We have taken a godown on rent since 2012. The Landlord never charged the Service Tax on us since then, but now he got a Notice from service tax department questioning the same, that why he is not charging the ST.
All of sudden he is asking us to pay the ST, on retrospectively i.e. 2012.
My query is whether we are liable to pay the same, as per my understanding we are not.
05 March 2016
Normally the rental / lease agreement specifies the liability of the tenant. If your agreement has specified rent of Rs X plus government / local taxes, then the claim of the landlord is admissible under Contract Act, 1872, and you may be sued for civil liabilities. However, if the landlord has not collected a liability of government / local taxes, which he knew applied to him, again under the law, he is estopped from claiming at a later date that the tenant will have to pay back duties claimed by the Department. This is the Law of Contract and the Civil Code.
Now coming specifically to your case and the Finance Act 1994 (as amended) - Service Tax Act [herein after referred to as the Act] - Section 68 of the Act which is the charging section reads as follows: "68. Payment of service tax. – (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66B in such manner and within such period as may be prescribed. (2)Notwithstanding anything contained in sub-section (1), in respect of ’such taxable service as may be notified’ by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service. "Provided that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider.";
Renting of Immovable Properties for Commercial purposes is not covered by clause (2) above and hence no liability can be pinned on you. The tax has to be paid by the Service Provider and not the Service Recipient.
Section 69 of the Act reads as under: "69. Registration - (1) Every person liable to pay the service tax under this chapter or the rules made there under shall, within such time and in such such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise. (2) The person or class of persons notified under sub-section (2) of section 69, shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed."
The liability to register, collect tax and remit it to the Treasury in time is all on the service provider in this case your landlord.
IGNORANCE OF LAW IS NO EXCUSE is a maxim followed by judicial authorities. Therefore, if your landlord was ignorant of his liability and woke up one fine morning to the same or was forced to wake up by a demand notice, it is he who has to bear the loss. Further service tax on "Renting of Immovable Properties for Commercial Purposes Services" has been taxable from 1st June 2007. Therefore, if in 2012 your landlord was ignorant, it is his funeral.
As per the provisions, it is for the assessee to register with the Central Excise Authorities and submit periodic returns. Nowhere has the law cast the liability on the service recipient to voluntarily pay the duty to the service provider. Failure of the service provider (your landlord) to register with the appropriate authorities or collect service tax from you in the past does not render you liable for his past tax liabilities.
Ask your landlord to provide you in writing his demand, a copy of his ST - 2 registration certificate and previous demand bills if any. Legally you are not liable to pay him any past taxes. Even considering your relationship, if you want to help him, not legally binding, the tax liability may be paid from the date of his ST - 2 registration. If by some chance he was already registered in 2012, then no liability can be pinned on you, and the default in not collecting the service tax is all his. You can even write to his juisdictional AC / DC highlighting his trying to escape the liability by shifting it on you.
Apart from the two sections referred to above, there is no law I know of. In Service Tax, there are no case laws regarding the point you raised, but the same may be covered in some Central Excise / Sales Tax / VAT cases - I am not aware of any famous decisions in this regard, but there is a possibility.
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