ST - legislation is not rejected or amended by private agreement - order passed in arbitration proceedings cannot shift liability or inherence of service tax under provisions of FA, 1994 on service recipient - appeal rejected: CESTAT
By TIOL News Service
NEW DELHI, MAY 30, 2014: THE appellant is Delhi Transport Corporation.
The Anti-Evasion Branch discovered that the appellant had provided taxable service by providing space for advertisements on its buses, bus queue shelters, time keeping booths and other properties.
In response to the SCNs the appellant contended that agreements entered with the advertisers contained a specific clause that the liability to tax, including service tax would be borne by the recipient of the service/the other party to the agreement; there arose disputes between the appellant and recipients of the service, some of which are subject matter of arbitration proceedings; that advertisers had not reimbursed the appellant for the service tax component; that the appellant is pursuing with the Central Government for grant of exemption from tax.
These contentions were rejected and the adjudication order confirmed a cumulative demand of Rs.7,19,01,910/- apart from interest &penalties.
The appellant is before the CESTAT.
The singular contention is that the appellant was under a bona fide belief that the liability to remit service tax stood transferred to the recipient qua the agreements; that this was a bona fide belief which caused the failure to file returns and remit service tax. And, therefore, invoking the extended period of limitation is unjustified and so also penalties should not have been imposed by exercising discretion under Section 80 of the FA, 1994.
The President, writing for the Bench observed that there is no basis for the claim made by the appellant that they harboured a bona fide belief since -
++ A bona fide belief is a belief entertained by a reasonable person. The appellant is a public authority and an instrumentality of the State and should have taken care to ascertain whether it was liable to tax in terms of the provisions of the Act.
++ There is neither alleged, asserted nor established that there is any ambiguity in the provisions of the Act, which might justify a belief that the appellant/service provider, was not liable to service tax. It is axiomatic that no person can harbour a "bona fide belief" that a legislated liability could be excluded or transferred by a contract.
++ The appellant was clearly and exclusively liable to service tax on rendition of the taxable service of "sale of space or time for advertisement". This liability involved the non-derogable obligation to obtain registration, file periodical ST-3 returns and remit service tax on the consideration received during the period covered by such ST-3 returns. These were the core and essential obligations the appellant should have complied with.
To the appellant's reliance on the judgment of the Supreme Court in RashtriyaIspat Nigam Limited vs. Dewan Chand Ram Saran (RINL) - (2012) 5 Supreme Court Cases 306 , the Bench observed -
"In the context of the facts and the litigative contours falling for consideration before it, the Supreme Court had observed that transferring of the burden of liability to tax to a contractor was not prohibited and qua the terms of the agreement between the parties, the contractor was liable to bear the burden. This judgment is neither on the factual context in which it is rendered nor on the express or implied rationes falling therefrom, an authority for the proposition that the appellant's tax burden shifted to the advertisers under the private agreement and the appellant was therefore immune to tax."
The appellant then adverted to orders passed by the Delhi High Court in applications filed by two advertisers, namely M/s International Avenues and Anr. and M/s Shivaai Industries (P) Ltd. seeking injunctive relief under Section 9 of the Arbitration and Conciliation Act, 1996 and the Order of the High Court dated 20.2.2007 directed the petitioners to provide security for the specified amount by way of post-dated cheques while recording the statement of petitioner's counsel that in case service tax is due and payable on the contract, that liability shall be of the petitioner (advertisers) and the petitioner would indemnify DTC (the appellant herein) in that behalf. The final order of the High Court dated 18.1.2008 also records that in the event service tax liability is imposed, such liability shall be on the contractor, in terms of the agreement.
The CESTAT observed that the aforesaid orders do not transfer the substantive and legislatively mandated liability to service tax from the appellant who is the service provider to the advertisers, who are the service recipients;that the liability of advertisers to bear the burden of service tax, in terms of agreement between the parties, is the conclusion of the High Court; that the decision cannot be interpreted or understood as shifting the liability or inherence of service tax, under the provisions of the Act, on the service recipient; thatit is a well settled position that legislation is not rejected or amended by private agreement.
Holding that there are no merits in the appeal, the same was dismissed.
(See 2014-TIOL-898-CESTAT-DEL)
