RASHTRIYA ISPAT NIGAM LTD. versus M/S. DEWAN CHAND RAM SARAN

Citation: [2012] 4 S.C.R. 1 · Decided: 25-04-2012 · Supreme Court of India · Bench: RAJENDRA MAL LODHA · Disposal: Appeal(s) allowed

Cited by 6 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

(2012] 4 S.C.R. 1 
RASHTRIYA ISPAT NIGAM LTD. 
v. 
M/S. DEWAN CHAND RAM SARAN 
(Civil Appeal No. 3905 of 2012) 
APRIL 25, 2012 
[R.M. LODHA AND H.L. GOKHALE, JJ.] 
A 
B 
Contract - Work contract - Payment of service tax -
Liability of - Whether of the availer of service or the service 
provider - Service availer deducting service tax from the bill C 
of the service provider - Dispute referred to arbitrator -
Arbitrator holding that service tax was rightly deducted from 
the bills of the service provider in terms of the contractual 
obligation - In arbitration petition Single Judge of High Court 
holding that availer of service was liable since it was the o 
assessee - Order of Single Judge confirmed by Division 
Bench of High Court - On appeal, held: Service provider 
under contractual obligation was liable to pay the service tax 
- Availer of service became the assessee after amendment 
by Finance Act 2000 - The liability arose out of the services 
E 
rendered prior to 2000 amendment when the liability was on 
the service provider - Even when the service availer 
becomes liable to pay the service tax after 2000 amendment, 
there is no bar from entering into an agreement and passing 
on the tax liability on the service provider - Award of the 
F 
arbitrator is upheld - Arbitration - Finance Act, 1994 - s. 65 
- Finp.nce Act, 2000 - s. 116. 
Doctrine/Principle - Doctrine of contra proferentem -
Applicability of. 
The appellant-manufacturer of steel products, 
appointed the respondent as the handling contractor for 
transportation of its materials. The parties entered into a 
contract on 17.6.1998. Clause 9.3, thereof provided that 
G 
1 
H 
2 
SUPREME COURT REPORTS 
[2012] 4 S.C.R. 
A contractor had to bear all taxes, duties and other liabilities 
in connection with discharge of his obligations. 
By Finance Act, 1997, the service tax was extended 
to 'handling contractor'. The service tax was brought into 
8 force w.e.f. 16.11.1997. Consequent thereto, the appellant 
deducted service tax on the bills of the respondent for 
the period 30.11.1997 to 6.8.1999. The respondent refused 
to accept the deductions and raised a dispute for 
arbitration. 
C 
By Finance Act, 2000, an amendment was brought in 
whereby 'assessee' would be the person who availed the 
services and not the service provider. 
The arbitrator dismissed the claim petition, holding 
0 that though the party who availed the service (appellant 
herein) was the 'assessee', in view of the agreement in 
clause 9.3 of the contract, it is contractual obligation of 
the claimant (respondent herein) to pay the service tax 
and the same was rightly deducted from the bills of the 
E claimant in terms of the contractual obligation. 
Respondent filed arbitration petition. Single Judge of 
High Court set aside the award holding that availer of 
service (appellant herein), as 'assessee' was liable to pay 
the tax. Appeal against the order was dismissed by 
F Division Bench of the High Court. Hence the present 
appeal. 
Allowing the appeal, the Court 
HELD: 1. The respondent as the contractor had to 
G bear the service tax under clause 9.3 as the liability in 
connection with the discharge of his obligations under 
the contract. The appellant could not be faulted for 
deducting the service tax from the bills of the respondent 
under clause 9.3, and there was no reason for the High 
H 
RASHTRIYA ISPAT NIGAM LTD. v. DEWAN CHAND 
3 
RAM SARAN 
Court to interfere in the view taken by the arbitrator which 
A 
was ~ased, in any case on a possible interpretation of 
clause 9.3. The Single Judge as well as the Division 
Bench clearly erred in interfering with the award rendered 
by the arbitrator. The award made by the arbitrator is 
upheld. [Paras 30 and 31] [23-C-E] 
B 
2. If the evolution of the service tax law is seen, 
initially the liability to pay the service tax was on the 
service provider, though it is now provided by the 
amendment of 2000 that the same is on the person who 
avails of the service. The agreement between the parties C 
was entered into on 7.6.1998. The appellant had deducted 
5% service tax on the bills of the respondent for the 
period 30.11.1997 to 6.8.1999 which in fact it was required 
to deduct under the service tax law as it then stood. 
Subsequently, by the amendment of the definition of D 
assessee effected on 12.5.2000 (though retrospectively 
effective from 16.7.1997) the liability to pay the service tax 
was shifted to the person who was availi

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