20/01/2014

Service Recipient is Required to Reimburse Service Tax Paid by the Service Provider

We are sharing with you an important judgement of the Hon’ble Allahabad High Court  in the case of M/s. Bhagwati Security Services (Regd.) Versus Union of India (2013 (11) TMI 649) on the following issue: 

Issue: 

Whether the service provider can get the reimbursement of service tax already paid by him, from the service recipient? 

Facts of the Case: 

M/S. Bhagwati Security Services (Regd.), the Petitioner (“the Assessee” or “the Company”) was providing security services under the service Agreement (“the Agreement”) to BSNL. The Company deposited service tax to the Department on the basis of demand raised by the authorities. Thereafter, the Company applied for reimbursement of service tax from BSNL, which was denied on the ground that the same was not provided in the Agreement. The Company filed petition in the High Court. 


Held: 

The Hon’ble High Court after going through the Agreement and other legal provisions of the Finance Act and rules thereof held that: 
·         Service tax is statutory liability. It is a tax which is required to be collected by the service provider from the person to whom service is provided, and thereafter to be deposited with Government treasury within the prescribed time. 
·         Thus, essentially the statute is being imposing the tax upon the person to whom service is being provided and the service provider is merely a collecting agency. 
·         BSNL (i.e. service recipient) directed to make reimbursement of service tax to the petitioner without further delay. 

 HIGH COURT JUDGMENT 

Service tax is statutory liability. It is a tax which is required to be collected by the service provider from the person to whom service is provided, and thereafter to be deposited with government treasury within the prescribed time. 

Thus essentially the statute is being imposing the tax upon the person to whom service is being provided, and the service provider is merely a collecting agency. In that view of the matter, the writ petition is allowed. The respondent no.2 is directed to make reimbursement of service tax to the petitioner without further delay. 

High Court of Allahabad 
WRIT TAX No. – 870 of 2007 
M/S Bhagwati Security Services (Regd.) 
Vs. 
Union Of India & Others 
ORDER 

Hon’ble Sushil Harkauli, J.
Hon’ble Naheed Ara Moonis, J. 

Heard learned counsel for the petitioner and the learned counsel appearing on behalf of the respondent No. 2, and seen the record.
There is an agreement between the petitioner and the respondent No. 2 i.e. B.S.N.L., under which the petitioner was required to provide security services to the respondent No. 2. under agreement between the two parties. The agreement contained the terms of payment. 

Subsequently service tax was demanded from the petitioner which has been deposited by the petitioner . The petitioner applied before the respondent No. 2 for reimbursement of the service tax, which request has been denied by the respondent No. 2 by the impugned order. 

Only reason given for denying the reimbursement of the service tax is that the same was not contemplated in the service agreement. 

Having gone through the agreement and the provisions of the relevant statute, we find that service tax is statutory liability. It is a tax which is required to be collected by the service provider from the person to whom service is provided, and thereafter to be deposited with government treasury within the prescribed time. 

Thus essentially the statute is being imposing the tax upon the person to whom service is being provided, and the service provider is merely a collecting agency. 

In that view of the matter, the writ petition is allowed. The respondent No. 2 is directed to make reimbursement of service tax to the petitioner without further delay. 

Order Date: 16th January 2013.


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