M. Gulab Singh and Sons (P) Ltd v. Advocates' B.L.B. Limited

6. In view of the above, it is directecl as follows:-

(i) The settlerngnt.agreement Exh.P-U is taken on record.

(ii) The parties'shall remain bound by the tetms of the sefflement agreement Exh.P-il. ' (iii) The undertakings given by the parties ale accepted and they shall remain bound by the same.

(iv) In view of the settlement between the parties, uo issue survives for adj udication.

(v) These.two suits are disposed of in terms of the settlement contained in para O bf the agreement rlated 18tr'.. July, 201L.(F,xh.P-II)." The effect of the aforesaid was that a specific provision was made while refunding the secuiity amount to make adjusttnent of rent, electricity and water in terms'of the tenancy agreement.' It rnay be stated that the settlement agreelnent itself refeired to only the rent and thus possibly on this being raised by the appellant, in terms of the lease agreernents, electricify and water were separately provided for so that arrears if any could be adjusted out of the security amount. Unfortunately despite all the controversies having been put to rest, the refund of security did not take place. The appellant clairned that there were FAO(OS) Nos.476l2012 & 477/2012 Page 5 of[9] I D { al'rears of lvater and electricify charges over which there lvas solne controversy. Flowever, the material controversy raised was that the appellant souglrt to recover even the service tax arrears fi'om the security refund' In view of this controversy, there r.vas exchange of letters intbr se the parties r,vhich ultimately culmiuated in the appellant filing an application under section 151 of code of civil procedur.e, 190g for clarification/rnodification of the decree dated 27.09.2011. There were in fact two directions sought in this application: i) modify lclaris the or.cler ancl judgrnent dated 27.09.2011 to the extent that the direction rnay be issuecl to the respondent to clear its outstanding dues payable towarcls service tax ii) to clear all water and other dues. Thus the appellant itself r.vas consiious of the fact that the judgrnent and decree dated 27.09.2011 did not provide for the liability of seryice tax on the respondent as it was seeking a modificatiol of the decree. It is thiS application which has beeh rejected by the irnpuglecl order dated 20.07.2012.' The learned single Judge has recorded the controversy and r.epfocluced the settlement teilns. Thereafter learned single Judge has also recorded the material facts that there were no avennents in the plaint qua liability of the respoudent to pay the service tax even though this issue rvas live at the time when the suil was instituted. Le'amed single Judge has also opiled that even if the claim of the appellant was based on the fact that there was some understatlding in tenns whereof the responclent was liable to pay se1ice tax r'vhich had actually resulted in the respondent paying the tax for a period of few months, there were no such agreed terms and conditions in the settlement FAO(OS) Nos.476l20t[2] & 47712012 Page 6 of[9]. ^r lecorded by the mediator affixing the liability on the respondent and thus the appellant should be deemed to have abandoned its clairns if any to.wards service tax. The sum and substance of the subrnission of the learned senior counsel for the appellant bef.ore us is that at the time'when the lease agreenents were entered into, servicetax was not envisaged, Shb cannot dispute the position that in terms of the lease agreement all liabilities of any nature tor,vards tax are on the appellant, but contends that that should be relatable to only the taxes as prevalent on the date of the lease deed. It is thus her submission that the subsequent levy of service tax should be to the account of the respondent more so as it is a tax on service which is provided to the respondent, and it is in the nature of an indirect tax to be recovered fi'om the sewice recipient. In this behalf, leamed counsel has relied upon the judgment of the Division Bench of this court in RFA(OS) No.64l20l[2],IvOs Vasari India Pvt. Ltd v. Glranslryani Dass Soni & Aru. clecided on20.07.20I[2]. In the facts of the said case also, there was a registered lease deed r,vhere the cornrnercial property had been let out. There was default in payment of lent. Iire suit for possession and darnages was filed. In the written statement there was all admission qua non payment of reht tliough the defendant volunteered to pay the amount of the rent. It is in that context that the leamed single Judge opined that the preliminary objection raised by the tenant that he was not liable to pay service tax was a defence prohibitecl by law inasmuch, as, selice tax on commercial rented properties is an indirect tax and the jurisprudence on indirect tax tells us that the prirnary liabitity of the landlord to pay the tax FAO(OS) Nos.476l2012 & 47712012 Page 7 of[9] tg I to the Income Tax Authorities can be passed on to the tenant for.the reason that, as per the law, it is the comtnercial use by the tenant lvhich enhances the utility to the tenant with respect to the property which attracts seryice tax on commercial properties. Thus it r'vas held that this preliminary objection with respect to se.ice tax was prohibited by law. This does not rnean that there can be llo express or implied contract to the coutrary between the service prorrider ancl the selice rrcipient. we aLe, ltowever, uirable to appreciate the submission of the learned senior counsel for the appellant. We are at present concernecl with the situation.where the issue is mercly of passing on the liability by the lancllord to the tenant qua seruice tax on such tax liaving been imposed. There rvas litigation i'itiated inter se the parties. The r.espo'dent had stopp.ed payi'g the service tax' This issue was live atthe time when the suit rvas filecl. There was no mention in the suit qua the liability to pay service tax. Not onry that, when the dispute was referred to rnediation, thele was no agreemelt r.ecorclecl qua the liability of the.respondent to pay service tax. The last nail in the coffin is the lnanner in which the clecree lvas passed i.e. while accepti'g the settletnent, at the request of the appellant, thele are observatiols qua pay'rent of water and electricity charges by the respondelt in ter.rns of the lease agreement where, once again, the issue of liability of respo'cle't to pay seruice tax r'vas not raised by the appellant. we have already noticecl that pala 7 of the settlement agreement clearly states that there are 10 disptrtes a'd differences su.iving inter se the parties. It is clearly an afterthought on the FAO(OS) Nos.476l2012 & 477/2012 Page 8 of[9] a paft of the appellant to have raised this issue.post the decree havilg beel passed and nor'v seeking to fasten this liability on the respondent r,vhich the decree did not eirvisage. The conduct of the appellant contra ildicates the exlstence of even an implied term of the contract to fasten the liabiiity of se.ice tax on the respondents. The original contractual ter-ms may have been silent in this regard but the subsequent developrnents clearly show that there was an irnplied uovation of the agl'eemelltd - not to saddle the liability of service tax on the respondent and to the effectthatthe appellant should absor.b the said liabitity itself we thus find no merit in these appeals which are disrnissed with costs of Rs.10,000/- each in both the appeals. Oaj-4rJt.4!- SANJAY IilSIiAN I<AUL. J VIPIN SA OCTOBER 01,20!2ldnt FAO(OS) Nos.476l20t[2] & 477/20t[2] Page 9 of[9],\