P.K. Chandradas and others v. Ambalavayal Grama Panchayath

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE N.NAGARESH** ## **WEDNESDAY,THE 23RD DAY OF JANUARY 2019 / 3RD MAGHA, 1940** ## **WP(C).No.21953 of 2015** ## **PETITIONERS:** - **1 P.K.CHANDRADAS AGED 63 YEARS S/O.KRISHNAN, PALKUZHI HOUSE, NENMENI VILLAGE,SULTHAN BATHERY.** - **2 K.SIVADAS AGED 47 YEARS S/O.RAMAN, KANDMBATH HOUSE, AMBALAVAYAL VILLAGE,SULTHAN BATHERY.** - **3 DHANANJAYAN AGED 60 YEARS S/O.SANKARAN, CHELAKKAD HOUSE, NENMENI VILLAGE,SULTHAN BATHERY.** - **4 K.V.SASI AGED 50 YEARS S/O.VELU, KATTACHIRAKUNNEL HOUSE, NENMENI VILLAGE,SULTHAN BATHERY.** - **5 P.S.VIJAYAN AGED 46 YEARS S/O.SIVARAMAN NAIR, POOKOTTATHIL HOUSE.** **6 O.V.CHERIYAN AGED 57 YEARS S/O.VARGHESE, OOROTH HOUSE, AMBALAVAYAL,SULTHAN BATHERY.** **BY ADV. DR.GEORGE ABRAHAM** ## **RESPONDENTS:** **1 AMBALAVAYAL GRAMA PANCHAYATH AMBALAVAYAL POST, AMBALAVAYAL VILLAGE, SULTHAN BATHERY TALUK, REPRESENTED BY ITS SECRETARY.** **WP(C).No.21953 of 2015** **2** **2 SECRETARY AMBALAVAYAL GRAMA PANCHAYATH,AMBALAVAYAL POST, AMBALAVAYAL VILLAGE,SULTHAN BATHERY TALUK, REPRESENTED BY ITS SECRETARY. 3 DEPUTY DIRECTOR OF LOCAL FUND AUDIT WAYANAD. BY ADVS. SRI.ABRAHAM P.GEORGE GOVERNMENT PLEADER SRI.SHAJAHAN T.K. SMT.M.D.BEENA SMT.M.SANTHY SRI.K.VINOD KUMAR** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 23.01.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WP(C).No.21953 of 2015** **3** ## **[CR]** ## **J U D G M E N T** ~ ~ ~ ~ ~ ~ ~ ~ ~ Petitioners seek to quash Exts.P6 to P11 orders and to declare that they are not liable to pay service tax amounts as claimed in the said impugned orders. 2. The petitioners are tenants of shop rooms constructed by the 1[st] respondent-Panchayat. They have executed Lease Deeds with the Panchayat and have renewed the same from time to time, as evidenced by Exts.P1 to P5. The 1[st] respondent has now issued notices to the petitioners requiring them to pay service tax for the period from 01.06.2007 to 31.03.2012. The said demand is illegal and unsustainable, contend the petitioners. **WP(C).No.21953 of 2015** **4** 3. Respondents 1 and 2 filed counter affidavit. According to respondents 1 and 2, the petitioners are liable to pay service tax along with monthly rent. The Government ordered to collect service tax from the petitioners. The Panchayat received the order only in December, 2011. Therefore, service tax for the years from 2007 could not be collected in time. The Panchayat had issued notice to tenants. Only two tenants paid the service tax. In the circumstances, the Panchayat paid the tax from its funds, to the Central Excise Department. The Panchayat is entitled to recoup the said amount from the petitioners. 4. The 3[rd] respondent-Deputy Director of Local Fund Audit filed counter affidavit. An audit conducted in the accounts of the Panchayat revealed excess expenditure of ₹8,45,852/-. It was as a result of the Panchayat paying service tax on rent of the buildings leased. As per Lease Deeds, the petitioners have agreed to pay rent and other charges. As per Section 66 of the Central Finance Act, 1994, service tax on rental income should be paid to the **WP(C).No.21953 of 2015** **5** Central Government from 01.06.2007. The Panchayat, however, started to collect service tax from tenants only from 01.04.2012 onwards. It was the duty of the Panchayat to collect service tax from tenants. The writ petition is devoid of merits. 5. The learned counsel for the petitioners argued that in Exts.P1 to P5 agreements executed by the petitioners, there is no liability for the petitioners to pay service tax. Service tax is a tax assessed and imposed on the service provider. In this case, Panchayat is the service provider. Therefore, liability is exclusively of the 1[st] respondent-Panchayat. The petitioners cannot be burdened with the same. The petitioners relied on the judgments in _**Max New York Life Insurance Co. Ltd. v. Insurance Ombudsman and others** [2011 (4) KLT 397]_ and in _**Rashtriya Ispat Nigam Limited v. M/s. Dewan Chand Ram Saran** [(2012) 5 SCC 306]_ . 6. The counsel for the respondents, on the other hand, argued that though the Panchayat is the assessee to **WP(C).No.21953 of 2015** **6** service tax, it has to be recovered from those who utilise the services. Otherwise, the burden of service tax will fall on common citizens, since the Panchayat is a Local Self Government Institution. The direction of the Deputy Director of Local Fund Audit, is therefore legal and justifiable. 7. I have perused the pleadings and heard the counsel appearing on behalf of the petitioners and the respondents. 8. As per Clause 2(2) of Exts.P1 to P5 agreements executed by the petitioners-lessees, the lessee covenants with the lessor as follows:- _“To bear, pay and discharge all existing and future charges, assessments and outgoings payable in respect of the said premises inclusive of the ground rent of Rs.1061/- (Rupees One thousand and Sixty one only) per mensom or any other sum that may from time to time be levied as such upon the piece or parcel of land by the Ambalavayal Grama Pnchayath and the Collector of Wayanad District on behalf of the Central Government of Kerala.”_ **WP(C).No.21953 of 2015** **7** As per the covenant, the petitioners are liable to bear, pay and discharge all existing and future charges, assessments and outgoings payable in respect of the leased premises. Service tax is a charge/assessment and hence, the petitioners are liable to pay the same. 9. It is stated that the Panchayat did not demand the service tax from 2007 to 2011. But, the case of the Panchayat is that they have demanded from all tenants, but only two tenants have paid. In order to abide by the statutory obligation, the Panchayat paid the entire service tax due till 2012. The delay of five or six years in making the demand will not absolve the petitioners from their contractual obligation under the agreements. 10. The Division Bench judgment of this Court in _**Max New York Life Insurance Co. Ltd.** (supra)_ dealt with service tax levied by an Insurance Company. In the said judgment, a Division Bench of this Court held that a service provider who does not disclose the prevailing statutory duties and **WP(C).No.21953 of 2015** **8** levies at the time of transaction, is not entitled to claim such taxes and levies from the consumer at a later stage during the course of continuing service. The Division Bench held that multinational companies offering services to public including rural mass have a duty to disclose the real price at which the service is provided. I do not think, the said Division Bench judgment can be of any use to the petitioners in this case. Because, generally a contract of insurance is a contract of adhesion, where the terms and conditions of the contract are set by one of the parties and the other party has little or no ability to negotiate. The Division Bench judgment dealt with such a form of contract. 11. In the petitioners' case, the agreement is of a lease. The petitioners were aware of the terms and conditions of the lease agreement, including Clause 2(2) indicated earlier, at least at the time of executing it. The petitioners have signed the Lease Deeds knowing the terms, with open eyes. The petitioners, therefore, cannot wriggle out of their liability. **WP(C).No.21953 of 2015** **9** 12. The argument of the counsel for the petitioners that since the Panchayat is the assessee to service tax, the service tax arrears cannot be recovered from the tenants, cannot stand the scrutiny of law. In _**Rashtriya Ispat Nigam Limited** (supra)_ , the Apex Court held that the provisions concerning service tax are relevant only between the assessee under the statute and the tax authorities. The statutory provisions cannot be of relevance to determine the rights and liabilities of the parties who have entered into a contract between them. The Apex Court held that in the same manner a seller who is a sales tax assessee can recover the tax from buyer, a service tax assessee can recover the service tax from recipient of service, by agreement. In this case, the petitioners-lessees have signed an agreement making themselves liable to pay future charges, assessments, outgoings, etc. of the leased premises. The petitioners are bound by it. I find no illegality in Exts.P6 to P11 orders. The writ petition, therefore, stands **WP(C).No.21953 of 2015** **10** dismissed. Respondents 1 and 2 may, however, at their discretion, grant the petitioners easy instalment facility to remit the service tax arrears, taking into account the peculiar circumstances of the case. Sd/- **N. NAGARESH, JUDGE** aks/27.03.2019 **WP(C).No.21953 of 2015** **11** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXHIBIT P1 TRUE COPY OF THE AGREEMENT EXECUTED BY THE IST PETITIONER DATED 4.6.2007 EXHIBIT P2 TRUE COPY OF THE AGREEMENT EXECUTED BY THE IST PETITIONER DATED 22ND MAY, 2008. EXHIBIT P3 TRUE COPY OF THE AGREEMENT EXECUTED ON 27TH JUNE, 2009. EXHIBIT P4 TRUE COPY OF THE AGREEMENT EXECUTED BY THE IST PETITIONER ON 30.4.2010 EXHIBIT P5 TRUE COPY OF THE AGREEMENT DATED 30.4.2011 EXHIBIT P6 TRUE COPY OF THE ORDER ISSUED BY THE 2ND RESPONDENT TO THE IST PETITIONER EXHIBIT P7 TRUE COPY OF THE NOTICE DATED 11.5.2015 ISSUED TO THE 2ND PETITIONER FOR THE TWO ROOMS EXHIBIT P8 TRUE COPY OF THE NOTICE DATED 11.5.2015 ISSUED TO THE 3RD PETITIONER EXHIBIT P9 TRUE COPY OF THE ORDER DATED 11.5.2015 SERVED ON THE 4TH PETITIONER EXHIBIT P10 TRUE COPY OF THE NOTICE DATED 11.5.2015 ISSUED TO THE 5TH PETITIONER EXHIBIT P11 TRUE COPY OF THE NOTICE ISSUED TO THE 6TH PETITIONER**