Service provider can't ask revenue to recover taxes from service-recipient

Service provider can't ask revenue to recover taxes from service-recipient even if recipient agreed to pay ST

Undoubtedly, service tax burden can be transferred by contractual arrangement to other party; but, on that account, assessee cannot ask revenue (except under reverse charge) : (a) to recover tax dues from a third party, or, (b) to wait for discharge of liability by assessee till it has recovered amount from its customers

HIGH COURT OF DELHI

Delhi Transport Corporation

v.

Commissioner of Service Tax

S. RAVINDRA BHAT AND R.K. GAUBA, JJ.

CEAC NO. 95 OF 2014

APRIL  17, 2015 

Section 68, read with sections 66, 66B, 73, 75, 76 and 77, of the Finance Act, 1994 - Payment - Service Tax - Period 1-5-2006 to 31-3-2008 - Assessee was providing taxable services and as per agreement, service tax burden was to be borne by customers - Assessee did not pay service tax on ground that its customers had not paid service tax despite repeated demands and legal action had been taken against such customers - HELD : Judgment in Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran [2012] 35 STT 664/21 taxmann.com 20 (SC) merely provides that service tax burden can be transferred by contractual arrangement to other party - However, on account of such contractual arrangement, assessee cannot ask Revenue : (a) to recover tax dues from a third party, or, (b) to wait for discharge of liability by assessee till it has recovered amount from its customers - Civil/Arbitration proceedings against customers and fastening of liability on customers in such proceedings is, thus, a matter restricted to claims of assessee against such parties; it cannot have any bearing insofar as claim of revenue against assessee for recovery of tax dues is concerned - Hence, demand was confirmed with interest [Paras 17 to 21] [In favour of revenue]

Section 76, read with sections 77 and 80, of the Finance Act, 1994 - Penalty - For failure to pay service tax - Department levied penalty on assessee-DTC for failure to seek registration, file returns and pay tax - Assessee argued that penalty cannot be levied in view of its bona fide belief that burden of tax was to be borne by customers - HELD : Plea of bona fide belief was devoid of substance - Assessee is a public sector undertaking and should have been more vigilant in compliance with its statutory obligations - It cannot take cover under plea that customers had agreed to bear burden of taxation and there was no need for any further action on its part - For purposes of taxing statute, DTC is an assessee, and statutorily bound to not only get itself registered but also submit requisite returns as per law - Hence, for violation, assessee was liable to penalty under sections 76 and 77 [Paras 22 and 23] [In favour of revenue]

Section 78, read with section 80, of the Finance Act, 1994 , section 11AC of the Central Excise Act, 1944 and section 114A of the Customs Act, 1962 - Penalty - For evasion of duty/tax - Assessee did not pay service tax on ground that service tax burden was to be borne by contractors - Department levied evasion penalty - Assessee claimed that it had admitted service tax liability but had agreed to pay tax after recovery from customers and, thus, there was no intention to evade - HELD : Revenue had not alleged that service tax liability was avoided with intent to defraud or evade - Insistence of assessee that it would deposit tax only after recovery from customers may not be proper stand in law, but, it would show that there was no intent to evade - Considering poor financial position of assessee, there was reasonable cause for non-payment of tax and, thus, no penalty could be imposed under section 78, read with section 80 [Paras 24 to 32] [In favour of assessee]

Words and Phrases : 'Bona fide belief' as generally used