The Hindu Business Line : Water meter service that is taxing

We have been manufacturing water meters the last four years. In January 2003, the Bangalore Water Supply Board (BWSB) invited tenders for repair and maintenance of water meters and we won the bid. The rate we had quoted was inclusive of all taxes. In July 2003, the service tax was levied on repair and maintenance works. We have written a several letters to the BWSB, but it refuses to pay the service tax amount saying it was not mentioned in the tender and the we had quoted was inclusive of all taxes. The agreement states that the contract shall in all respects be constructed and operative as per the Indian Contract Act and in conformity with India law. Please advise how we can recover the amount of service tax from the BWSB.

A. S. Jayarama, e-mail

Service tax is an indirect levy of tax but the liability to pay the levy is cast upon the person liable to pay service tax under Section 68 of the Finance Act, 1994. Accordingly, the liability of service tax is to be discharged by the service provider or, in certain specified cases, by the person receiving the service under the reverse charge method. Generally, the person rendering the taxable service (assessee for service tax purpose) is required to pay service tax to the credit of Central Government irrespective of whether he collects/receives the same from the client or not. As per Section 68(1), the responsibility of paying the service tax vests with the person who is providing the taxable service except in cases where the person liable to pay tax is not a service provider as per Section 68(2). However, it may be noted that since service tax is an indirect tax, the service provider is authorised to collect the same from the client and the client should, unless there is a contract to the contrary, pay the amount of service tax billed to him. There No penalty is prescribed in the Act for non-payment of service tax by the client to the service provider but non-payment by the service provider, who is the assessee, attracts interest and penalty. It is advisable for service providers to make a provision for service tax in their agreements, contracts and engagement letters. The provisions on valuation (Section 67) provide that where the gross amount charged by a service provider for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. In view of the above legal position, you need to discuss with the BWSB and get the contract amended so that the service tax can be charged. Alternatively, you can terminate the contract as per terms and conditions therein and participate in a revised tender.

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Sanjiv Agarwal

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