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2015 SCC OnLine Del 12756 : (2015) 225 DLT 377 : (2017) 3
GSTL 325

In the High Court of Delhi

(BEFORE PRADEEP NANDRAJOG AND MUKTA GUPTA, JJ.)

RFA (OS) 24-25/2011

Satya Developers Pvt. Ltd. .…. Appellant
Mr. J.K. Mittal, Advocate with Mr. Rajveer Singh, Ms. Krishna Nandan
Kumar, Advocates for appellant.
Mr. Balbir Singh, Sr. Advocate/Amicus Curiae.
Versus
Pearey Lal Bhawan Association .…. Respondent
Mr. Simran Mehta, Advocate with Mr. Prabhat Kalia, Advocate for
respondent.
And
RFA (OS) 105/2014
M/s. HDFC Bank Limited .…. Appellant
Mr. Raman Kapur, Sr. Advocate instructed by Mr. R. ishab Raj Jain,
Ms. Pallavi Deepika, Advocates for the appellant.
Mr. Balbir Singh, Sr. Advocate/Amicus Curiae.
Versus
M/s. Meattles Private Limited .…. Respondent
Mr. Deepak Bashta, Advocate for respondent.
RFA (OS) 24-25/2011 and RFA (OS) 105/2014
Decided on October 13, 2015
MUKTA GUPTA, J.:— Pearey Lal Bhawan Association (in short ‘PLBA’)
filed two suits being CS(OS) Nos. 1016/2008 and 1018/2008 against
Satya Developers Pvt. Ltd. (in short ‘Satya’) whereas M/s. Meattles
Private Limited (in short ‘Meattles’) filed CS(OS) No. 512/2012 against
M/s. HDFC Bank Ltd. (in short ‘HDFC Bank’) seeking declaration and
injunction qua the service tax paid in respect of rented premises.
2. The plaintiffs in the suit sought a declaration holding the
defendants to be liable to pay the service tax leviable on the rent and
the maintenance charges payable under the lease deed executed inter
se the parties, recovery of amount and mandatory injunction requiring
the defendants to pay to the plaintiff service tax of the amount on the
lease rentals payable in future. Thus the three appeals are being
disposed off by a common judgment as they involve common question
of law.
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3. In CS (OS) Nos. 1018/2008 and 1016/2008 Plaintiff PLBA claimed

that it was a registered society and being the owner of the building
Pearey Lal Bhawan located at 2, Bahadur Shah Zafar Marg, New Delhi-
110002 had entered into a registered lease deed dated October 09,
2006 with the Defendant Satya Developers in respect of an area
measuring 500 sq.feet on the third floor of the premises Pearey Lal
Bhawan and in respect of an area measuring 2818 sq.feet on the
ground floor of the premises Peary Lal Bhawan. On October 16, 2006
the parties entered into a further agreement for maintenance of
common service and facilities. With effect from June 01, 2007 the
Central Government by amending Chapter-V of the Finance Act, 1994
levied service tax on renting of immovable property for business
purposes. It was claimed that the service tax being an indirect tax has
to be deposited by the service provider who was entitled to collect the
same from the user of the service as it was a tax on the service and not
on the service provider.
4. In the written statements filed Satya referring to the following
terms of the lease agreement claimed that the parties have contracted
that PLBA will pay the tax levied by the government and thus it had no
liability to pay the service tax:
“5. That the lessor shall continue to pay all or any taxes, levies or
charges imposed by the MCD, DDA, L&DO and or Government, Local
Authority etc”.
5. The defendant also relied on clause II(1) of the agreement for
maintenance of common service and facilities, which reads as under:
“II (1) That the Lessor to pay all rates, taxes, ground rent, house-
tax charges, fire-fighting tax, easements and outgoing charges
imposed or payable to the MCD, L&DO, DDA or Government in
respect of the demised premises payable by the Lessor and
discharge all its obligations well in time”.
6. In CS (OS) No. 512/2012 Meattles claimed to be the lessor of the
demised premises bearing Nos. 3909-3912, Hamilton Road, Mori Gate,
Kashmere Gate, New Delhi measuring approximately 2700 sq.ft of built
up area on the ground floor leased out to HDFC Bank vide the
registered lease deed dated November 25, 2004. The issue again raised
was in relation to the service tax net w.e.f June 01, 2007 vide
notification No. 23/2007-ST dated May 22, 2007 and Finance Act,
2007.
7. In the written statement filed HDFC Bank also claimed that in
terms of Clause 4(v) of the lease agreement it was not liable to pay the
service tax as agreed between the parties which is reproduced as
under:
“The municipal taxes, rates, charges and other outgoings in
respect of the demised premises that would be
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determined/fixed/varied from time to time by the Municipal

Corporation/Municipality/Gram Panchayat or any other local authority
shall be paid by the Lessor or the Lessee as specified/stipulated in
the schedule annexed herewith and shall keep the other party
indemnified at all times against the same.”
8. In CS (OS) Nos. 1018/2008 and 1016/2008 the following
common issues were settled except that in issue No. 3 in CS (OS) No.
1016/2008 the amount was Rs. 3,55,270/- whereas in CS (OS) No.
1018/2008 the amount was Rs. 24,720/-:
“1. Whether the plaintiff is entitled to a decree of declaration in
favour and against the defendant, holding that the defendant is
liable to pay the service tax, which is leviable on the rent and the
maintenance charges payable under the lease deed dated
09.10.2006 and the Agreement of Maintenance for Common
Services and Facilities dated 16.10.2006, respectively?
2. Whether the plaintiff is entitled to a decree of permanent
mandatory injunction against the defendant directing the
defendant to pay to the plaintiff the amount of service tax leviable
on the rent and maintenance charges payable under the lease
deed dated 09.10.2006 and the Agreement of Maintenance for
Common Service and Facilities dated 16.10.2006 respectively,
during the currency of the said agreements?
3. Whether the plaintiff is entitled to recovery of a sum of Rs.
24,720/- paid by the plaintiff, on behalf of the defendant, on
account of service tax for the period 01.06.2007 to 31.03.2008?
4. Whether the plaintiff is entitled to interest on the amount of
service tax paid by it on behalf of the defendant during the
pendency of the suit and if so, at what rate?
5. Relief.”
9. The issues settled in CS (OS) No. 512/2012 were:
“1. Whether the defendant is liable to pay service tax on rent, as
alleged in the paint? OPP
2. To what amount, if any, the plaintiff is entitled from the
defendant? OPP.
3. Whether the suit is barred by limited? OPD.”
10. In the three suits since beyond the documents no evidence was
required to be led and the documents were admitted, the parties
agreed for the suits to be finally heard without leading evidence.
11. The two learned Single Judges of this Court vide separate
judgments dated December 20, 2010 in CS (OS) Nos. 1016/2008 and
1018/2008 and October 19, 2012 in CS (OS) No. 512/2012 decided the
suits in favour of the plaintiffs holding them entitled to recover amount
payable towards the service tax from the defendants.
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12. Learned counsel for Satya contends that the learned Single
Judge erroneously relied upon the provisions of Sales of Goods Act,
1930 which have no application to service tax. Section 12B of the
Central Excise Act relied upon by the learned Single Judge applies only
to refund of duty and does not provide for the liability of the consumer
to pay service tax. Section 68 of the Finance Act, 1994 and 1997
provided for collection of service tax which term has been changed by
the Finance Act of 1998 and the liability has been fixed on the service
provider to pay the service tax. By the lease agreement the parties had
contracted that taxes would be borne by the lessor and PLBA cannot
now wriggle out of the terms of the contract. Section 67 of the Finance
Act provides for valuation of the service tax which would be included in
the ‘gross amount’ charged by a service provider which provision has
been ignored by the learned Single Judge. The case of Satya is covered
by the decision of Supreme Court reported as (2011) 13 SCC 497 Ultra
Tech Cement Ltd. (Earlier Ultratech Cemco Ltd.) v. State of Maharashtra
Reliance is also placed on the decisions reported as 2012 (26) STR 289
SC Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, 2011 (22)
STR 387 Max New York Life Insurance Co. Ltd. v. Insurance
Ombudsman and 2011 (22) STR 5 MP Ravishankar Jaiswal v. Jabalpur
Development Authority Referring to the decision reported as AIR 1961
SC 1047 Commissioner of Sales Tax, Uttar Pradesh v. The Modi Sugar
Mills Ltd. it is contended that in interpreting the taxing statute,
equitable considerations are entirely out of place nor can any taxing
statute be interpreted on any presumptions or assumptions.
13. Learned counsel for HDFC Bank contends that Section 68(2) of
the Finance Act provides that notwithstanding anything contained in
sub-section (1) the Central Government is empowered to notify in the
official gazette the service tax on taxable services, as notified, to be
paid by such person and in such a manner as may be prescribed.
However, there is no notification directing the lessee to make the
payment of service tax and hence in the absence of a notification no tax
liability can be fastened on HDFC. Referring to the decision reported as
JT 2005 (1) SC 449 Maruti Udyog Ltd. v. Ram Lal it is contended that in
construing a legal fiction, the purpose for which it is created should be
kept in mind and should not be extended beyond the scope thereof or
beyond the language by which it is created. Further a deeming
provision cannot be pushed too far so as to result in an anomalous or
absurd position. Referring to the decision reported as 2012 (191) DLT
183 Raghubir Saran Charitable Trust v. Puma Sports India Pvt. Ltd. it is
contended that the service tax liability has to be determined in terms of
the contract between the parties.
14. Learned counsel for PLBA on the other hand contends that it is
well settled that service tax is a Value Added Tax (VAT) and being a
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consumption tax it is not a charge on the business but on the consumer

and would be thus leviable to whom the services are provided. It is
further contended that ordinarily the burden of service tax has to be
borne in law by the service recipient. Since service tax is an indirect
tax, the service provider can by an agreement assume the burden of
such tax and relieve the service recipient/consumer of the same. It is
contended that from the terms of the lease agreement and also the
agreement for maintenance, the service provider has not assumed the
burden of paying the service tax and the liability would be that of the
service recipient. The fact that execution of the lease deed dated
October 09, 2006 precedes the imposition of tax liability, there was no
possibility of any conscious assumption of any liability by PLBA as no
such liability existed. The words ‘shall continue to pay all or any tax’ in
the lease agreement indicates that the liability of the lessor was
confined only to the existing levies which already stood imposed at the
time of execution of lease deed. Reliance is placed on the decision
reported in (2007) 7 SCC 527 All India Federation of Tax Practitioners
v. Union of India, (2011) 2 SCC 352 Association of Leasing and
Financial Service Companies v. Union of India, 182 (2011) DLT 548
(FB), Home Solutions Retails (India) Ltd. Union of India
15. Shri Balbir Singh, Senior Advocate who had been requested to
assist this Court in this matter points out that the three essentials of a
taxing statute are chargeability, receivability and assessment
component. Service tax being an indirect tax, though leviable on the
consumer of the services however, there is no mechanism by which the
government can recover the same from the consumer. Thus the liability
of payment of the service tax has been fixed on the service provider,
that is, the lessor to be recoverable from the recipient, that is, the
lessee. Referring to Section 64A of Sales of Goods Act, 1930 it is stated
that unless it is contracted to the contrary, the consumer of the goods
and thus the consumer of the services has to bear the liability of the
tax. Referring to the decision of the Supreme Court reported in (1997)
5 SCC 536 Mafat Lal Industries v. Union of India it is contended that in
case of indirect tax the Court would presume until a contrary is
established that a duty of excise or a custom duty has been passed on
to the consumer. It is undoubtedly a rebuttable presumption but the
burden of rebutting it lies on the person who claims the refund. It is
stated that Section 64A of the Sales of Goods Act is based on rule of
equity. Service tax being an indirect tax it is possible that it may be
passed on. Further the statutory provision can be of no relevance to
determine the rights and liabilities between the parties to the contract
and there is nothing in law to prevent the parties from entering into an
agreement with the burden of any tax arising out of obligation of a
party under the contract to be borne by such party. Mr. Balbir Singh,
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th
Senior Advocate points out that pursuant to the 8 report of the Law
Commission goods under the Sales of Goods Act, 1930 were provided
to include the electricity, gas and water and amendments were also
brought by insertion of Section 64A by replacing Section 10 of the Tariff
Act. Section 64A of the Sales of Goods Act is a rule of equity based on
the basic principle that indirect taxes can be passed on. It is stated
that it is akin to a situation where Limitation Act may not apply
however, the principles of Limitation Act would apply and thus the
principles of passing on the liability as under the Excise Act, Customs
Act and Sales Tax Act would apply to the Service Tax as well. Indirectly
provisions relating to goods in Central Excise Tax have been made
applicable to the Service Tax.
16. The Supreme Court in the decision reported in All India
Federation of Tax Practitioners (Supra) noted that service tax is an
indirect tax levied on certain services provided by certain categories of
persons including companies, associations, firms, body of individuals
etc. Service sector contributes about 64% to the GDP. It noted that in
contemporary world, development of service sector has become
synonymous with the advancement of the economy and the Economists
hold the view that there is no distinction between the consumption of
goods and consumption of services as both satisfy the human needs. It
was noted that ‘Value Added Tax’ (in short ‘VAT’) which is a general tax
applies in principle to all commercial activities involving production of
goods and provision of services. The Supreme Court held that VAT is a
consumption tax as it is borne by the consumer and ‘Service Tax’ is a
VAT which in turn is destination based consumption tax. The Supreme
Court noted that just as excise duty is a tax on value addition on goods,
Service tax is on value addition by rendition of services. Broadly
‘Services’ fall into two categories, namely, property based services and
performance based services. Property based services cover service
providers such as architects, interior designers, real estate agents,
construction services, mandapwalas etc. and the later being services
provided by stock-brokers, practising chartered accountants, practising
cost accountants, security agencies, tour operators, event managers,
travel agents etc.
17. In the decision reported as AIR 2012 SC 2829 Rashtriya Ispat
Nigam Ltd. v. Dewan Chand Ram Saran it was held:
“26. As far as the submission of shifting of tax liability is
concerned, as observed in paragraph 9 of Laghu Udyog Bharati
(Supra), service tax is an indirect tax, and it is possible that it may
be passed on. Therefore, an Assessee can certainly enter into a
contract to shift its liability of service tax. Though the Appellant
became the Assessee due to amendment of 2000, his position is
exactly the same as in respect of Sales Tax, where the seller is the
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Assessee, and is liable to pay Sales Tax to the tax authorities, but it
is open to the seller, under his contract with the buyer, to recover
the Sales Tax from the buyer, and to pass on the tax burden to him.
Therefore, though there is no difficulty in accepting that after the
amendment of 2000 the liability to pay the service tax is on the
Appellant as the Assessee, the liability arose out of the services
rendered by the Respondent to the Appellant, and that too prior to
this amendment when the liability was on the service provider. The
provisions concerning service tax are relevant only as between the
Appellant as an Assessee under the statute and the tax authorities.
This statutory provision can be of no relevance to determine the
rights and liabilities between the Appellant and the Respondent as
agreed in the contract between two of them. There was nothing in
law to prevent the Appellant from entering into an agreement with
the Respondent handling contractor that the burden of any tax
arising out of obligations of the Respondent under the contract would
be borne by the Respondent.”
18. Sections 65(105) states ‘Taxabale Service’ means any service
provided or to be provided:
“(zzzz) …..to any person, by any other person in relation to
renting of immovable property for use in the course or furtherance of
business or commerce.
Explanation 1.—For the purposes of this sub-clause, “immovable
property” includes—
(i) building and part of a building, and the land appurtenant
thereto;
(ii) land incidental to the use of such building or part of a
building;
(iii) the common or shared areas and facilities relating thereto;
and
(iv) in case of a building located in a complex or an industrial
estate, all common areas and facilities relating thereto, within
such complex or estate, but does not include-
(a) vacant land solely used for agriculture, aquaculture,
farming, forestry, animal husbandry, mining purposes;
(b) vacant land, whether or not having facilities clearly
incidental to the use of such vacant land;
(c) land used for educational, sports, circus, entertainment and
parking purposes; and
(d) building used solely for residential purposes and buildings
used for the purposes of accommodation, including hotels,
hostels, boarding houses, holiday accommodation, tents,
camping facilities.
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Explanation 2.—For the purposes of this sub-clause, an

immovable property partly for use in the course or furtherance of
business or commerce and partly for residential or any other
purposes shall be deemed to be immovable property for use in the
course or furtherance of business or commerce;…”
19. Section 83 of the Finance Act, 2007 makes certain provisions of
the Central Excise Act, 1944 as in force from time to time applicable in
relation to Service Tax as they apply in relation to a duty of excise:
“83. Application of certain provisions of Act 1 of 1944:
The provisions of the following section of the Central Excise Act,
1944 (1 of 1944), as in force from time to time, shall apply, so far as
may be, in relation to service tax as they apply in relation to a duty
of excise : -
9C, 9D, 11B, 11BB, 11C, 12 12A, 12B. 12C, 12D, 12E, 14, [14AA]
*, 15, 33A, 35F, 35-FF to 35-O (both inclusive), 35Q, 36, 36A, 36B,
37A, 37B, 37C, 37D, [38A]* and 40.”
20. Section 12(b) of the Central Excise Act reads as under:
“12B. PRESUMPTION THAT INCIDENCE of DUTY HAS BEEN
PASSED ON TO THE BUYER.
Every person who has paid the duty of excise on any goods under
this Act shall, unless the contrary is proved by him, be deemed to
have passed on the full incidence of such duty to the buyer of such
goods.”
21. Thus Section 83 of the Finance Act is a legislation by
incorporation applying inter alia Section 12B of the Central Excise Act
to the Service Tax. Halsbury's Law of England (4th Edn., Vol.44 (1)),
para 127 page 744 deals with incorporation of other enactments by
reference as under:
“It is a common device of legislative drafters to incorporate earlier
statutory provisions by reference, rather than setting out similar
provisions in full. This saves space and also attracts the case law and
other learning attached to the earlier provision. Its main advantage
is a Parliamentary one, however, since it shortens Bills and cuts
down the area for debate.”
22. In the decision reported as (2011) 3 SCC 1 Girnar Traders v.
State of Maharashtra the Constitution Bench while dealing with
legislation by incorporation held that with the development of law, the
legislature has adopted the common practice of referring to the
provisions of the existing statute while enacting new laws. It was held
that reference to an earlier law in the later law could be a simple
reference of provisions of earlier statute or a specific reference where
the earlier law is made an integral part of the new law, that is, by
incorporation. In contrast to such simple reference, legal incident of
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legislation by incorporation is that it becomes part of the existing law

which implies bodily lifting provisions of one enactment and making
them part of another and in such cases subsequent amendments in the
incorporated Act could not be treated as part of the incorporating Act.
The obvious advantage of a legislation by incorporation is that the
judicial precedents and discussions on the earlier enactment apply to
the later enactments.
23. Section 83 of the Finance Act 2007 though a legislation by
incorporation also takes care of non-applicability of future amendments
as it provides for applicability of the relevant sections of the Central
Excise Act 1944 as in force from time to time i.e. the future
amendments in the provisions of the Central Excise Act would also be
applicable mutatis Mutandis to Service Tax. As noted above, Section
12B of the Central Excise Act which applies to the Service Tax raises a
presumption that the incidence of duty has been passed to the buyer
unless the contrary is proved. Thus in the absence of a contract for the
liability of a service tax, it will be presumed that the same has been
passed over to the service recipient.
24. Based on the rule of equity similar provision exists in the Sales
of Goods Act, 1930, that is, Section 64A. The Supreme Court in the
decision reported as (2007) 8 SCC 466 Numaligarh Refinery Ltd. v.
Daelim Industries Co. Ltd. held that whether a party is entitled to be
paid such tax or such increase has to be ascertained from the intention
of the parties to the contract and unless a different intention appears
from the terms of the contract in the case of imposition or increase in
the tax after the making of a contract the party shall be entitled to be
paid such taxes or such increase. It was held:
“18. In this connection, learned Counsel has invited our attention
to Section 64A of the Sale of Goods Act, 1930 which reads as under:
“64-A. In contracts of sale, amount of increased or decreased
taxes to be added or deducted.- (1) Unless a different intention
appears from the terms of the contract, in the event of any tax of
the nature described in Sub-section
(2) being imposed, increased, decreased or remitted in respect
of any goods after the making of any contract for the sale or
purchase of such goods without stipulation as to the payment of
tax where tax was not chargeable at the time of the making of the
contract, or for the sale or purchase of such goods tax-paid where
tax was chargeable at that time-
(a) if such imposition or increase so takes effect that the tax or
increased tax, as the case may be, or any part of such tax is
paid or is payable, the seller may add so much to the contract
price as will be equivalent to the amount paid or payable in
respect of such tax or increase of tax, and he shall be entitled
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to be paid and to sue for and recover such addition; and

(b) if such decrease or remission so takes effect that the
decreased tax only, or no tax, as the case may be, is paid or is
payable, the buyer may deduct so much from the contract price
as will be equivalent to the decrease of tax or remitted tax, and
he shall not be liable to pay, or be sued for, or in respect of,
such deduction.
(2) The provisions of Sub-section (1) apply to the following taxes,
namely;-
(a) any duty of customs or excise on goods;
(b) any tax on the sale or purchase of goods.
This section also clearly says that unless a different intention
appears from the terms of the contract, in case of the imposition or
increase in the tax after the making of a contract, the party shall be
entitled to be paid such tax or such increase. In this connection, the
intention of the parties is to be ascertained, as per the clauses
mentioned above.
25. In the decision reported as (1997) 5 SCC 536 Mafatlal Industries
Ltd. v. Union of India a nine judges Bench of the Supreme Court of
India while dealing with the claim of refund held that the same was
maintainable by virtue of declaration contained in Article 265 of the
Constitution of India as also under Section 72 of the Contract Act
subject to one exception. Noting that the duties under the Central
Excise and Customs are indirect taxes and supposed to be and are
permitted to be passed on to the buyers it was held:
“80. For the purpose of this discussion, we take the situation
arising from the declaration of invalidity of a provision of the Act
under which duty his been paid or collected, as the bases, inasmuch
as that is the only situation surviving in view of our holding on (I)
and (II). In such cases the claim for refund is maintainable by virtue
of the declaration contained in Article 265 as also under Section 72
of the Contract Act as explained hereinbefore subject, to one
exception : where a person approaches the High Court or Supreme
Court challenging the constitutional validity of a provision but fails,
he cannot take advantage of the declaration of unconstitutionality
obtained by another person on another ground; this is for the reason
that so far as he is concerned, the decision has become final and
cannot be re-opened on the basis of the decision on another person's
case; this is the ratio of the opinion of Hidayatullah, CJ. In
Tilokchand Motichand and we respectfully agree with it. In such
cases, the plaintiff may also invoke Section 17(1)(c) of the
Limitation Act for the purpose of determining the period of limitation
for filing a suit. It may also be permissible to adopt a similar rule of
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limitation in the case of writ petitions seeking refund in such cases.

But whether the right to refund or restitution, as it is called, is
treated as a constitutional right flowing from Article 265 or a
statutory right arising from Section 72 of the Contract Act, it is
neither automatic nor unconditional. The position arising under
Article 265 is dealt with later in Paras 75 to 77. Here we shall deal
with the position under Section 72. Section 72 is a rule of equity.
This is not disputed by Sri. F.S. Nariman or any of the other counsel
appearing for the appellants-petitioners. Once it is a rule of equity, it
is un-understandable how can it be said that equitable
considerations have no place where a claim is made under the said
provision. What those equitable considerations should be is not a
matter of law. That depends upon the facts of each case. But to say
that equitable considerations have no place where a claim is founded
upon Section 72 is, in our respectful opinion, a contradiction in
terms. Indeed, in Kanhaiyalal, the Court accepts that the right to
recover the taxes - or the obligation of the State to refund such
taxes - under Section 72 of the Contract Act is subject to “questions
of estoppel, waiver, limitation or the like”, but at the same time, the
decision holds that equitable considerations cannot be imported
because of the clear and unambiguous language of Section 72. With
great respect, we think that a certain amount of inconsistency is
involved in the aforesaid two propositions. “Estoppel, waiver…or the
like”, though rules of evidence, are yet based upon rules of equity
and good conscience. So is Section 72. We are, therefore, of the
opinion that equitable considerations cannot be held to be irrelevant
where a claim for refund is made under Section 72. Now, one of the
equitable considerations may be the fact that the person claiming
the refund has passed on the burden of duty to another. In other
words, the person claiming the refund has not really suffered any
prejudice or loss. If so, there is no question of reimbursing him. He
cannot be re compensated for what he has not lost. The loser, if any,
is the person who has really borne the burden of duty; the
manufacturer who is the claimant has certainly not borne the duty
notwithstanding the fact that it is he who has paid the duty. Where
such a claim is made, it would be wholly permissible for the court to
call upon the petitioner/plaintiff to establish that he has not passed
on the burden of duty to a third party and to deny the relief of
refund if he is not able to establish the same, as has been done by
this Court in I.T.C. In this connection, it is necessary to remember
that whether the burden of the duty has been passed on to a third
party is a matter within the exclusive knowledge of the
manufacturer. He has the relevant evidence - best evidence - in his
possession. Nobody else can be reasonably called upon to prove that
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fact. Since the manufacturer is claiming the refund and also because
the fact of passing on the burden of duty is within his special and
exclusive knowledge, it is for him to allege and establish that he has
not passed on the duty to a third party. This is the requirement
which flows from the fact that Section 72 is an equitable provision
and that it incorporates a rule of equity. This requirement flows not
only because Section 72 incorporates a rules of equity but also
because both the Central Excises duties and the Customs duties are
indirect taxes which are supposed to be and are permitted to be
passed on to the buyer. That these duties are indirect taxes, meant
to be passed on, is statutorily recognised by Section 64A of the Sale
of Goods Act, 1930.
26. Noting sub-section 2 of Section 64A of the Sales of Goods Act
expressly made sub-Section 1 of Section 64A applicable to duty of
customs or excise on goods and referring to the decisions of the Federal
Court in AIR 1942 FC 33 The Province of Madras v. Boddu Paidanna &
Sons and the Supreme Court reported as AIR 1962 SC 1281 R.C. Jall v.
Union of India it was held in Mafat Lal (supra) that in such a situation,
it would be legitimate for the Court to presume, until the contrary is
established, that a duty of excise or a customs duty has been passed
on. It is a presumption of fact which a Court is entitled to draw under
Section 114 of the Indian Evidence Act the same being undoubtedly a
rebuttable presumption but the burden of rebutting it lies upon the
person who claims the refund and it is for him to allege and establish
that as a fact he has not passed on the duty and, therefore, equity
demands that his claim for refund be allowed.
27. Thus as a legislation by reference sub-Section (2) of Section 64A
of the Sales of Goods Act making applicable sub-Section (1) of Section
64A to any duty of Customs or Excise on goods and as a legislation by
incorporation Section 83 of the Finance Act making applicable Section
12B of the Central Excise Act to Service Act, Section 64A(1) is
applicable to Service Tax. From the provisions as noted and the
decisions of the larger benches it is evident that a service tax is a VAT
which in turn is a destination based consumption tax and is to be borne
by the consumer of goods. Further unless contracted to the contrary,
the consumer of service is liable to refund the said tax to the service
provider who in turn is liable to pay to the government.
28. From the legal position as noted it is evident whether the service
tax liability has been agreed not to be passed on to the recipient of the
service would depend on the interpretation of clauses entered into
between the parties. Before adverting to the relevant clauses inter se
the parties in the present case it would be appropriate to note a few
decisions on the interpretation of a contract.
29. The House of Lords in [1998] 1 WLR 896 Investors
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Compensation Scheme Ltd. v. West Bromwich Building Society

summarized the principle of interpretation of contractual documents as
under:
“(1) Interpretation is the ascertainment of the meaning which the
document would convey to a reasonable person having all the
background knowledge which would reasonably have been
available to the parties in the situation in which they were at the
time of the contract.
(2) The background was famously referred to by Lord Wilberforce as
the “matrix of fact,” but this phrase is, if anything, an understated
description of what the background may include. Subject to the
requirement that it should have been reasonably available to the
parties and to the exception to be mentioned next, it includes
absolutely anything which would have affected the way in which
the language of the document would have been understood by a
reasonable man.
(3) The law excludes from the admissible background the previous
negotiations of the parties and their declarations of subjective
intent. They are admissible only in an action for rectification. The
law makes this distinction for reasons of practical policy and, in
this respect only, legal interpretation differs from the way we
would interpret utterances in ordinary life. The boundaries of this
exception are in some respects unclear. But this is not the
occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would
convey to a reasonable man is not the same thing as the meaning
of its words. The meaning of words is a matter of dictionaries and
grammars; the meaning of the document is what the parties
using those words against the relevant background would
reasonably have been understood to mean. The background may
not merely enable the reasonable man to choose between the
possible meanings of words which are ambiguous but even (as
occasionally happens in ordinary life) to conclude that the parties
must, for whatever reason, have used the wrong words or syntax :
see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co.
Ltd. [1997] A.C. 749.
(5) The “rule” that words should be given their “natural and ordinary
meaning” reflects the common sense proposition that we do not
easily accept that people have made linguistic mistakes,
particularly in formal documents. On the other hand, if one would
nevertheless conclude from the background that something must
have gone wrong with the language, the law does not require
judges to attribute to the parties an intention which they plainly
could not have had. Lord Diplock made this point more vigorously
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when he said in Antaios Compania Naviera S.A. v. Salen

Rederierna A.B. [1985] A.C. 191, 201:
“if detailed semantic and syntactical analysis of words in a
commercial contract is going to lead to a conclusion that flouts
business commonsense, it must be made to yield to business
commonsense.”
30. In [2009] 2 All ER, 26 Durham v. BAI (Run Off) Ltd. (in scheme
of arrangement) & other cases the Queen's Bench Division while dealing
with the construction of commercial contracts noted:
“(203) A summary of helpful principles, drawn largely from the
words of Longmore LJ in Absalom (on behalf Lloyd's Syndicate 957)
v. TCRU Ltd. (2005) EWCA Civ 1586 at (7), (2006) 1 All ER (Comm)
375 at (7), (2006) 2 Lloyd's Rep 129, and based upon submissions
to me by counsel, which I had approved, in the recent case of Reilly
v. National Insurance *Guarantee Corporation Ltd. (2008) EWHC 722
(Comm) at (13), (2008) 2 All ER (Comm) 612 at (13), was again the
subject matter of agreement, and I repeat and incorporate it:
‘(a) Ordinary Meaning. There is a presumption that the words to
be construed should be construed in their ordinary and popular
sense, since the parties to the contract must be taken to have
intended, as reasonable men, to use words and phrases in their
commonly understood and accepted sense. (See also para (7)
(i)-(iii) in the judgment of Longmore LJ and in particular:“The
object of the inquiry is not necessarily to probe the ‘real’
intention of the parties, but to ascertain what the language
they used in the document would signify to a properly informed
observer.”)
(b) Businesslike Interpretation. It is an accepted canon of
construction that a commercial document, such as an insurance
policy, should be construed in accordance with sound
commercial principles and good business sense, so that its
provisions receive a fair and sensible application. (See also the
words of Lord Diplock in Antaios Cia Navieras SA v. Salen
Rederierna AB, The Antaios (1984) 3 All ER 229 at 233, (1985)
AC 191 at 201 cited at (7)(iv) by Longmore LJ : If a “detailed
semantic and syntactical analysis of words in a commercial
contract is going to lead to a conclusion that flouts business
common sense, it must be made to yield to business common
sense”.)
(c) Commercial Object. The commercial object or function of the
clause in question and its relationship to the contract as a
whole will be relevant in resolving any ambiguity in the
wording.
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(d) Construction to avoid unreasonable results. If the wording of a

clause is ambiguous, and one reading produces a fairer result
than the alternative, the reasonable interpretation should be
adopted. It is to be presumed that the parties, as reasonable
men, would have intended to include reasonable stipulation in
their contract.”
31. In (2009) 5 SCC 713 Vimal Chand Ghevarchand Jain v.
Ramakant Eknath Jajoo the Supreme Court reiterated the principle of
construction of a commercial contract by looking at the document as a
whole and construing it in its entirety.
32. Thus a contract has to be construed by looking at the document
as a whole and the meaning of the document has to be what the parties
intended to give to the document keeping the background in mind and
conclusion that flouts business commonsense must yield unless
expressly stated. In the present case it will also have to borne in mind
whether the parties intend to include taxes which were not
contemplated at the time of the agreement as indubitably the
agreements between the parties in the three suits were entered into
prior to the Finance Act, 2007 coming into force w.e.f. June 01, 2007.
33. In the agreement between HDFC Bank and Meattles Clause 4(v)
imposes liability of municipal taxes, rates, charges and other outgoings
in respect of the demised premises that would be
determined/fixed/varied from time to time by the Municipal
Corporation/Municipality/Gram Panchayat or any other local authority
only. It is well settled that the Municipal Corporation, Municipality,
Gram Panchayat or local authority is distinct from the government and
thus the clause inter se the parties cannot be said to cover the
exemption of HDFC Bank to pay to Meattles service tax paid by it to the
government pursuant to the Finance Act, 2007.
34. As regards the lease deed and the agreement of maintenance of
common services and facilities between Satya and PLBA Clause 5 of the
lease deed as noted above provides that the lessor shall continue to pay
all or any taxes, levies or charges imposed by the MCD, DDA, L&DO and
or Government, Local Authority etc. By use of the words “Lessor shall
continue to pay” it is evident that the parties contemplated the existing
taxes, levies or charges and not future. Even as per the agreement of
maintenance of common service facilities though the same has no
application to the service tax however, still the said clause II(1) cannot
be said to exclude HDFC Bank from paying future service tax.
35. In view of the discussion aforesaid the judgments and the
decrees passed by the learned Single Judge in the three suits are
upheld. Appeals are dismissed. Parties will bear their own costs.
36. We place on record our appreciation for the valuable assistance
rendered by Mr. Balbir Singh, Senior Advocate/learned Amicus Curiae.
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