Centaxonline.

com: A Legal Research Platform on GST, Customs, Excise & Service Tax, Foreign Trade Policy

2018 (9) G.S.T.L. 164 (Del.) [15-05-2013]

2018 (9) G.S.T.L. 164 (Del.)

IN THE HIGH COURT OF DELHI
Sanjay Kishan Kaul and Sanjeev Sachdeva, JJ.
RAGHUBIR SARAN CHARITABLE TRUST
Versus
PUMA SPORTS INDIA PVT. LTD.
FAO (OS) Nos. 440 of 2012 and 52 of 2013, decided on 15-5-2013

Rent from immovable properties - Service Tax liability - Clause 7.1 in lease stipulating that “Lessor shall be liable
to pay property taxes and other outgoings ... and... taxes, cesses, levies or increases” - Under Clause 9(d) lessee was
responsible for all taxes necessary for carrying on its business within premises other than municipal taxes and related
property taxes - HELD : Clause 7.1 was with specific reference to property tax, and it was not wide enough to encompass
any nature of indirect tax - This view was reinforced by Clause 9(d) - Hence, lessee had to bear incidence of Service Tax -
Section 65(105)(zzzz) of Finance Act, 1994. - In our view, Clause 7.1 does not envisage that any nature of indirect taxation has
to be borne by the lessor. The aforesaid view has been formulated by us as the reference is to a specific property tax. Apart from
this, the expression used “other outgoings” has to be read in the context of “in respect of the premises”. This is followed by an
expression of wider connotation when it says that it may be of “whatsoever nature” and as may be payable and levied “from
time to time” including revisions thereof and putting a prohibition on the lessor from claiming contribution towards such “taxes,
cesses, levies or increases”. Thus, Clause 7.1 is clearly confined to property taxes or other outgoings in respect of the
“premises”. It has to be a tax on the premises or the property. Such a tax may be of any nature whatsoever and thus even a new
tax on the premises would be covered by this clause and absolves the lessee of the liability in this behalf, this clause nowhere
envisaging an indirect tax of the nature of a Service Tax. The aforesaid view is further reinforced by Clause 9(d) which in fact
puts the responsibility on the lessee to pay all taxes necessary for carrying on its business within the premises other than the
municipal taxes and related property taxes. Thus, any tax on the business activity is on the lessee and the only exclusion made is
of municipal tax and related property taxes for which there is a specific Clause 7.1. It is not as if there is a singular clause
relating to taxes in the agreement being the Lease Deed which puts the burden on the lessor alone. The nature of taxes if
bifurcated into two categories; one borne by the lessor and the other to be borne by the lessee. The aforesaid becomes important
in the context of the nature of Service Tax which is a tax on the commercial activity and to that extent would, thus, fall within the
parameters of Clause 9(d) and not Clause 7.1. We thus have not the slightest of doubt that these are not clauses which can brook
of any two interpretations, but there can be only one interpretation on a plain reading of the clauses. The language of a clause
cannot be twisted to come to a conclusion as is sought to be done by the learned Arbitrator. It appears that Clause 9(d) seems to
have been completely lost by the learned Arbitrator. The most crucial aspect which is material for decision of the present case,
as noticed by us, is that Service Tax is neither a “property tax” nor an “outgoing” in respect of the premises; it is on the
commercial activity carried on. The two expressions “property tax” and “outgoings” in respect of the premises are in fact of a
common species. Clause 7.1 thus only deals with taxes which are relatable to the property and not the activity carried out in the
premises, which is on what Service Tax is levied. [paras 30, 31, 32]
Service Tax - Nature of - It is VAT which in turn is destination based consumption tax on commercial activity - It
is not charge on business but on consumer and levied only on service provider - Hence, property let out for residential
purposes does not attract Service Tax, whereas commercial letting does - However, parties are not precluded from
agreeing as to on whom indirect tax would fall, and in that case, terms of contract become material. [paras 27, 28]
Arbitration - Award - Interpretations of contract clauses - Opinion in award normally should be final even if it is
plausible view and not only possible view - However, arbitral Tribunal/Arbitrator are creature of contract itself and
cannot interpret its clauses as per their whims and fancies. [para 26]
Appeals allowed
CASES CITED
All India Fed. of Tax Practitioners v. Union of India — 2007 (7) S.T.R. 625 (S.C.) — Followed [Paras 12, 27]
Association of Leasing and Financial Service Companies v. Union of India — 2010 (20) S.T.R. 417 (S.C.) — Referred [Para 13]
Brett v. Rogers — (1897) 1 QBD 525 — Referred.................................................................. [Para 10]
Home Solution Retail India Ltd. v. Union of India — 2009 (237) E.L.T. 209 (Del.) — Referred [Para 14]
Home Solutions Retails (India) Ltd. v. Union of India — 2011 (24) S.T.R. 129 (Del.) — Referred [Para 14]
Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. — (2007) 8 SCC 466 — Distinguished [Paras 17, 24, 30, 31]
Pearey Lal Bhawan Association v. Satya Developers Pvt. Ltd. — 2011(23) S.T.R. 213 (Del.) — Relied on [Paras 10, 14, 31]
Rajasthan State Electricity Board v. Mohan Lal —AIR 1967 SC 1857 — Referred.............. [Para 22]
Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran — 2012 (26) S.T.R. 289 (S.C.) — Distinguished [Paras 17, 31]
United Towns Electric Co. Ltd. v. Attorney General for Newfoundland — (1939) 1 All ER 423 — Distinguished [Paras 21, 30]
Vasari India Pvt. Ltd. v. Ghanshyam Dass Soni — RFA(OS) No. 64 of 2012, decided on 20-7-2012 by Delhi High Court — Relied on [Para 33]

REPRESENTED BY : Shri Simran Mehta, Advocate, for the Appellant.

S/Shri Chinmoy Pradip Sharma and Sayan Ray, Advocates, for the Respondent.

[Order per : Sanjay Kishan Kaul, J.]. - The appellant, Raghubir Saran Charitable Trust, is the owner of premises bearing No. E-10,
Block-E, Inner Circle, Connaught Place, New Delhi, which was leased out to the respondent in pursuance to a Lease Deed dated 25-4-2007 for
a period of 60 months, renewable at the sole option of the respondent for a further period of 48 months on the same terms and conditions other
than the rent which was specified with increases for different periods of time. The lease stood terminated by consent of both the parties on 30-
9-2011 and the possession of the premises was handed over to the appellant.
2. The dispute which arose inter se the parties was a sequitur to the Finance Act, 2007 which introduced an amendment in the
Finance Act, 1994 incorporating in Section 65(105), a sub-clause (zzzz). The effect of this clause was the imposition and attraction of Service
Tax qua rent received from renting of immovable properties for commercial purposes.
3. The appellant as a consequence of the aforesaid, included Service Tax element of 12.36% on all rental bills and cess thereon from
June, 2007 onwards.
4. The respondent, however, refused to pay the Service Tax component on the basis that under Clause 7.1 of the Lease Deed, such
liability had to be borne by the appellant. A demand notice was issued by the appellant on 27-12-2007 calling upon the respondent to pay the
Service Tax liability till December, 2007 but the respondent refused to oblige and the appellant paid the Service Tax to avoid prosecution and
penalty.
5. In view of the Arbitration Clause 16.2 of the Lease Deed, the appellant served a notice dated 12-1-2008 to the respondent
invoking the arbitration clause qua the aforesaid dispute. There was no concurrence over the appointment of an Arbitrator which resulted in the
appellant filing an application under Section 11 of the Arbitration & Conciliation Act, 1996 (‘the said Act’ for short) before this Court which
was registered as Arbitration Application No. 92/2008 and in terms of the order dated 21-11-2008, the Court appointed Mr. Bharat Bhushan,
retired Judge from Higher Judicial Service as the Sole Arbitrator, who made and published an Award dated 14-12-2011 rejecting the claim
petition (claiming Service Tax for the period from 1-6-2007 to 31-3-2009 amounting to Rs. 37,42,954 along with interest @ 18% p.a.) of the
appellant on a reading of the clauses of the Lease Deed. The appellant herein filed a petition being OMP No. 955/2011 under Section 34 of the
said Act which was dismissed by the learned single Judge on 4-7-2012.
6. In FAO (OS) No. 52 of 2013, this Court in an application under Section 11 of the said Act, had appointed Hon’ble Mr. Justice
Mukul Mudgal, former Chief Justice, Punjab & Haryana High Court as the Sole Arbitrator, who had made and published an Award dated 7-7-
2012 rejecting the claim petition of the appellant (claiming Service Tax for the period from 1-4-2009 to 30-9-2011 amounting to Rs. 48,27,777
along with interest @ 18% p.a.) on a reading of the clauses of the Lease Deed. A petition under Section 34 of the said Act was filed,
challenging this Award, which was dismissed by the learned Single Judge on 6-11-2012 on the basis of the decision dated 4-7-2012 in the
connected matter i.e. OMP No. 955/2011 which is also sought to be assailed before us.
7. It may be noticed that in view of a Division Bench judgment of this Court which struck down, as unconstitutional, the amendment
to the Finance Act, 1994, the appellant stopped including the Service Tax component but on reintroduction with the retrospective effect of sub-
clause (zzzz) of Section 65(105), by virtue of the Finance Act, 2010, the amount was so deposited. Suffice to say that this issue stands resolved
with the legal position being that such tax was liable to be deposited and thus the only question for examination is as to whether the liability to
pay Service Tax is of the appellant or the respondent. In order to appreciate the controversy, we consider it appropriate to re-produce the
relevant clauses.
“7. MAINTENANCE, ELECTRICITY; WATER
7.1 It is agreed by and between the Parties that the Lessor shall be liable to pay property taxes and other outgoings in respect of the Premises,
whatsoever payable and as levied from time to time promptly and timely, including any revisions thereto, directly to the authorities concerned
and no claim for contribution towards such taxes, cesses, levies and increases shall be made by the Lessor or be entertained by the Lessee.
…………
9. COVENANTS OF THE LESSEE
The lessee, for itself, its successors and permitted assigns and to the intent that its obligations may continue through the term hereby created,
but not exceeding the Initial Term, covenants with the Lessor as follows:
……………
(d) To pay all taxes necessary for carrying on its business within the Premises, other than municipal taxes and other related property taxes.”
8. Learned counsel for the appellant, conscious of the limitation on the contours of the controversy and the jurisdiction of this Court
under S. 37 of the 1996 Act while dealing with an arbitral award, sought to plead that though the complete dispute revolved only around
clauses of the Lease Deed referred to aforesaid, the interpretation sought to be put forth by the Arbitrator could not be countenanced as it was
not a plausible view. The submission, thus, was that even though in matters of interpretation of such clauses due deference should be given to
the opinion of an Arbitrator, the same does not preclude a Court from interfering with an award if the interpretation is contrary to the plain
reading of the clause.
9. A reading of the Award shows that various judicial pronouncements were referred to qua the controversy in question including in
two suits CS (OS) 1016/2008 and CS (OS) 1018/2008, decided on 20-10-2010 where it was held that the liability to pay and refund the Service
Tax was of the tenant. However, this judgment has been distinguished on account of specific Clause 7.1 in the Lease Deed and the fact that the
judgment cited was in the context of facts where no such clause existed. The learned Arbitrator found that on a plain reading of Clause 7.1, it is
the lessor who is liable to pay property taxes and other outgoings in respect of the premises. This clause was held to be of wide importation.
10. Insofar as the impugned judgment of the learned Single Judge is concerned, there is in fact a more elaborate discussion qua the
interpretation of this clause. The learned Single Judge took note of the prohibition contained in the latter part of the clause to conclude that any
revision in the rates was also to be borne by the lessor since the expression ‘outgoings’ was of wide import where the word ‘such’ referred to
the property taxes and ‘other outgoings’ was in respect of the premises. The plea that the expression ‘outgoings’ should be read as ejusdem
generis with the words ‘property tax’, was repelled. This wide expression was thus held to include all taxes in respect of the premises and
Service Tax being such an outgoing, it was held to be the liability of the lessor. This conclusion was sought to be supported by the observations
in Brett v. Rogers - (1897) 1 QBD 525 where the expression ‘duties imposed in respect of the premises’ was held to be wide enough to include
the expenses incurred by the landlord for replacing a new drain. The learned single Judge has opined that the judgment in Pearey Lal Bhawan
Association v. Satya Developers Pvt. Ltd.; 173 (2010) DLT 685 would not apply on account of the wording of the clause being different as the
expression ‘outgoing charges imposed or payable’ was qualified by reference to MCD, L&DO, DDA and Government in respect of the
premises. Merely because the levy was not statutorily operative at the time of entering of the Lease Deed was held not to imply that the liability
did not attach to the appellant. Clause 7.1 was held to reflect the intentions of the parties that the appellant would bear the incidence of all taxes
and the view of the Arbitrator was held to be a plausible one.
11. Learned counsel for the appellant sought to contend before us that Service Tax by its very nature is an indirect tax on the service
rendered. Thus, though the service provider may be the assessee for purposes of identification and collection of the tax, but the ultimate burden
thereof has to be borne by the service recipient.
12. Learned counsel referred to the judgment in All India Federation of Tax Practitioners v. Union of India - (2007) 7 SCC 527 =
2007 (7) S.T.R. 625 (S.C.) to advance the plea that the Service Tax is akin to a Value Added Tax (VAT) which in turn is a destination based
consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer. The relevant paras are
as under :
“6. At this stage, we may refer to the concept of “Value Added Tax” (VAT), which is a general tax that applies, in principle, to all
commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer.
7. In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the
sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on
services provided within the country. Service Tax is a value added tax.”
13. The aforesaid principle is stated to have been uniformly followed including in a recent judgment in the Association of Leasing
and Finance Service Companies v. Union of India - (2011) 2 SCC 352 where in para 38 it is observed as under :
“38. In All India Federation of Tax Practitioners case [(2007) 7 SCC 527] this Court explained the concept of Service Tax and held
that Service Tax is a value added tax (“VAT”, for short) which in turn is a destination based consumption tax in the sense that it is levied on
commercial activities and it is not a charge on the business but on the consumer. That, Service Tax is an economic concept based on the
principle of equivalence in a sense that consumption of goods and consumption of services are similar as they both satisfy human needs. Today
with the technological advancement there is a very thin line which divides a “sale” from “service”. That, applying the principle of equivalence,
there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an
activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle
of equivalence which is inbuilt into the concept of Service Tax under the Finance Act, 1994. That Service Tax is, therefore, a tax on an activity.
That, Service Tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity
undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of
view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value
addition comes in on account of the activity undertaken by the professional like tax planning, advising, consultation, etc. It gives value addition
to the goods manufactured or produced or sold. Thus, Service Tax is imposed every time service is rendered to the customer/client. This is clear
from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken
by the service provider and each time Service Tax gets attracted.
14. Learned counsel for the appellant also sought to point out the infirmity in the Award to the extent that the Division Bench
judgment in Home Solutions Retail India Ltd. v. Union of India & Ors. - 158 (2009) DLT 722 (DB) = 2009 (237) E.L.T. 204 (Del.) was held to
cover the matter in issue even though, the only controversy dealt with by the Division Bench was qua the vires of the levy and not the inter se
rights and liabilities of the service provider and the service recipient. Moreover, a Full Bench judgment in Home Solutions Retails (India) Ltd.
v. Union of India & Ors. - 182 (2011) DLT 548 (FB) = 2011 (24) S.T.R. 129 (Del.) had overruled the judgment of the Division Bench given on
23-9-2011 well before the passing of the award. Similarly, the interim order relied upon in the award passed by the Division Bench on 18-5-
2010 was set aside by the Supreme Court vide orders dated 10-1-2011 and 4-2-2011 in SLP (Civil) Nos. 16960/2010 and 982/2011
respectively. However, it was fairly conceded during the course of the arguments that these aspects would really not be germane as the
controversy is, as we have set out hereinbefore, i.e. who bears the burden of Service Tax - the lessor or the lessee. learned counsel for the
appellant also submitted that the controversy in question was squarely covered by the judgment in Pearey Lal Bhawan’s case (supra) which had
been wrongly distinguished allegedly on the basis of difference in the wordings of the clause. The facts of that case are that the Lease Deed
was prior to the amendment of the Finance Act, 1994. No doubt, the relevant Clause 5.0 reads as under :
“5.0 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.
15. Clause 5.0 reproduced in para 8 of this judgment reads slightly differently than the clause before us. However, the findings
pertaining to the said Clause 5.0 are contained in para 14 of the judgment, which read as under :
“14. It is true, that the contracts entered into between the parties in this case, spoke of the plaintiff lessor’s liability to pay municipal,
local and other taxes, in at least two places. The Court, however, is not unmindful of the circumstance that Service Tax is a species of levy which
the parties clearly did not envision, while entering into their arrangement. It is not denied that leasing, and renting premises was included as a
“service” and made exigible to Service Tax, by an amendment; the rate of tax to be collected, is not denied. If the overall objective of the levy -
as explained by the Supreme Court, were to be taken into consideration, it is the service which is taxed, and the levy is an indirect one, which
necessarily means that the user has to bear it. The rationale why this logic has to be accepted is that the ultimate consumer has contact with the
user; it is from them that the levy would eventually be realized, by including the amount of tax in the cost of the service (or goods).”
16. Thus, the ratio is that the Service Tax was a species of levy which the parties clearly did not envisage while entering into their
arrangement and it is the service which is taxed and the levy is an indirect one which necessarily means that the user has to bear it. This logic is
based on the fact that the ultimate consumer has a contract with the user; it is from them that the levy would eventually be realized by including
the amount of tax in the cost of service.
17. The judgments relied upon by the learned single Judge were sought to be distinguished on the principle that in those cases levy
was in existence at the time of the execution of the contract and was thus in specific contemplation of the parties and so provided for. In
Rashtriya Ispat Nigam Limited v. M/s. Dewan Chand Ram Saran - 2012 (4) SCALE 588 = 2012 (26) S.T.R. 289 (S.C.), it was contended that
the levy was in existence at the time of execution of the contract. In Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. - (2007) 8 SCC
466 the countervailing duty imposed vide Customs Tariff (Amendment) Act, 1994 and the agreement inter se the parties specifically provided
that the contractor would pay all taxes and duties including customs duties. Thus, there was specific provision made qua customs duties apart
from the fact that the duty though non-existent at the time of submission of the bid, had come into force prior to the finalization of the contract.
 18. The submission of the learned counsel for the appellant thus was that Service Tax is not akin to a property tax and could not be
categorized as an outgoing in respect of the premises, being a taxation on the commercial activities which resulted in value addition. That is the
reason why the same transaction if made for residential purposes would not have invited Service Tax.
19. Learned counsel for the appellant also emphasized that Clause 7.1 forms a part of the main Clause 7.0 which deals with
Maintenance, Electricity and Water. It is in that context, a reference to property tax alone has been made with other outgoings which would
have to be akin to the nature of the levies mentioned in the heading of Clause 7.0 and the reference is to ‘such’ taxes, cesses and levies or
increases. The other clause referred to is Clause 9 which deals with Covenants of the Lessee and as per Clause (d) it is the lessee who has to
pay all taxes necessary for carrying on its business within the premises other than municipal taxes and other related property taxes. The
submission thus is that if Clause 7.1 is read with Clause 9(d), it is obvious that actually the incidence of taxes has to fall on the lessee (the
tenant), the exception being only municipal taxes and other related property taxes which are taken care of in Clause 7.1. Service Tax is an
incidence of the business activity in the premises.
20. On the other hand, learned counsel for the respondent sought to support the impugned decisions by canvassing that though
Service Tax is in the nature of an indirect tax, it does not necessarily have to be borne by the service recipient as there can be an agreement
inter se the parties to the contrary. It was, thus, his submission that Clause 7.1 of the Lease Deed was, in fact, such an agreement where
reference was made to ‘other outgoings’ and clarified by the words ‘whatsoever payable’. The liability as specified in the clause is towards
taxes, cesses and levies. Insofar as the expression ‘outgoings’ is concerned, learned counsel relied upon the Halsbury’s Laws of England 4th
Edition Volume 42 where in para 125 it has been observed as under :
“The term ‘outgoings’ is of very wide import, and includes not merely business rates, rent, service charges, repairs and the ordinary
expenses, of cultivating or managing the property but also expenses, even if of a capital nature, of works executed by local authorities under
their public health, highway and other powers which are recoverable from the owner, and which are also, in general, charged on the property,
(see Stock v. Meakin; {1900} 1 Ch 683, CA, followed in Surtees v. Wood House {1903} 1 KB 396, CA)”
21. The other aspect emphasized by learned counsel for the respondent was that the expression ‘outgoings’ is not in consonance or
ejusdem generis with the words property tax. Such a course of action it was pleaded was permissible only if general words are preceded by a
clause or wordings which together form a genus but can have no application in a case where there is mention of single species such as property
tax in the present case. In this behalf, reference was made to United Towns Electric Co. Ltd. v. Attorney General for Newfoundland - All
England Law Reports Annotated (1939) 1 All ER 423. The appellant/company there was incorporated for purposes of supplying electricity in
certain towns in Newfoundland and was made liable for water rates on all lands and buildings owned by it in these towns, but was otherwise,
exempted from taxation. Subsequently, income tax came to be levied in Newfoundland and the Company was sought to be assessed for the
taxes. The company claimed exemption from income tax by virtue of the exemptions from taxation granted to it on the premise that the term
‘taxation’ necessarily refers to a local taxation only and could not include income tax. It is in this context that it was observed as under :
“In their opinion, there is no room for the application of the principle of ejusdem generis in the absence of any mention of a genus,
since the mention of a single species - for example, water rates - does not constitute a genus, and, as regards the Act of 1929, Sect. 10, if the
appellant company’s construction of it is accepted, would modify Sect. 30 of the Act of 1902 by limiting the period of immunity in the case of
the undertaking authorized by the Act of 1929.”
22. The above judgment has been relied upon in Rajasthan State Electricity Board v. Mohan Lal and Ors. - AIR 1967 SC 1857
where in the following paragraph it was observed as under :
“4. In our opinion, the High Courts fell into an error in applying the principle of ejusdem generis when interpreting the expression
“other authorities” in Article 12 of the Constitution, as they overlooked the basic principle of interpretation that, to invoke the application of
ejusdem generis rule, there must be a distinct genus or category running through the bodies already named. Craies on Statute Law summarises
the principle as follows :
“The ejusdem generis rule is one to be applied with caution and not pushed too far.... To invoke the application of the ejusdem generis rule
there must be a distinct genus or category. The specific words must apply not to different objects of a widely differing character but to
something which can be called a class or kind of objects. Where this is lacking, the rule cannot apply, but the mention of a single species does
not constitute a genus [Craies on Statute Law, 6th Edn. P. 181]”
Maxwell in his book on ‘Interpretation of Statutes’ explained the principle by saying : “But the general word which follows particular and
specific words of the same nature as itself takes its meaning from them, and is presumed to be restricted to the same genus as those words ....
Unless there is a genus or category, there is no room for the application of the ejusdem generis doctrine [Maxwell on Interpretation of Statutes,
11th Edn., pp. 326, 327].” In United Towns Electric Co. Ltd. v. Attorney-General for Newfoundland [(1939) I AER 423] , the Privy Council
held that, in their opinion, there is no room for the application of the principle of ejusdem generis in the absence of any mention of a genus,
since the mention of a single species - for example, water rates - does not constitute a genus. In Article 12 of the Constitution, the bodies
specifically named are the Executive Governments of the Union and the States, the Legislatures of the Union and the States, and local
authorities. We are unable to find any common genus running through these named bodies, nor can these bodies be placed in one single
category on any rational basis. The doctrine of ejusdem generis could not, therefore, be, applied to the interpretation of the expression “other
authorities” in this article.”
23. Learned counsel also referred to Section 64A of the Sale of Goods Act, 1930 for the scenario where a new levy is introduced
which is not in contemplation or is expressly provided in a contract and in such an eventuality, it has to be inferred as per the terms of the
contract governing the parties. The said provision reads as under :
“64A. In contracts of sale, amount of increased or decreased taxes to be added or deducted. - (1) Unless 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 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.”
 24. In the aforesaid context, it has been contended that the party which has agreed to bear the taxes under the agreement has to pay
the new levy too (Ref : Numaligarh Refinery Ltd.’s case (supra).
25. In the end, learned counsel for the respondent laid emphasis on the scope of the jurisdiction under Section 34 of the said Act to
contend that interpretation of clauses of an agreement is solely within the domain of an Arbitrator and even if there are two plausible
interpretations, the view taken by the Arbitrator has to be upheld. Construction of terms of a contract does not amount to an error of jurisdiction
and Courts cannot interfere with the findings which are based on sound and reasonable interpretation of clauses of contract.
26. We have examined the rival contentions of the parties. We may note at the threshold that there is no real dispute about the
proposition that the scope of the Court while examining the objections under Section 34 of the said Act is limited - and that too - when the only
controversy pertains to interpretations of the clauses of the contract. The opinion of the arbitral Tribunal/Arbitrator normally should be final
even if it is a plausible view and not the only possible view. However, if a plain reading of the clauses conveys a completely different meaning,
then it is not for the arbitral Tribunal/Arbitrator to interpret the same as per its whims and fancies, since the arbitral Tribunal/Arbitrator is a
creature of the contract itself.
The complete controversy in our view hinges on two aspects
• What is the nature of Service Tax?
• How would one read Clause 7.1 qua clause 9(d)?
27. As far as the nature of the Service Tax is concerned, the issue is no more res integra and if one may say, the parties are ad diem
that it is an indirect tax. The observations in All India Federation of Tax Petitioners’ case (supra) makes it clear that Service Tax is a VAT
which in turn is a destination based consumption tax being on the commercial activity. Thus, it is not a charge on the business but on the
consumer and thus has to be levied only on the service provider. This is the reason why there is a distinguishing feature inasmuch as a property
let out for residential purposes does not attract Service Tax, but the tax is levied only on the commercial letting as per the relevant clause.
28. Learned counsel for the respondent in fact fairly conceded that aforesaid being the position, if the contract was silent, the
incidence would have to fall on the respondent being an indirect tax of this nature. His contention basically was that this, however, does not
preclude the parties to agree as to on whom this indirect tax would fall. Thus, the terms of the contract become material. This position is also
conceded by learned counsel for the appellant. The only controversy, therefore, really is as to whether, on a reading of the clauses of the
contract i.e. the Lease Deed, it specifically puts the liability of all taxes, of whatever nature, on the appellant as observed by the learned
Arbitrator.
29. Now turning to the relevant clauses of the Lease Deed, it is important to note that Clause 7.1 falls under the heading of
‘Maintenance, Electricity and Water’. Thus, the clauses under this heading ought to have been dealing with aspects of this nature. However,
learned counsel for the respondent is partially right in contending that not much assistance can be taken from this heading as none of the
clauses really deal with that aspect as Clause 7.1 deals with taxes, Clause 7.2 deals with legal proceedings instituted by or against the lessor
and Clause 7.3 deals with regular water supply and requisite electricity load. Thus, only Clause 7.3 strictly deals with the heading.
30. We have deliberately used the expression ‘partially right’ because Clause 7.2 alone is completely de hors the heading. Clause 7.3
directly deals with the heading. These are aspects of municipal services for which arrangements have to be made by the lessor in respect of the
premises. Clause 7.1 undisputedly deals with property tax which again is an incident of the ownership of the property. The only question thus is
whether the expression ‘outgoings’ in respect of the premises and the expression ‘such’ taxes, cesses, levies or increases is wide enough to
encompass any nature of indirect tax. The judicial pronouncements referred to by learned counsel for the respondent, more specifically, United
Towns Electric Co. Ltd.’s case (supra) which has received approval in Numaligarh Refinery Ltd.’s case (supra) that a single species followed by
general expression cannot give rise to ejusdem generis principles. Similarly, the observations in Halsbury’s Laws of England that the
expression ‘outgoings’ has to be given a wide connotation cannot be disputed. However, in our view, Clause 7.1 does not envisage that any
nature of indirect taxation has to be borne by the lessor. The aforesaid view has been formulated by us as the reference is to a specific property
tax. Apart from this, the expression used ‘other outgoings’ has to be read in the context of ‘in respect of the premises’. This is followed by an
expression of wider connotation when it says that it may be of ‘whatsoever nature’ and as may be payable and levied ‘from time to time’
including revisions thereof and putting a prohibition on the lessor from claiming contribution towards ‘such’ taxes, cesses, levies or increases.
Thus, Clause 7.1 is clearly confined to property taxes or other outgoings in respect of the ‘premises’. It has to be a tax on the premises or the
property. Such a tax may be of any nature whatsoever and thus even a new tax on the premises would be covered by this clause and absolves
the lessee of the liability in this behalf, this clause nowhere envisaging an indirect tax of the nature of a Service Tax. The aforesaid view is
further reinforced by Clause 9(d) which in fact puts the responsibility on the lessee to pay all taxes necessary for carrying on its business within
the premises other than the municipal taxes and related property taxes. Thus, any tax on the business activity is on the lessee and the only
exclusion made is of municipal tax and related property taxes for which there is a specific Clause 7.1. It is not as if there is a singular clause
relating to taxes in the agreement being the Lease Deed which puts the burden on the lessor alone. The nature of taxes if bifurcated into two
categories; one borne by the lessor and the other to be borne by the lessee. The aforesaid becomes important in the context of the nature of
Service Tax which is a tax on the commercial activity and to that extent would, thus, fall within the parameters of Clause 9(d) and not Clause
7.1.
31. We thus have not the slightest of doubt that these are not clauses which can brook of any two interpretations, but there can by
only one interpretation on a plain reading of the clauses. The language of a clause cannot be twisted to come to a conclusion as is sought to be
done by the learned Arbitrator. It appears that Clause 9(d) seems to have been completely lost by the learned Arbitrator. The judgments thus
relied upon by the arbitral tribunal and by impugned order would be of no assistance to the respondent. In fact, it has been rightly pointed out
by learned counsel for the appellant that Rashtriya Ispat Nigam Limited’s case (supra) dealt with a levy which was in existence at the time of
execution of the contract and was thus in contemplation while Numaligarh Refinery Ltd.’s case (supra) dealt with countervailing duty imposed
by the Customs Tariff (Amendment) Act, 1994 when the contract inter se the parties required all taxes and duties including customs duties to
be paid by the party apart from the fact that the actual contract came into being only post the levy. The judgment in Pearey Lal Bhawan’s case
(supra) thus, cannot be distinguished, as rightly submitted by learned counsel for the appellant.
 32. The most crucial aspect which is material for decision of the present case, as noticed by us, is that Service Tax is neither a
‘property tax’ nor an ‘outgoing’ in respect of the premises; it is on the commercial activity carried on. The two expressions ‘property tax’ and
‘outgoings’ in respect of the premises are in fact of a common species. Clause 7.1 thus only deals with taxes which are relatable to the property
and not the activity carried out in the premises, which is on what Service Tax is levied.
33. We may also note that a Division Bench of this Court in RFA (OS) No. 64/2012 M/s. Vasari India Pvt. Ltd. v. Ghanshyam Dass
Soni & Anr. decided on 20-7-2012 in the context of a plea of the tenant that he was not liable to pay Service Tax and the same was the liability
of the landlord, observed as under :
“6. Having admitted not having paid the rent as claimed in the plaint, it is apparent that the first defence taken in the preliminary
objection No. 1 that the tenant was not liable to pay Service Tax is a defence prohibited by law inasmuch as Service Tax on commercial rented
properties is an indirect tax and the jurisprudence on indirect tax tells us that the primary liability of the landlord to pay the tax to the Income
Tax Authorities can be passed on to the tenant, for the reason as per the law it is the commercial use by the tenant which enhances the utility to
the tenant with respect to the property which attracts Service Tax on commercial properties. It is apparent that the defence taken in preliminary
objection No. 1 with respect to Service Tax is prohibited by law.”
34. We are, thus, of the view that the impugned Awards dated 14-12-2011 and 7-7-2012 as well as the impugned judgments of the
learned single Judge dated 4-7-2012 and 6-11-2012 are liable to be set aside. It is, in fact, the respondent who has to bear the incidence of the
Service Tax and not the appellant.
35. We have, however, examined the matter threadbare not only qua the reasoning in respect of interpretation of clauses inter se the
parties, but also the liability arising therefrom.
36. We may note that there is no dispute about the quantum of the amount of Service Tax which already stands paid by the appellant
which is Rs. 37,42,954/- and Rs. 48,27,777/- in the two appeals respectively which will now thus have to be paid by the respondent to the
appellant. Since the premises were vacated on 30-9-2011, we consider it appropriate to grant interest from 1-10-2011 till date of payment at the
rate of 9% per annum simple interest.
37. The appeals are accordingly allowed and the parties are left to bear their own costs.

_______