Court orders refund of Rs.5,53,077/- with interest, citing lack of service tax clause in original lease agreement
In a significant ruling, the Delhi High Court has ordered Sunrider India Pvt. Ltd. to refund Rs.5,53,077/- to Tannia Rikhy and others, the appellants in a contentious service tax dispute, with interest at the rate of 9.03% per annum from January 31, 2014, until the amount is realized. The judgment was delivered by Justice Neena Bansal Krishna, resolving a long-standing controversy regarding service tax liability under a lease agreement.
The dispute arose when the defendants deducted Rs.5,53,077/- from the security deposit of the plaintiffs towards alleged service tax dues for the period from June 1, 2007, to August 15, 2009. The original lease agreement, dated August 28, 2006, had no clause imposing service tax liability on the tenants. Service tax on renting of immovable property was introduced later through the Finance Act, 2007.
A subsequent lease agreement dated September 7, 2009, included a specific clause making service tax liability the obligation of the lessee. However, the court found that the defendants could not recover service tax dues for the earlier period due to the absence of a clause in the initial lease and because the claim was time-barred.
The court noted that the defendants had waived their claim for service tax for the period in question and had not initiated legal proceedings within the limitation period. The court found that the deduction from the security deposit was unlawful and directed the defendants to refund the amount.
This ruling highlights the importance of clear tax liability clauses in lease agreements and the need for timely legal action to recover dues. The decision is expected to have implications for similar cases involving service tax disputes under lease agreements.
Bottom line:-
Recovery of Service Tax dues from tenant under a lease agreement where no clause regarding Service Tax liability existed in the initial lease agreement.
Statutory provision(s):
Code of Civil Procedure, 1908 (CPC), Finance Act, 2007
Tannia Rikhy v. Sunrider India Pvt. Ltd., (Delhi) : Law Finder Doc id # 2903642
