Landlord to pay service tax

The Supreme Court ruled last week that service tax should be paid by the lessor of an immovable property who let it out to the lessee and not the latter. The Calcutta High Court had taken the opposite view in the case, Union of India vs Bengal Shrachi Housing Development Ltd. The government was paying the firm ~16 lakh a month for an accommodation for the Indian Coast Guard. When it came to payment of service tax, there was a dispute on who would pay it. The Calcutta High Court held that the liability to bear service tax being that of the recipient of the service, the government would be liable to pay the said tax. The government appealed to the Supreme Court. It noted the provisions of the Finance Act 1994 which introduced service tax and agreed with the government that the lessor has the liability. But the government’s victory was hollow because, meanwhile, it had written to the chief of the Coast Guard that it would pay service tax and other duties. Thus the government won on law but lost on the basis of the letter.