Service Tax on Renting of Immovable Porperty retrospectively w.e.f. 2007

Case: RETAILERS ASSOCIATION OF INDIA (RAI) Vs UNION OF INDIA & ORS

Citation: 2011-TIOL-523-HC-MUM-ST

Issue:- Service Tax on Renting of Immovable Porperty retrospectively w.e.f. 2007 – Constitutional validity of.

Brief Facts:- Service Tax was introduced on services in 1994. Renting of immovable property for commercial purposes was taxable service under Section 65(105)(zzzz) of the Finance Act, 1994. This clause was inserted w.e.f. 01.06.2007.

A Notification was issued on 22 May 2007 which was followed by a Circular dated 4.01.2008 of the Ministry of Finance in the Union Government. The legality of the Notification and of the Circular was questioned in proceedings before the Delhi High Court in which it was contended that as a result of an erroneous interpretation of the provisions of Section 65(105)(zzzz) and of Section 65(90)(a), service tax was sought to be levied on the renting of immovable property as opposed to the levy of service tax on a service provided "in relation to renting of immovable property". This issue was decided by a Division Bench of the Delhi High Court in Home Solution Retail India Ltd. vs. Union of India 2009 DLT 722 (DB) on 18 April 2009. A Division Bench of the Delhi High Court held that service tax was a value added tax and there was no value addition which could be discerned from the renting of immovable property for use in the course or furtherance of business. The view of the Delhi High Court was that Section 65(105)(zzzz) did not in terms entail that renting out of immovable property for use in the course or furtherance of business or commerce would constitute a taxable service and be exigible to service tax. The Notification and the Circular issued by the Union Government were consequently held to be ultra vires the Act and were set aside to the extent that they authorised the levy of service tax on renting of immovable property. The Delhi High Court did not decide the constitutional challenge for, in the course of the concluding paragraph of the judgment, the Division Bench noted that it was not examining the plea in challenge to the legislative competence of Parliament in the context of Entry 49 of List II of the Seventh Schedule to the Constitution.

Following the decision of the Delhi High Court, the Finance Act, 2010 substituted the provisions of sub-clause (zzzz) with effect from 1 June 2007 to the effect that renting of immovable property per se for commercial purposes was taxable service.

In these petitions, the constitutional validity of imposition of a service tax under sub-clause (zzzz) of clause (105) of Section 65 read with Section 66 of the Finance Act of 1994 as amended was challenged.

Petitioner’s Contention:- Petitioners submitted that the imposition of a service tax on an activity involving renting of immovable property is substantively ultra vires the charging section. The essence of a service tax is the rendering of a service or a value addition and in the case of renting of immovable property, no service is involved.

The legislative competence of Parliament is questioned on the ground that the tax is on renting of immovable property which, according to the Petitioners, would fall within the legislative competence of the States under Entry 49 of List II of the Seventh Schedule to the Constitution.

The levy of a service tax on renting of immovable property with retrospective effect from 1 June 2007 has been questioned.

Appellant relied on the following cases:

- State of West Bengal v. Kesoram Industries Limited (2004) 10 SCC 201
- Kesoram Industries
Godfrey Phillips India Limited v. State of Utter Pradesh (2005) 2 SCC 515
Navnitlal C. Javeri vs. K.K. Sen, Appellate Assistant Commissioner of Income tax AIR 1965 SC 1375

- J. K. Industries v. Chief Inspector of Factories and Boilers (1996) 6 SCC 665

- Mathuram Agarwal v. State of Madhya Pradesh (1999) 8 SCC 667

It was submitted that levy of service tax on renting of immovable property under sub-clause (zzzz) is ultra vires the charging provision.

Reasoning of Judgment:- The High Court first of all briefly traced the evolution of judicial thought on the issue of the imposition of service tax. Reference was made to four decisions of the Supreme Court in which the controversy was analysed. These cases were as under:

- Tamil Nadu Kalvana Mandabam Association vs. Union of India, (2004) 5 SCC 632

- Gujarat Ambuja Cement Ltd. vs. Union of India AIR 2005 SC 3020

- All India Federation of Tax Practitioners vs. Union of India (2007) 7 SCC 527

- Association of Leasing and Financial Service Companies vs. Union of India, (2011) 2 SCC 352

The High Court, in the backdrop of these decisions, addressed the constitutional challenge in these petitions.

Legislative Competence:

The legislative competence of Parliament to enact said provision is challenged on the ground that the tax which has been imposed on a taxable service which is defined to mean renting of immovable property is a tax on lands and buildings within the meaning of Entry 49 of List II of the Seventh Schedule. That all four judgments of the Supreme Court to which a reference has been made earlier, did not deal with a situation where the legislation would fall within the purview of a specific entry in List II. It was submitted that

(i) Article 246 of the Constitution empowers the State legislature to make laws "with respect to any of the matters enumerated in List II";

(ii) In consequence, the power of the State Legislature is not only to make laws imposing taxes on lands and buildings, but to enact legislation with respect to taxes on lands and buildings;

(iii) Entry 49 of List II must receive the broadest possible interpretation and amplitude;

(iv) Especially when read in the context of Entry 97 of List I, the width and ambit of Entry 49 of List II cannot be curtailed with reference to the residuary power of Parliament; and

(v) A tax whether levied on the basis of rent, annual value, or capital value would constitute a tax on lands having regard to the ambit of Entry 49 of List II. A tax based on leasing of a land and computed by rental value cannot be rested on Entry 97 of List I because it is in substance, a tax on a transaction of letting of land and Entry 49 of List II would preclude a levy by Parliament of a service tax on letting.

It was noted that the legislative power of Parliament and of the State Legislature to enact legislation is contained in Article 245 of the Constitution. Parliament has, by Article 246(1), exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule. This power of Parliament is prefaced by an overriding non-obstante provision. Similarly, under Article 246(3) the power of the Legislature of a State is, subject to clause (1) of Article 246 (and clause (2) which deals with the concurrent power in List III) to make laws with respect to any of the matters enumerated in List II in the Seventh Schedule. In determining as to whether a legislation enacted by Parliament transgresses upon a field falling within the exclusive legislative power of the State, the test which is to be applied is whether the law falls within the ambit and purview of a legislative entry in List II of the Seventh Schedule. If the answer to that question is in the negative, the legislative competence of Parliament cannot be in question. If the subject on which Parliament has enacted legislation is found, upon determining its true nature and character not to fall within the purview of a field reserved to the States, Parliament would have legislative competence in any event under Entry 97 of List I read with Article 248. The essential question that falls for determination in the present case is as to whether the levy of a service tax on a taxable service which Parliament defined to be the renting of immovable property falls within the exclusive province of the State Legislatures under Entry 49 of List II. The scope and ambit of Entry 49 of List II has fallen for interpretation in several judgments of the Supreme Court to which the High Court has referred. These judgments are as under:

In relation to Taxes on lands and buildings the following cases are relied upon:

- Ralla Ram vs. The Province of East Punjab, AIR 1949 FC 81

- Sudhir Chandra vs. Wealth Tax Officer, AIR 1969 SC 59

- Second Gift Tax Officer, Mangalore vs. D.H.Hazareth, AIR 1970 SC 999

- D. G. Gose & Co. vs. State of Kerala (1980) 2 SCC 410

- India Cement Ltd. vs. State of Tamil Nadu AIR 1990 SC 85

- Bhagwan Dass Jain vs. Union of India AIR 1981 SC 907

- Ajoy Kumar Mukherjee vs. Local Board of Barpeta AIR 1965 SC 1561

- Buxa Dooars Tea Co. Ltd. vs. State of W.B., (1989) 3 SCC 211

It was noted that these judgments of the Supreme Court clearly indicate that the settled principle of law is that a tax on lands and buildings is a tax on the general ownership of lands and buildings. In order that a tax must fall under Entry 49 of List II, the tax must be one directly on lands and buildings. A tax which is levied on the income which is received from lands or buildings is not a tax on lands or buildings. A tax levied on an activity or service rendered on or in connection with lands and buildings does not fall within the description of a tax on lands and buildings.

But the Petitioners have submitted that a tax on land within the meaning of Entry 49 of List II can take into account the use to which the land is put. That the service tax imposed by Parliament on renting of immovable property, it was urged, takes account of the user of the land or building. Hence, the argument postulates that this is a tax which the State legislatures could conceivably impose under Entry 49 of List II.

In relation to the residuary power of Parliament to legislate, the following cases are relied upon by the High Court:

- Union of India vs. H. S. Dhillon AIR 1972 SC 1061

- Assistant Commissioner of Urban Land Tax vs. Buckingham & Camatic Co. Ltd., AIR 1970 SC 169

- International Tourist Corporation vs. State of Haryana, (1981) 2 SCC 318

- Federation of Hotels & Restaurant Association of India vs. Union of India, AIR 1990 SC 1637

It was noted that the legislative entries contained in the three lists of the Seventh Schedule to the Constitution must of necessity receive a broad and liberal construction. Parliament and the State legislatures have the power to make laws with respect to the matters enunciated in the Union and State lists under clauses 1 and 3 respectively of Article 246. The power conferred upon Parliament by Article 246(1) is notwithstanding anything contained in clauses 2 and 3. The power of the State legislature under Article 246(3) is subject to clauses 1 and 2. The Constitution is an organic document. While construing the conferment of legislative power and the fields of legislation which are carved out in the three lists of the Seventh Schedule, as a matter of first principle, there is no reason to curtail the scope and ambit of constitutional provisions by an artificial process of construction. In Federation of Hotels &Restaurant Association of India vs. Union of India, AIR 1990 SC 1637, a five judge bench of the Supreme Court has held that different aspects of the same transaction can be taxed where one aspect falls under Entry 97 of List-I and the other falls under List-II. VBC 42 wp2238.10-4.8 a topic of legislation is within the ordinary and natural connotation of the field that is set apart in a legislative entry. The judgment in International Tourist Corporation does not obviate such an exercise. International Tourist Corporation does not - as it could not have - lay down principles contrary to the earlier decisions. The residuary power postulates that a subject does not fall within List II or List III. But to decide that, it has to be determined whether that subject does fall within the natural and proper scope of an entry in List II or III. A subject which does not fall within any Entry in List II cannot be held to fall within that list on an artificial construction so as to invalidate a law enacted by Parliament. For instance, while the Court must give a broad and liberal interpretation to Entry 49 of List II, the interpretation to be placed on that entry must nevertheless be meaningful. In each case, the Court must have regard to the true nature and character of the levy in determining as to whether in pith and substance, the tax is a tax on land and buildings. If the essential nature of the levy is the imposition of a tax on land and buildings, it would fall within Entry 49 of List II. If on the other hand, the essential nature and character of the levy is not a tax on land and buildings, then the exercise of interpretation would not bring within its purview a tax which is not one on land and buildings. The settled principles of constitutional interpretation must guide the Court in determining as to whether what has been imposed by Parliament in the present case is a tax on land and buildings. To an analysis of the essential character of the levy the High Court then proceeded.

The Character of the levy

The charging provision, Section 66, imposes a tax on taxable services. The charging section refers to diverse sub clauses of Clause 105 of Section 65. The charge of tax is on a taxable service. Taxable services in turn are defined in Clause 105 of Section 65. Sub clause (zzzz) brings in within the purview of a taxable service a service provided or to be provided to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or for the furtherance of business or commerce. The expression "renting of immovable property" is defined by Clause (90a) of Section 65 so as to include renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce. Clause (i), however, excludes renting of immovable property by a religious body or to a religious body and Clause (ii) excludes renting of immovable property to an educational body other than a commercial training or a coaching center. The essential nature and character of the levy is therefore that it constitutes a levy of a tax on taxable services. The tax is chargeable under Section 66 on the value of the taxable service. The value of a taxable service is defined by Section 67 to inter alia mean, in a case when a provision of service is for a consideration in money, the gross amount charged by the service provider for such service provided or to be provided by him. The measure of tax is the value of the taxable service, as provided in Section 67. The measure of a tax is not conclusive of the nature of the levy. Conceivably the same measure of taxation may be adopted by two fiscal enactments, each of which may be perfectly valid. For instance, the annual value or the rental value may provide the measure of tax for a tax on property which falls within Entry 49 of List II. The same measure of tax may be adopted as a measure in computing income for the levy of a tax on income under the relevant entry in List I. The charge of tax is not on lands or buildings. The charge of tax is on a taxable service. The measure of tax is the gross amount charged by the service provider. The charge of tax is not on lands or buildings as a unit nor is the tax on lands or buildings. To be a tax on lands and buildings under Entry 49 of List II, the tax must be directly a tax on lands and buildings. That is not the true character of an impost on taxable services.

The High Court held that the decision in Kesoram Industries, while it emphasises that the expression "land" in Entry 49 of List II has a wide connotation, holds that in order to be a tax on land, the levy must have a direct and definite relationship with the land. However, a levy which has a direct and definite relationship with land may legitimately adopt one of the well-known modes for determining the value of land, for that constitutes the measure of the tax. The judgment in Kesoram Industries does not mark a departure from the ambit and content of Entry 49 of List II which has been laid down in the previous decisions of the Court including the judgments of the Constitution Bench in Nawn's Case and in Hazareth's Case or for that matter the decision of the Bench of Seven Learned Judges in Dhillon's Case. A tax on land and buildings within the meaning of Entry 49 of List II is a tax which is directly imposed on land or buildings. Such a tax is a tax which is on the general ownership of the land. The service tax that has been legislated upon by Parliament is not a tax on land. The true nature and character of the levy is not a tax on land or buildings. The charge of tax is a taxable service which Parliament regards as being rendered. The renting of immovable property is an activity which in the legislative wisdom of Parliament involves a conferment of service and it is in that legislative exercise that Parliament has proceeded to impose a levy of service tax. The measure of tax under Section 67 is the gross amount charged by the service provider for the service which is provided or which is to be provided by him. In the case of renting of immovable property, the measure is the rental. The measure of the tax does by no means indicate that the tax is a tax imposed on land or buildings.

The High Court perused that the decision of the Supreme Court in Godfrey Phillips India Limited v. State of Utter Pradesh involved a challenge to State legislation imposing a tax on goods which was sought to be sustained as a tax on luxuries under Entry 62 of List II. The Supreme Court observed that the argument of the assessees was that the tax leviable under Entry 62 of List II cannot be a tax on goods as that would not only allow the State to levy sales tax in contravention of Article 286, but would permit a trespass on the legislative field reserved to Parliament under Entries 83 and 84 of List I. The judgment in Godfrey Phillips lays down the principle that under Article 246 exclusive powers are conferred upon Parliament and upon State legislatures to legislate on a particular matter which includes the power to legislate with respect to that matter. As the High Court have already noted earlier, Clauses (1) and (3) of Article 246 in particular confer powers on Parliament and the State legislatures to legislate with respect to the matters contained in List I and List II respectively. The Supreme Court noted that "where the entry describes an object of tax, all taxable events pertaining to the object are within that field of legislation unless the event is specifically provided for elsewhere under a different legislative head." Having observed as aforesaid, the Supreme Court took note of the fact that even when an entry speaks of a levy of a tax on goods, it does not include the right to impose taxes on taxable events which have been separately provided for under other taxation entries. Since there could be no overlapping in a field of taxation, a tax if specifically provided for under one legislative entry would effectively narrow down the field of taxation available under other related entries. Consequently, when considering the ambit of a specified or express power in relation to an unspecified or residuary power, it would be natural to impart a broader meaning to the former over the latter. Hence, the judgment in Godfrey Phillips postulates that entries elucidating objects of taxation must properly be construed to encompass all taxable events which fall within it unless a part of the field has expressly been carved out by a legislative entry in relation to another legislature. But the decision nonetheless requires the Court in each case to determine what is the appropriate or proper scope of the taxation entry in the first place. Once the ambit of that entry is determined, then all taxable events which fall within the scope of 22(paragraph 49 at page 204) the entry must be regarded as being subsumed within the entry. Godfrey Philips is, however, not a decision which elucidates the scope of Entry 49 of List II to the Seventh Schedule. The ambit of Entry 49 has been explained in several judgments of the Constitution Bench of the Supreme Court as well as in the judgment of the Bench consisting of Seven Judges in Dhillon. Since properly construed a tax which has been imposed by Parliament is not in essence and in its true character a tax on land and buildings, the tax cannot nonetheless be held as a tax within the meaning of Entry 49 of List II in spite of the true nature and character of the levy. The enactment by Parliament in the present case of service tax has been held by the Supreme Court to fall within the purview of Entry 97. That principle which has been enunciated in the four decisions of the Supreme Court specifically on the issue of service tax does not require to be revisited in relation to the imposition of service tax under Clause (zzzz) of Section 65 (105). The essential nature and character of the levy is one which is referable to the residuary power of Parliament under Article 248 of the Constitution read with Entry 97. Parliament, it may be noted, introduced Entry 92C into List I by the Constitution VBC 51 wp2238.10-4.8 (Eighty Eighth Amendment) Act 2003 to specifically deal with taxes on services. That provision has still not been enforced. In the circumstances, the true nature and character of the levy of service tax in the present case is a levy under the residuary power which has been conferred upon Parliament.

The submission, however, of the Petitioners is that there is no service involved in the letting of immovable property and consequently it was not open to Parliament to impose a service tax on the supposition that a taxable service is involved in the letting of immovable property. The submission cannot be accepted for more than one reason. As a matter of constitutional doctrine, Parliament when it legislates upon a matter is entitled to make an assessment of fact on the basis of which the legislation is designed and drafted. An underlying assessment of fact by Parliament on the basis of which a law has been enacted cannot be amenable to judicial review absent a case of manifest arbitrariness. That apart, it is equally well settled that the legislature in enacting a law is entitled to provide for a deeming fiction. The only limitation on the exercise of the power is that by a deeming fiction the legislature cannot transgress upon a constitutional restriction or a field of legislation that is reserved to another legislature. In the present case, there is no constitutional restriction or a question of transgression into the legislative field that is carved out to the State legislatures, once the Court comes to the conclusion that the law in question is not a law with respect to any of the matters contained in the State List. Once the Court comes to the conclusion that the law is not a law with respect to the legislative entry of taxes on land and buildings, the field of the legislation would necessarily fall within List I and more particularly, the residuary entry of List I. The levy of tax on a taxable service provided or to be provided to any person, by any other person, by the renting of immovable property is based on a considered determination by Parliament that such transactions do in fact involve an element of service. The fact that the service which is provided may not, to the Petitioners, accord with what is commonly regarded as a service would not militate against the validity of the legislation. As the Supreme Court observed in Tamil Nadu Kalyana Mandapam Association's case, the legislative competence of Parliament does not depend upon whether in fact any services are made available. The Supreme Court held that the levy of service tax on a particular kind of service cannot be struck down on the ground that it does not conform to a common understanding of the word 'service' as long it does not transgress a specific restriction contained in the Constitution. Hence, on this aspect of the matter, the conclusion of the High Court is that the validity of the legislation does not depend upon a determination of fact by the Court that a service is provided in the transaction which is brought to tax. For a law which does not fall within List II of the Seventh Schedule would in any event fall within the legislative competence of Parliament under its residuary power.

In the affidavit in reply that has been filed in these proceedings it has been stated that renting of property is considered to add value to the activity of the person who has rented the property. When a person has a property at a particular location, he is able to charge a higher sum for the merchandise sold therefrom than he would be able to charge if he were to sell the same merchandise from a place which does not have a same locational advantage. Renting of a property, it has been submitted, adds value to the activities of a person renting the property. Value addition, it has been submitted, does not necessarily mean that certain intrinsic changes must occur in what has been offered. For instance, some goods while passing through various stages of sale do not undergo any intrinsic change, but a value addition does take place and is accordingly taxed by the concerned authorities. The concept of a value addition tax has been developed to avoid a cascading effect in the taxation system. Services can be used either as input in the product at different stages or directly in the final product. In order to avoid a cascading effect, Cenvat Credit Rules have been framed. Rule 3(i)(ix) of the Cenvat Credit Rules 2004 contemplates the grant of Cenvat credit. In addition, it has been stated in the reply that under the General Agreement on Trading Services (GATS) the Central Product Classification inter alia contemplates that an element of service is involved in the renting of property.

The High Court has adverted to the affidavit in reply in order to buttress the point that a legislative hypothesis contained in parliamentary legislation cannot be questioned on the ground that the assumption of fact is in error. Parliament is entitled to make assessments of fact on the basis of which it legislates. Indeed, such assessments of fact are intrinsic to the very nature of the legislative exercise and the Court which exercises the power of judicial review particularly in fiscal matters would not be justified in reexamining the wisdom or the correctness of such an exercise by Parliament. The legislature in fiscal matters is entitled to a high degree of latitude in designing legislation and in formulating methodologies for the recoveries of fiscal exactions. Such an exercise cannot ordinarily be questioned as being beyond the powers of the enacting legislature.

It was noted that the Supreme Court in judgment in Navnitlal C. Javeri vs. K.K. Sen, Appellate Assistant Commissioner of Income-tax [23 AIR 1965 SC 1375 had decided the considered a constitutional challenge to the provisions of Section 2(6A)(e) of the Income Tax Act, 1922 under which a loan which was received by a shareholder of a private company was treated as a dividend paid to him by the company. It was held that the legislation will be aware of the situation that can arise and devised a fiction which could not be said to beyond the legislative field assigned to it by entry 82 in List I.

With regard to judgment relied upon by appellant in J.K. Industries it was noticed that the said judgment involved the interpretation of the provisions inter alia of Section 2(n) of the Factories Act 1948. The Supreme Court held, that a proviso may, in certain cases, be an exception to a principal statutory provision though it cannot be inconsistent with what is expressed in the main provision. The Court held that if a proviso is so inconsistent, it would be ultra vires the main provision and would be struck down. Hence as a general rule, it would be proper to construe all the provisions of the statute together without making either of them redundant or otiose. Mathuram Agarwal's case dealt with Section 127 of the M.P. Municipalities Act 1961 which authorised the imposition inter alia of a tax payable by owners of houses, buildings or lands situated within the limits of a municipality with reference to the annual letting value. The rate of taxation was specified in a table appended to Section 127A. The rate at which the tax had to be levied commenced with property, the annual letting value of which exceeded Rs.1,800/- per annum and in such a case, the tax was to be levied at 6% of the annual letting value. No rate of tax was prescribed for a property, the annual letting value of which was less than Rs.1,800/-. The proviso to sub section (2) of Section 127A, however, stipulated that if any such building or land was in the ownership of a person, who owns any other building or land in the same municipality, the annual letting value of such building or land, shall for the purposes of the Clause, be deemed to be the aggregate annual letting value of all buildings or land owned by him in the municipality. The Supreme Court held that the main provision which was the charging section, made no provision regarding the rate at which tax was to be paid in case the building or land in question had an annual letting value of less than Rs. 1,800/-. However, the proviso required the exempted property to be subjected to tax and for the purpose of valuing that property alone the value of the other properties was to be taken into consideration. In these circumstances, the proviso was held to be contrary to the charging section. Both these cases deal with provisos or exceptions to the main provision. This can have no application whatsoever to the present case where the very charge is imposed on the taxable services defined with reference to the diverse clauses of Section 65(105).

In view of the High Court after looking at from either stand point, the legislative basis that has been adopted by Parliament in subjecting taxable services involved in the renting of property to the charge of service tax cannot be questioned. The assumption by a legislative body that an element of service is involved in the renting of immovable property is certainly not an assumption which can be regarded by the Court as being so manifestly absurd or perverse as to lead to an inference that Parliament had treated as a service, an item which in no rational sense could be regarded as involving service. But more significantly, even if the Court were to proceed on the basis, suggested by the Petitioners that no element of service is involved, that would not make the legislation beyond the legislative competence of Parliament. So long as the legislation does not trench upon a field which has been reserved to the State legislatures, the only conclusion that can be drawn is that the law must be treated as valid and within the purview of the field set apart for Parliament. It must be emphasized that there is no violation set up of any provision in Part III of the Constitution, (save and except on the issue of retrospectively which would be considered subsequently).

Retrospectivity:-

The High Court noted that the challenge to the legislation on the ground that it is retrospective is lacking in substance. Parliament, it is well settled, has the plenary power to enact legislation on the fields which are set out in List I and List III of the Seventh Schedule. The plenary power of Parliament to legislate can extend to enacting legislation both with prospective and with retrospective effect. That however, is subject to the mandate of Article 14 of the Constitution.

The High Court perused the Notes on clauses when the Finance Bill of 2007 was introduced in Parliament and noted that the same would indicate that the intent of Parliament was specifically to bring the renting of immovable property within the fold of taxable services when used in course or furtherance of business or commerce. As a matter of fact, Parliament had used language of width and amplitude in the original provision which adverted to a service provided or to be provided "in relation to renting of immovable property" for use in the course or furtherance of business or commerce. The expression "in relation to renting of immovable property" was broad enough to include both the renting of immovable property as well as services in relation to the renting of immovable property. The Delhi High Court by its judgment in Home Solution's case struck down both a Notification and a Circular issued by the Union Ministry of Finance. (A Special leave Petition is pending against the judgment of the Delhi High Court in Home Solution before the Supreme Court). In this view of the matter, Parliament stepped in to substitute sub clause (zzzz) in its present form instead and in place of the earlier provision so as to provide for the renting of immovable property or any other service in relation to such renting. The provision was given retrospective effect so as to cure the deficiency which was found upon interpretation by the Delhi High Court. The notes on clauses accompanying the introduction of the Finance Bill of 2010 would indicate that the amendment has been brought about to validate the provision.

The Revenue stated in their reply that the earlier provisions were understood to permit the imposition of a service tax on renting of premises per se and that an amount of Rs. 938 Crores was collected in financial year 2007-08 (the year when the tax was introduced). Amounts respectively of Rs. 2574 Crores were collected in 2008-09 and Rs. 1957 Crores in financial year 2009-10.

It was held that the object of amendment, brought about with retrospective effect, is to expressly bring the legislative provision in conformity with the original parliamentary intent. The Supreme Court held in Bakhtawar Trust v. M.D. Narayan (2003) 5 SCC 298 that it is open to the legislature to alter the law retrospectively provided the alteration is made in such a manner that it would be no more possible for the Court to arrive at the same verdict. The purpose and object of validating legislation is to ensure a fundamental change of circumstances upon which the earlier judgment was founded. This may be done by re-enacting retrospectively a valid and legal taxing provision and then by a fiction making the tax already collected stand under the reenacted law. [Shri P.C. Mills vs. Broach Municipality, (1969) 2 SCC 283. The amendment in the present case passes muster on that test.

The constitutional validity of the provision has been upheld by the High Courts of Punjab & Haryana and Orissa in Shubh Timb Steels Limited vs Union of India, (2010) 236 CTR (P&H) 562 and Utkal Builders Limited vs. Union of India (2011) 186 ECR 74 (Orissa).

In the end it was held that there is no substance in the challenge raised before the Court.

It was held that the case does not involve a substantial question of law as to the interpretation of the Constitution. Petitioner’s submission in this regard rejected.

On the conclusion of the judgment, petitioners submitted before the Court that the interim orders which have held the field may be extended for a reasonable period so as to enable the Petitioners to seek recourse to their remedies in appeal. Having regard to the facts and circumstances, the High Court directed that all interim orders shall continue to remain in operation for a period of four weeks with a view to enabling the Petitioners to seek recourse to the remedies in appeal.

Decision:- Writ Petitions dismissed.

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