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Union of India & Ors. v. Bengal Shrachi Housing Development Limited & Anr.

Civil Appeal · 2017 INSC 1084Decided 7 Nov 2017
Civil Appeal No. 9952 of 2017
Justice Rohinton Fali Nariman · Justice Sanjay Kishan Kaul

Background

The Union of India leased commercial premises from Bengal Shrachi Housing Development Ltd. for the Indian Coast Guard under a deed that said taxes "primarily leviable upon the occupier" would be paid by the Government. When a dispute arose over who must bear service tax, the lessor obtained a writ of mandamus from the Calcutta High Court (upheld by the Division Bench) directing the Union of India to pay the service tax, reasoning that service tax is an indirect tax ultimately borne by the recipient of the service (the lessee).

Decision Breakdown

The Supreme Court held that, as a matter of pure legal interpretation of Clause 6 and related clauses of the lease deed, the service tax was not actually "primarily leviable upon the lessor" and so, in law, the Union of India (lessee) was not required to pay it under that clause. However, the Court found that the Union of India itself, through a sanction letter (27 April 2012) and a follow-up letter (30 April 2012), had expressly acknowledged and accepted liability to bear service tax on these very premises. Given this clear admission, the Court declined to exercise its discretion under Article 136 of the Constitution to overturn the High Court's result, so while the Division Bench's legal reasoning was set aside, the appeal itself still failed on the facts.

Lesson Learnt

Even where a contract clause, read in isolation, might favour a party's legal position, a party's own prior written admissions (such as a sanction/acceptance letter) accepting a liability can be decisive: courts may uphold the practical outcome against that party despite correcting the underlying legal reasoning below.

Official source (sci.gov.in)View Judgment (PDF)

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