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The issue revolves around the act of the respondent in deducting the service tax amounts from the consideration payable to the petitioner on the alleged ground that the petitioner was liable to pay service tax under the contract but was exempted and hence, the consideration payable by the respondent gets reduced. The respondent has acted in a grossly arbitrary manner and cannot justify withholding the said amount.

Service Tax-- Retained by the contract Awardee -- The petitioner sought to quash the letter dated 15-5-2015 of respondent/SDMC, vide which he had been asked to submit the paid receipt/challan through which the service tax were deposited. The petitioner submitted that respondent has withhold a sum of Rs.1,97,00,109/- towards the element of service tax from the running account bills. The petitioner was providing the services of lifting/collecting of municipal solid waste/garbage/malba/drain silt etc. The services provided by the petitioner to the respondent under the said work order were exempted from taxable services. The respondent directed the petitioner that service tax is applicable on the services provided by him under the said work order at the rate of 12.36% (including cess) and this element was considered and included in the justification of rates by the respondent while awarding the work order. The respondent submitted that the contractual amount includes the component towards payment of service tax. As no service tax is applicable and payable by the petitioner, there was no justification for payment of the said amount to the petitioner. Hence, the municipal corporation has rightfully deducted an amount on account of service tax. The court observed that by the conduct of the parties, the parties understood that the service tax was not a component of the agreed rate. Held that:-The Hon’ble Court directed the respondent to release all pending payments to the petitioner deducted on the ground of non-payment of service tax, within two months.