay all or any taxes,
levies or charges imposed by the MCD, DDA, L&DO and or
Government, Local Authority etc".
The defendant also relied on clause II (1) of the agreement for maintenance
of common service and facilities, which reads as under:
"II (1) That the Lessor to pay all rates, taxes, ground rent,
house-tax charges, fire-fighting tax, easements and outgoing
charges imposed or payable to the MCD, L&DO, DDA or
Government in respect of the demised premises payable by
the Lessor and discharge all its obligations well in time".
5. In CS (OS) No.512/2012 Meattles claimed to be the lessor of the
demised premises bearing Nos.3909-3912, Hamilton Road, Mori Gate,
Kashmere Gate, New Delhi measuring approximately 2700 sq.ft of built up
area on the ground floor leased out to HDFC Bank vide the registered lease
deed dated November 25, 2004. The issue again raised was in relation to the
service tax net w.e.f June 01, 2007 vide notification No.23/2007-ST dated
May 22, 2007 and Finance Act, 2007.
6. In the written statement filed HDFC Bank also claimed that in terms
of Clause 4(v) of the lease agreement it was not liable to pay the service tax
as agreed between the parties which is reproduced as under:
"The municipal taxes, rates, charges and other outgoings in
respect of the demised premises that would be
determined/fixed/varied from time to time by the Municipal
Corporation/Municipality/Gram Panchayat or any other
local authority shall be paid by the Lessor or the Lessee as
specified/stipulated in the schedule annexed herewith and
shall keep the other party indemnified at all times against
the same."
7. In CS (OS) Nos.1018/2008 and 1016/2008 the following common
issues were settled except that in issue No.3 in CS (OS) No.1016/2008 the
amount was `3,55,270/- whereas in CS (OS) No.1018/2008 the amount was
`24,720/-:
"1. Whether the plaintiff is entitled to a decree of
declaration in favour and against the defendant,
holding that the defendant is liable to pay the service
tax, which is leviable on the rent and the maintenance
charges payable under the lease deed dated
09.10.2006 and the Agreement of Maintenance for
Common Services and Facilities dated 16.10.2006,
respectively?
2. Whether the plaintiff is entitled to a decree of
permanent mandatory injunction against the defendant
directing the defendant to pay to the plaintiff the
amount of service tax leviable on the rent and
maintenance charges payable under the lease deed
dated 09.10.2006 and the Agreement of Maintenance
for Common Service and Facilities dated 16.10.2006
respectively, during the currency of the said
agreements?
3. Whether the plaintiff is entitled to recovery of a sum of
Rs.24,720/- paid by the plaintiff, on behalf of the
defendant, on account of service tax for the period
01.06.2007 to 31.03.2008?
4. Whether the plaintiff is entitled to interest on the
amount of service tax paid by it on behalf of the
defendant during the pendency of the suit and if so, at
what rate?
5. Relief."
8. The issues settled in CS (OS) No.512/2012 were:
"1. Whether the defendant is liable to pay service tax on
rent, as alleged in the paint? OPP
2. To what amount, if any, the plaintiff is entitled from the
defendant? OPP.
3. Whether the suit is barred by limited? OPD."
9. In the three suits since beyond the documents no evidence was
required to be led and the documents were admitted, the parties agreed for
the suits to be finally heard without leading evidence.
10. The two learned Single Judges of this Court vide separate judgments
dated December 20, 2010 in CS (OS) Nos.1016/2008 and 1018/2008 and
October 19, 2012 in CS (OS) No.512/2012 decided the suits in favour of the
plaintiffs holding them entitled to recover amount payable towards the
service tax from the defendants.
11. Learned counsel for Satya contends that the learned Single Judge
erroneously relied upon the provisions of Sales of Goods Act, 1930 which
have no application to service tax. Section 12B of the Central Excise Act
relied upon by the learned Single Judge applies only to refund of duty and
does not provide for the liability of the consumer to pay service tax. Section
68 of the Finance Act, 1994 and 1997 provided for collection of service tax
which term has been changed by the Finance Act of 1998 and the liability
has been fixed on the service provider to pay the service tax. By the lease
agreement the parties had contracted that taxes would be borne by the lessor
and PLBA cannot now wriggle out of the terms of the contract. Section 67
of the Finance Act provides for valuation of the service tax which would be
included in the „gross amount‟ charged by a service provider which
provision has been ignored by the learned Single Judge. The case of Satya
is covered by the decision of Supreme Court reported as 2011 (13) SCC 497
Ultra Tech Cement Ltd. (Earlier Ultratech Cemco Ltd.) vs. State of
Maharashtra and Anr. Reliance is also placed on the decisions reported as
2012 (26) STR 289 SC Rashtriya Ispat Nigam Ltd. vs. Dewan Chand Ram
Saran, 2011 (22) STR 387 Max New York Life Insurance Co. Ltd.
vs.Insurance Ombudsman and Ors.and 2011 (22) STR 5 MP Ravishankar
Jaiswal vs.Jabalpur Development Authority and Anr. Referring to the
decision reported as AIR 1961 SC 1047 Commissioner of Sales Tax, Uttar
Pradesh vs.The Modi Sugar Mills Ltd. it is contended that in interpreting the
taxing statute, equitable considerations are entirely out of place nor can any
taxing statute be interpreted on any presumptions or assumptions.
12. Learned counsel for HDFC Bank contends that Section 68 (2) of the
Finance Act provides that notwithstanding anything contained in sub-section
(1) the Central Government is empowered to notify in the official gazette the
service tax on taxable services, as notified, to be paid by such person and in
such a manner as may be prescribed. However, there is no notification
directing the lessee to make the payment of service tax and hence in the
absence of a notification no tax liability can be fastened on HDFC.
Referring to the decision reported as JT 2005 (1) SCC 449 Maruti Udyog
Ltd. vs.Ram Lal and Ors. it is contended that in construing a legal fiction,
the purpose for which it is created should be kept in mind and should not be
extended beyond the scope thereof or beyond the language by which it is
created. Further a deeming provision cannot be pushed too far so as to result
in an anomalous or absurd position. Referring to the decision reported as
2012 (191) DLT 183 Raghubir Saran Charitable Trust vs. Puma Sports
India Pvt. Ltd.it is contended that the service tax liability has to be
determined in terms of the contract between the parties.
13. Learned counsel for PLBA on the other hand contends that it is well
settled that service tax is a Value Added Tax (VAT) and being a
consumption tax it is not a charge on the business but on the consumer and
would be thus leviable to whom the services are provided. It is further
contended that ordinarily the burden of service tax has to be borne in law by
the service recipient. Since service tax is an indirect tax, the service
provider can by an agreement assume the burden of such tax and relieve the
service recipient/consumer of the same. It is contended that from the terms
of the lease agreement and also the agreement for maintenance, the service
provider has not assumed the burden of paying the service tax and the
liability would be that of the service recipient. The fact that execution of the
lease deed dated October 09, 2006 precedes the imposition of tax liability,
there was no possibility of any conscious assumption of any liability by
PLBA as no such liability existed. The words „shall continue to pay all or
any tax‟ in the lease agreement indicates that the liability of the lessor was
confined only to the existing levies which already stood imposed at the time
of execution of lease deed. Reliance is placed on the decision reported in
(2007) 7 SCC 527 All India Federation of Tax Practitioners & Ors.vs.
Union of India & Ors., 2011 (2) SCC 352 Association of Leasing and
Financial Service Companies vs. Union of India & Ors., 182 (2011) DLT
548 (FB), Home Solutions Retails (India) Ltd Union of India & Ors.
14. Shri Balbir Singh, Senior Advocate who had been requested to assist
this Court in this matter points out that the three essentials of a taxing statute
are chargeability, receivability and assessment component. Service tax
being an indirect tax, though leviable on the consumer of the services
however, there is no mechanism by which the government can recover the
same from the consumer. Thus the liability of payment of the service tax
has been fixed on the service provider, that is, the lessor to be recoverable
from the recipient, that is, the lessee. Referring to Section 64A of Sales of
Goods Act, 1930 it is stated that unless it is contracted to the contrary, the
consumer of the goods and thus the consumer of the services has to bear the
liability of the tax. Referring to the decision of the Supreme Court reported
in 1997 (5) SCC 536 Mafat Lal Industries vs.Union of India & Ors. it is
contended that in case of indirect tax the Court would presume until a
contrary is established that a duty of excise or a custom duty has been
passed on to the consumer. It is undoubtedly a rebuttable presumption but
the burden of rebutting it lies on the person who claims the refund. It is
stated that Section 64A of the Sales of Goods Act is based on rule of equity.
Service tax being an indirect tax it is possible that it may be passed on.
Further the statutory provision can be of no relevance to determine the rights
and liabilities between the parties to the contract and there is nothing in law
to prevent the parties from entering into an agreement with the burden of
any tax arising out of obligation of a party under the contract to be borne by
such party. Mr.Balbir Singh, Senior Advocate points out that pursuant to the
8th report of the Law Commission goods under the Sales of Goods Act, 1930
were provided to include the electricity, gas and water and amendments
were also brought by insertion of Section 64A by replacing Section 10 of the
Tariff Act. Section 64A of the Sales of Goods Act is a rule of equity based
on the basic principle that indirect taxes can be passed on. It is stated that it
is akin to a situation where Limitation Act may not apply however, the
principles of Limitation Act would apply and thus the principles of passing
on the liability as under the Excise Act, Customs Act and Sales Tax Act
would apply to the Service Tax as well. Indirectly provisions relating to
goods in Central Excise Tax have been made applicable to the Service Tax.
15. The Supreme Court in the decision reported in All India Federation
of Tax Practitioners (Supra) noted that service tax is an indirect tax levied
on certain services provided by certain categories of persons including
companies, associations, firms, body of individuals etc. Service sector
contributes about 64% to the GDP. It noted that in contemporary world,
development of service sector has become synonymous with the
advancement of the economy and the Economists hold the view that there is
no distinction between the consumption of goods and consumption of
services as both satisfy the human needs. It was noted that „Value Added
Tax‟ (in short „VAT‟) which is a general tax applies in principle to all
commercial activities involving production of goods and provision of
services. The Supreme Court held that VAT is a consumption tax as it is
borne by the consumer and „Service Tax‟ is a VAT which in turn is
destination based consumption tax. The Supreme Court noted that just as
excise duty is a tax on value addition on goods, Service tax is on value
addition by rendition of services. Broadly „Services‟ fall into two
categories, namely, property based services and performance based services.
Property based services cover service providers such as architects, interior
designers, real estate agents, construction services, mandapwalas etc. and the
later being services provided by stock-brokers, practising chartered
accountants, practising cost accountants, security agencies, tour operators,
event managers, travel agents etc.
16. In the decision reported as AIR 2012 SC 2829 Rashtriya Ispat Nigam
Ltd.vs. M/s Dewan Chand Ram Saran it was held:
"26. As far as the submission of shifting of tax liability is
concerned, as observed in paragraph 9 of Laghu Udyog
Bharati (Supra), service tax is an indirect tax, and it is
possible that it may be passed on. Therefore, an Assessee
can certainly enter into a contract to shift its liability of
service tax. Though the Appellant became the Assessee due
to amendment of 2000, his position is exactly the same as in
respect of Sales Tax, where the seller is the Assessee, and is
liable to pay Sales Tax to the tax authorities, but it is open
to the seller, under his contract with the buyer, to recover
the Sales Tax from the buyer, and to pass on the tax burden
to him. Therefore, though there is no difficulty in accepting
that after the amendment of 2000 the liability to pay the
service tax is on the Appellant as the Assessee, the liability
arose out of the services rendered by the Respondent to the
Appellant, and that too prior to this amendment when the
liability was on the service provider. The provisions
concerning service tax are relevant only as between the
Appellant as an Assessee under the statute and the tax
authorities. This statutory provision can be of no relevance
to determine the rights and liabilities between the Appellant
and the Respondent as agreed in the contract between two
of them. There was nothing in law to prevent the Appellant
from entering into an agreement with the Respondent
handling contractor that the burden of any tax arising out of
obligations of the Respondent under the contract would be
borne by the Respondent."
17. Sections 65 (105) states „Taxabale Service‟ means any service
provided or to be provided:
"(zzzz) .....to any person, by any other person in relation to
renting of immovable property for use in the course or
furtherance of business or commerce.
Explanation 1.--For the purposes of this sub-clause,
"immovable property" includes--
(i) building and part of a building, and the land appurtenant
thereto;
(ii) land incidental to the use of such building or part of a
building;
(iii) the common or shared areas and facilities relating
thereto; and
(iv) in case of a building located in a complex or an
industrial estate, all common areas and facilities relating
thereto, within such complex or estate, but does not include-
(a) vacant land solely used for agriculture, aquaculture,
farming, forestry, animal husbandry, mining purposes;
(b) vacant land, whether or not having facilities clearly
incidental to the use of such vacant land;
(c) land used for educational, sports, circus, entertainment
and parking purposes; and
(d) building used solely for residential purposes and
buildings used for the purposes of accommodation,
including hotels, hostels, boarding houses, holiday
accommodation, tents, camping facilities.
Explanation 2.--For the purposes of this sub-clause, an
immovable property partly for use in the course or
furtherance of business or commerce and partly for
residential or any other purposes shall be deemed to be
immovable property for use in the course or furtherance of
business or commerce;..."
18. Section 83 of the Finance Act, 2007 makes certain provisions of the
Central Excise Act, 1944 as in force from time to time applicable in relation
to Service Tax as they apply in relation to a duty of excise:
"83. Application of certain provisions of Act 1 of 1944:
The provisions of the following section of the Central Excise
Act, 1944 ( 1 of 1944), as in force from time to time, shall
apply, so far as may be, in relation to service tax as they
apply in relation to a duty of excise: -
9C, 9D, 11B, 11BB, 11C, 12 12A, 12B. 12C, 12D, 12E, 14,
[14AA]*, 15, 33A, 35F, 35-FF to 35-O (both inclusive),
35Q, 36, 36A, 36B, 37A, 37B, 37C, 37D, [38A]* and 40."
19. Section 12 (b) of the Central Excise Act reads as under:
"12B. PRESUMPTION THAT INCIDENCE OF DUTY HAS
BEEN PASSED ON TO THE BUYER.
Every person who has paid the duty of excise on any goods
under this Act shall, unless the contrary is proved by him, be
deemed to have passed on the full incidence of such duty to
the buyer of such goods."
20. Thus Section 83 of the Finance Act is a legislation by incorporation
applying inter alia Section 12B of the Central Excise Act to the Service Tax.
Halsbury‟s Law of England (4th Edn., Vol.44 (1)), para 127 page 744 deals
with incorporation of other enactments by reference as under:
"It is a common device of legislative drafters to incorporate
earlier statutory provisions by reference, rather than setting
out similar provisions in full. This saves space and also
attracts the case law and other learning attached to the
earlier provision. Its main advantage is a Parliamentary
one, however, since it shortens Bills and cuts down the area
for debate."
21. In the decision reported as 2011 (3) SCC 1 Girnar Traders vs. State of
Maharashtra and Ors.the Constitution Bench while dealing with legislation
by incorporation held that with the development of law, the legislature has
adopted the common practice of referring to the provisions of the existing
statute while enacting new laws. It was held that reference to an earlier law
in the later law could be a simple reference of provisions of earlier statute or
a specific reference where the earlier law is made an integral part of the new
law, that is, by incorporation. In contrast to such simple reference, legal
incident of legislation by incorporation is that it becomes part of the existing
law which implies bodily lifting provisions of one enactment and making
them part of another and in such cases subsequent amendments in the
incorporated Act could not be treated as part of the incorporating Act. The
obvious advantage of a legislation by incorporation is that the judicial
precedents and discussions on the earlier enactment apply to the later
enactments.
22. Section 83 of the Finance Act 2007 though a legislation by
incorporation also takes care of non-applicability of future amendments as it
provides for applicability of the relevant sections of the Central Excise Act
1944 as in force from time to time i.e. the future amendments in the
provisions of the Central Excise Act would also be applicable mutatis
Mutandis to Service Tax. As noted above, Section 12B of the Central
Excise Act which applies to the Service Tax raises a presumption that the
incidence of duty has been passed to the buyer unless the contrary is proved.
Thus in the absence of a contract for the liability of a service tax, it will be
presumed that the same has been passed over to the service recipient.
23. Based on the rule of equity similar provision exists in the Sales of
Goods Act, 1930, that is, Section 64A. The Supreme Court in the decision
reported as 2007 (8) SCC 466 Numaligarh Refinery Ltd.vs.Daelim Industries
Co.Ltd held that whether a party is entitled to be paid such tax or such
increase has to be ascertained from the intention of the parties to the contract
and unless a different intention appears from the terms of the contract in the
case of imposition or increase in the tax after the making of a contract the
party shall be entitled to be paid such taxes or such increase. It was held:
"18. In this connection, learned Counsel has invited our
attention to Section 64A of the Sale of Goods Act, 1930
which reads as under:
"64-A. In contracts of sale, amount of increased or
decreased taxes to be added or deducted.- (1) Unless a
different intention appears from the terms of the contract, in
the event of any tax of the nature described in Sub-section
(2) being imposed, increased, decreased or remitted in
respect of any goods after the making of any contract for the
sale or purchase of such goods without stipulation as to the
payment of tax where tax was not chargeable at the time of
the making of the contract, or for the sale or purchase of
such goods tax-paid where tax was chargeable at that time-
(a) if such imposition or increase so takes effect that
the tax or increased tax, as the case may be, or any part of
such tax is paid or is payable, the seller may add so much to
the contract price as will be equivalent to the amount paid
or payable in respect of such tax or increase of tax, and he
shall be entitled to be paid and to sue for and recover such
addition; and
(b) if such decrease or remission so takes effect that
the decreased tax only, or no tax, as the case may be, is paid
or is payable, the buyer may deduct so much from the
contract price as will be equivalent to the decrease of tax or
remitted tax, and he shall not be liable to pay, or be sued
for, or in respect of, such deduction.
(2) The provisions of Sub-section (1) apply to the
following taxes, namely;-
(a) any duty of customs or excise on goods;
(b) any tax on the sale or purchase of goods.
This section also clearly says that unless a different
intention appears from the terms of the contract, in case of
the imposition or increase in the tax after the making of a
contract, the party shall be entitled to be paid such tax or
such increase. In this connection, the intention of the parties
is to be ascertained, as per the clauses mentioned above.
24. In the decision reported as 1997 (5) SCC 536 Mafatlal Industries
Ltd.& Ors.vs. Union of India & Ors. a nine judges Bench of the Supreme
Court of India while dealing with the claim of refund held that the same was
maintainable by virtue of declaration contained in Article 265 of the
Constitution of India as also under Section 72 of the Contract Act subject to
one exception. Noting that the duties under the Central Excise and Customs
are indirect taxes and supposed to be and are permitted to be passed on to
the buyers it was held:
"80. For the purpose of this discussion, we take the
situation arising from the declaration of invalidity of a
provision of the Act under which duty his been paid or
collected, as the bases, inasmuch as that is the only
situation surviving in view of our holding on (I) and (II). In
such cases the claim for refund is maintainable by virtue of
the declaration contained in Article 265 as also under
Section 72 of the Contract Act as explained hereinbefore
subject, to one exception : where a person approaches the
High Court or Supreme Court challenging the constitutional
validity of a provision but fails, he cannot take advantage of
the declaration of unconstitutionality obtained by another
person on another ground; this is for the reason that so far
as he is concerned, the decision has become final and
cannot be re-opened on the basis of the decision on another
person's case; this is the ratio of the opinion of
Hidayatullah, CJ. In Tilokchand Motichand and we
respectfully agree with it. In such cases, the plaintiff may
also invoke Section 17(1)(c) of the Limitation Act for the
purpose of determining the period of limitation for filing a
suit. It may also be permissible to adopt a similar rule of
limitation in the case of writ petitions seeking refund in such
cases. But whether the right to refund or restitution, as it is
called, is treated as a constitutional right flowing from
Article 265 or a statutory right arising from Section 72 of
the Contract Act, it is neither automatic nor unconditional.
The position arising under Article 265 is dealt with later in
Paras 75 to 77. Here we shall deal with the position under
Section 72. Section 72 is a rule of equity. This is not
disputed by Sri F,S. Nariman or any of the other counsel
appearing for the appellants-petitioners. Once it is a rule of
equity, it is un-understandable how can it be said that
equitable considerations have no place where a claim is
made under the said provision. What those equitable
considerations should be is not a matter of law. That
depends upon the facts of each case. But to say that
equitable considerations have no place where a claim is
founded upon Section 72 is, in our respectful opinion, a
contradiction in terms. Indeed, in Kanhaiyalal, the Court
accepts that the right to recover the taxes - or the obligation
of the State to refund such taxes - under Section 72 of the
Contract Act is subject to "questions of estoppel, waiver,
limitation or the like", but at the same time, the decision
holds that equitable considerations cannot be imported
because of the clear and unambiguous language of
Section 72. With great respect, we think that a certain
amount of inconsistency is involved in the aforesaid two
propositions. "Estoppel, waiver...or the like", though rules
of evidence, are yet based upon rules of equity and good
conscience. So is Section 72. We are, therefore, of the
opinion that equitable considerations cannot be held to be
irrelevant where a claim for refund is made under
Section 72. Now, one of the equitable considerations may be
the fact that the person claiming the refund has passed on
the burden of duty to another. In other words, the person
claiming the refund has not really suffered any prejudice or
loss. If so, there is no question of reimbursing him. He
cannot be re compensated for what he has not lost. The
loser, if any, is the person who has really borne the burden
of duty; the manufacturer who is the claimant has certainly
not borne the duty notwithstanding the fact that it is he who
has paid the duty. Where such a claim is made, it would be
wholly permissible for the court to call upon the
petitioner/plaintiff to establish that he has not passed on the
burden of duty to a third party and to deny the relief of
refund if he is not able to establish the same, as has been
done by this Court in I.T.C. In this connection, it is
necessary to remember that whether the burden of the duty
has been passed on to a third party is a matter within the
exclusive knowledge of the manufacturer. He has the
relevant evidence - best evidence - in his possession.
Nobody else can be reasonably called upon to prove that
fact. Since the manufacturer is claiming the refund and also
because the fact of passing on the burden of duty is within
his special and exclusive knowledge, it is for him to allege
and establish that he has not passed on the duty to a third
party. This is the requirement which flows from the fact that
Section 72 is an equitable provision and that it incorporates
a rule of equity. This requirement flows not only because
Section 72 incorporates a rules of equity but also because
both the Central Excises duties and the Customs duties are
indirect taxes which are supposed to be and are permitted to
be passed on to the buyer. That these duties are indirect
taxes, meant to be passed on, is statutorily recognised by
Section 64A of the Sale of Goods Act, 1930.
25. Noting sub-section 2 of Section 64A of the Sales of Goods Act
expressly made sub-Section 1 of Section 64A applicable to duty of customs
or excise on goods and referring to the decisions of the Federal Court in AIR
1942 FC 33 The Province of Madras vs.Boddu Paidanna & Sons and the
Supreme Court reported as AIR 1962 SC 1281 R.C. Jall v. Union of India it
was held in Mafat Lal (supra) that in such a situation, it would be legitimate
for the Court to presume, until the contrary is established, that a duty of
excise or a customs duty has been passed on. It is a presumption of fact
which a Court is entitled to draw under Section 114 of the Indian Evidence
Act the same being undoubtedly a rebuttable presumption but the burden of
rebutting it lies upon the person who claims the refund and it is for him to
allege and establish that as a fact he has not passed on the duty and,
therefore, equity demands that his claim for refund be allowed.
26. Thus as a legislation by reference sub-Section (2) of Section 64A of
the Sales of Goods Act making applicable sub-Section (1) of Section 64A to
any duty of Customs or Excise on goods and as a legislation by
incorporation Section 83 of the Finance Act making applicable Section 12B
of the Central Excise Act to Service Act, Section 64A(1) is applicable to
Service Tax. From the provisions as noted and the decisions of the larger
benches it is evident that a service tax is a VAT which in turn is a
destination based consumption tax and is to be borne by the consumer of
goods. Further unless contracted to the contrary, the consumer of service is
liable to refund the said tax to the service provider who in turn is liable to
pay to the government.
27. From the legal position as noted it is evident whether the service tax
liability has been agreed not to be passed on to the recipient of the service
would depend on the interpretation of clauses entered into between the
parties. Before adverting to the relevant clauses inter se the parties in the
present case it would be appropriate to note a few decisions on the
interpretation of a contract.
28. The House of Lords in [1998] 1 WLR 896 Investors Compensation
Scheme Ltd. vs. West Bromwich Building Society summarized the principle
of interpretation of contractual documents as under:
"(1) Interpretation is the ascertainment of the meaning
which the document would convey to a reasonable person
having all the background knowledge which would
reasonably have been available to the parties in the
situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord
Wilberforce as the "matrix of fact," but this phrase is, if
anything, an understated description of what the
background may include. Subject to the requirement that it
should have been reasonably available to the parties and to
the exception to be mentioned next, it includes absolutely
anything which would have affected the way in which the
language of the document would have been understood by a
reasonable man.
(3) The law excludes from the admissible background the
previous negotiations of the parties and their declarations
of subjective intent. They are admissible only in an action
for rectification. The law makes this distinction for reasons
of practical policy and, in this respect only, legal
interpretation differs from the way we would interpret
utterances in ordinary life. The boundaries of this exception
are in some respects unclear. But this is not the occasion on
which to explore them.
(4) The meaning which a document (or any other
utterance) would convey to a reasonable man is not the
same thing as the meaning of its words. The meaning of
words is a matter of dictionaries and grammars; the
meaning of the document is what the parties using those
words against the relevant background would reasonably
have been understood to mean. The background may not
merely enable the reasonable man to choose between the
possible meanings of words which are ambiguous but even
(as occasionally happens in ordinary life) to conclude that
the parties must, for whatever reason, have used the wrong
words or syntax: see Mannai Investments Co. Ltd. v. Eagle
Star Life Assurance Co. Ltd. [1997] A.C. 749.
(5) The "rule" that words should be given their "natural
and ordinary meaning" reflects the common sense
proposition that we do not easily accept that people have
made linguistic mistakes, particularly in formal documents.
On the other hand, if one would nevertheless conclude from
the background that something must have gone wrong with
the language, the law does not require judges to attribute to
the parties an intention which they plainly could not have
had. Lord Diplock made this point more vigorously when he
said in Antaios Compania Naviera S.A. v. Salen Rederierna
A.B. [1985] A.C. 191, 201:
"if detailed semantic and syntactical analysis of words in a
commercial contract is going to lead to a conclusion that
flouts business commonsense, it must be made to yield to
business commonsense."
29. In [2009] 2 All ER, 26 Durham vs. BAI (Run Off) Ltd.(in scheme of
arrangement) & other cases the Queen‟s Bench Division while dealing with
the construction of commercial contracts noted:
"(203) A summary of helpful principles, drawn largely from
the words of Longmore LJ in Absalom (on behalf Lloyd's
Syndicate 957) v. TCRU Ltd (2005) EWCA Civ 1586 at (7),
(2006) 1 All ER (Comm) 375 at (7), (2006) 2 Lloyd's Rep
129, and based upon submissions to me by counsel, which I
had approved, in the recent case of Reilly v. National
Insurance *Guarantee Corporation Ltd (2008) EWHC 722
(Comm) at (13), (2008) 2 All ER (Comm) 612 at (13), was
again the subject matter of agreement, and I repeat and
incorporate it:
„(a) Ordinary Meaning. There is a presumption that
the words to be construed should be construed in their
ordinary and popular sense, since the parties to the
contract must be taken to have intended, as reasonable
men, to use words and phrases in their commonly
understood and accepted sense. (See also para (7)(i)-
(iii) in the judgment of Longmore LJ and in particular:
"The object of the inquiry is not necessarily to probe
the „real‟ intention of the parties, but to ascertain what
the language they used in the document would signify
to a properly informed observer.")
(b) Businesslike Interpretation. It is an accepted canon
of construction that a commercial document, such as
an insurance policy, should be construed in
accordance with sound commercial principles and
good business sense, so that its provisions receive a
fair and sensible application. (See also the words of
Lord Diplock in Antaios Cia Navieras SA v. Salen
Rederierna AB, The Antaios (1984) 3 All ER 229 at
233, (1985) AC 191 at 201 cited at (7)(iv) by
Longmore LJ: If a "detailed semantic and syntactical
analysis of words in a commercial contract is going to
lead to a conclusion that flouts business common
sense, it must be made to yield to business common
sense".)
(c) Commercial Object. The commercial object or
function of the clause in question and its relationship
to the contract as a whole will be relevant in resolving
any ambiguity in the wording.
(d) Construction to avoid unreasonable results. If the
wording of a clause is ambiguous, and one reading
produces a fairer result than the alternative, the
reasonable interpretation should be adopted. It is to be
presumed that the parties, as reasonable men, would
have intended to include reasonable stipulation in their
contract."
30. In 2009 (5) SCC 713 Vimal Chand Ghevarchand Jain & Ors. vs.
Ramakant Eknath Jajoo the Supreme Court reiterated the principle of
construction of a commercial contract by looking at the document as a
whole and construing it in its entirety.
31. Thus a contract has to be construed by looking at the document as a
whole and the meaning of the document has to be what the parties intended
to give to the document keeping the background in mind and conclusion that
flouts business commonsense must yield unless expressly stated. In the
present case it will also have to borne in mind whether the parties intend to
include taxes which were not contemplated at the time of the agreement as
indubitably the agreements between the parties in the three suits were
entered into prior to the Finance Act, 2007 coming into force w.e.f. June 01,
2007.
32. In the agreement between HDFC Bank and Meattles Clause 4(v)
imposes liability of municipal taxes, rates, charges and other outgoings in
respect of the demised premises that would be determined/fixed/varied from
time to time by the Municipal Corporation/Municipality/Gram Panchayat or
any other local authority only. It is well settled that the Municipal
Corporation, Municipality, Gram Panchayat or local authority is distinct
from the government and thus the clause inter se the parties cannot be said
to cover the exemption of HDFC Bank to pay to Meattles service tax paid by
it to the government pursuant to the Finance Act, 2007.
33. As regards the lease deed and the agreement of maintenance of
common services and facilities between Satya and PLBA Clause 5 of the
lease deed as noted above provides that the lessor shall continue to pay all or
any taxes, levies or charges imposed by the MCD, DDA, L&DO and or
Government, Local Authority etc. By use of the words "Lessor shall
continue to pay" it is evident that the parties contemplated the existing taxes,
levies or charges and not future. Even as per the agreement of maintenance
of common service facilities though the same has no application to the
service tax however, still the said clause II(1) cannot be said to exclude
HDFC Bank from paying future service tax.
34. In view of the discussion aforesaid the judgments and the decrees
passed by the learned Single Judge in the three suits are upheld. Appeals are
dismissed. Parties will bear their own costs.
35. We place on record our appreciation for the valuable assistance
rendered by Mr. Balbir Singh, Senior Advocate/learned Amicus Curiae.
(MUKTA GUPTA)
JUDGE
(PRADEEP NANDRAJOG)
JUDGE
OCTOBER 13, 2015
'vn'
