Query 1

Our opinion has been sought on the issue of admissibility of the claim of service tax by
M/s CGL in consideration of facts explained at note dated 15.10.05 & 19.10.05 of AGM
(F&A) & CE (Trans). In the note dated 15.10.05 opinion has been sought on the issue
that in the absence of provision of service tax in the contract with M/s CGL as it was not
in vogue at the time and issuance of orders, whether WBSEB is liable to pay such tax?
And further whether segregation can be done with respect of work done before the
imposition of service tax and work done after service tax was in vogue?

Our opinion

To answer your query regarding admissibility of claim of service tax by M/s CGL in the
absence of the same in the contract, we need to understand that who is liable for payment
of service tax & in the case of default in payment of service tax whether service tax can
be demanded from receiver of service i.e. WBSEB?
As per section 68 of the Finance Act, 1994, the person providing the service is required to
pay the tax. Further as per section 73, in case of non payment or short payment of service
tax, it can be demanded only from the person chargeable with the service tax. Receiver of
service is not liable for payment of service tax and no demand can be raised from him in
case of non payment.
Service tax being an indirect tax is allowed to be recovered from the customer like any
other indirect taxes viz. Excise, Customs, etc. However the liability to pay these taxes is
upon seller of goods or services. The customer merely reimburses the liability of seller of
goods or services, if the contract for sale of goods or services specifies for duties and
taxes to be paid extra.
It has been held in a number of cases that service tax can not be demanded from service
receiver. It was decided in a recent judgment in the case of Bajaj Auto Limited –
2005(179) E.L.T. 481 (Tri-Mum.) that service receiver is not required to deduct it at
source, unlike Income Tax. In the absence of provision regarding the same in section 68,
service tax could not be demanded from the service receiver. Even though this judgment
was rendered in relation to services provided by non-resident but the ratio of the
judgment is equally applicable to services provided by resident. The department sought to
recover the service tax from the receiver of services in India as it would have been
difficult, if not impossible to raise a demand and recover the same from a non resident.
Similar judgment was rendered in the case of Kerala State Electricity Board - 2005 (187)
ELT 111 (Tri.-Bang.).
Hence, in our view since WBSEB is not liable and responsible for payment of service tax,
so in the absence of any provision of reimbursement of liability of M/s CGL to pay
service tax in the contract, it need not be paid to them.
Regarding the question of absence of provision of service tax in the contract as it was not
in vogue at the time and issuance of orders, in our view, any contract even if the service
tax in is vogue can always be inclusive or exclusive of service tax. In the absence of any
provision of service tax in the contract, it should always be treated as inclusive of service
tax and service tax need not be paid extra. There is nothing in the service tax provisions
which states that service tax has to be paid extra by the receiver of service in the absence
of provision of the same in the contract for service.
Further regarding your query of whether segregation can be done with respect to work
done before the imposition of service tax and work done after service tax was in vogue,
our opinion is that question of segregation of work done between before and after the
imposition of service tax does not arise in view of our opinion stated above that WBSEB
is not liable to reimburse the liability of M/s CGL to pay service tax in the absence of
provision for the same in the contract.
However we would like to point out that there can be no question of any liability to pay
service tax even by M/s CGL on the work done before imposition of service tax. Any
claim made by M/s CGL on WBSEB for reimbursement of their liability to pay service
tax on work done before imposition of service tax in not in accordance with their legal
liability. Any payment of service tax on the work done before imposition of service tax by
M/s CGL is nothing more than a gift to the revenue of the Government of India.

Query 2

Whether WBSEB, as a statutory body discharging its public utility duties and essential
services, will be required to pay such tax or will be exempted from this provision?

Our opinion

Section 64 provides for extent of applicability of service tax. It states that it extends to the
whole of India except the State of Jammu and Kashmir.
Section 66 is the charging section of service tax specifying the rate, the services and the
manner of collection of service tax. It does not exempt any statutory body discharging
public utility duties and essential services from the payment of service tax.
Section 93(1) empowers the Central Government to grant exemption from payment of
service tax in the public interest.
In exercise of these powers, the Central Government has granted following general
exemptions from service tax to all the service tax assessees:-
(a) Exemption to all services provided to United Nations or an International
Organisation – vide notification no. 16/2002- S.T. dated 2-8-2002.
(b) Exemption of Export of services - vide notification no. 11/2005- S.T. dated 19-4-
2005 and notification no. 12/2005- S.T. dated 19-4-2005
(c) Exemption to all services provided to developers of SEZ or unit of SEZ for
development, establishment, maintenance and operation of SEZ. - vide
notification no. 4/2004- S.T. dated 31-3-2004.
However no exemption notification has been issued till date granting exemption to any
statutory body discharging public utility duties and essential services from the payment of
service tax.