Government, as a Lessee, is liable to pay Service Tax despite Liability of Lessor: Supreme Court [Read Judgment]

Service Tax - GST - CESTAT - Taxscan

A two-judge bench of the Supreme Court of India on Tuesday held that the Government, though in the capacity of a lessor is liable to pay service tax on the rental income as per section 66B of the Finance Act, 1994 despite the fact that the original liability lies on the lessor.

In the instant case, the respondents, Bengal Shrachi Housing Development Limited & Anr, contended that the Union of India, being a lessee to the respondent, is liable to pay service tax.

When the issue was brought before the Calcutta High Court through a writ petition, the Single Judge, relying on the decisions of the Delhi and Allahabad High Courts held that the 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.

Though the order was challenged before the division bench, the appellants failed to secure relief.

Analyzing the provisions of section 68 of the Act, the bench comprising Justice R.F Nariman and Justice Sanjay Kishan Kaul noted that the person providing the taxable service to another is liable to pay service tax at the rate specified in Section 66B, in such manner and within such period as may be prescribed, unless otherwise specified by the Central Government. Therefore, the person liable for paying service tax is to be determined on a reading of the Rules as per which also, it is the provider of the service alone, who is liable for paying service tax.

It was noted that in a sanction letter issued to the Respondent, Appellant has expressly stated that it was liable to pay service charges, registration charges, stamp duty, service tax etc. (if applicable) towards hiring of lease premises.

Relying on the above letter, the bench ruled that, the lessor despite its liability would not liable to pay any service tax.

Subscribe Taxscan Premium to view the Judgment
taxscan-loader