Service Tax on Renting of immovable property

PJ/Case Laws/2011-12/1292

Service Tax on Renting of immovable property - Retrospective effect

Case - TRENT LIMITED VS UNION OF INDIA

Citation: 2010-TIOL-402-HC-AP-ST

Issue:- Service tax on Renting of immovable property – amendment applying the levy retrospectively from 2007 - challenged - legislative competency of Parliament to enact Section 65 (105) (zzzz) as enacted in the Finance Act, 2010 challenged – HC stayed retrospective effect of amended provisions.

Brief Facts:- Petitioner is a company incorporated under the provisions of the Companies Act, 1956 and is in the business inter alia of running retail stores by taking shops/premises on rent or on license. It is principally aggrieved by the provisions of Section 66 (105) (ZZZZ) as amended by the Finance Act, 2010, whereby inter alia the renting of immovable property is brought within the ambit of a service and made liable to tax under the provisions of the service tax matrix of the Finance Act, 1994, as now amended.

Petitioner’s contentions:- Petitioner has contended that the renting of immovable property per se would constitute any value addition falling within the lubric of service and that the provisions of Section 65 (105) (zzzz) are inconsistent with the ratio legis of the service tax provisions of the Finance Act, 1994.

Alternatively, it is contended that the Parliament does not have legislative competence to levy service tax by an artificial expansion of the concept of service so as to entrench into the core of the legislative power of the state under entry 49 of List I of VI Schedule to the Constitution of India which reads "Taxes on lands and buildings".

It is also contended that Division Bench of the Delhi High Court in the judgment dated 18/04/2009 in Home Solution Retail India Ltd., V. Union of India and others [2010-TIOL-341-HC-DEL-ST] and observed inter alia (while interpreting the provisions of Section 65 (105) (zzzz), as these provisions stood prior to the amendment by the Finance Act, 2010), that the renting of immovable property for use in the course of or furtherance of business of commerce by itself cannot constitute service; and therefore, the legislative dynamics qua the provisions of the Finance Act, 2010, would not be a valid exercise as a validating legislation to remove the substratum of the ratio of the judgment of the Delhi High Court.

It was also contended that the provisions of Section 65 (105) (zzzz) have been given retrospective efficacy qua Section 77 of the Finance Act, 2010 by purporting to be in the nature of validation of action taken under sub-clause (zzzz) of clause (105) of Section 65 and that such retrospective operationalisation of a taxing provision is arbitrary, independent of the question whether the Parliament had the legislative competence to enact Section 65 (105) (zzzz) as enacted in the Finance Act, 2010.

Reasoning of Judgment:- The High court held that the generic contentions urged on behalf of the petitioner, are eminently arguable though the High Court were not prima-facie satisfied to an extent warranting interdiction of the operation of the provisions of Section 65 (105) (zzzz) in so far as their prospective application is concerned. The challenge as to the retrospectivity of the provisions which prima-facie is on more substantial grounds.

Accordingly, the High Court ordered that respondent department, pending further orders in this application or in the writ petition, not to initiate any coercive steps for recovery of the service tax on the renting of immovable property by the petitioners, on the basis of the provisions of Section 65 (105) (zzzz) as amended by the Finance Act, 2010, for the period 01/06/2007 to 01/04/2010. Petitioner shall, however, be liable to pay the applicable service tax as per the provisions of Section 65 (105) {zzzz), for the period subsequent to 01/04/2010 but subject to the result of the writ petition, notice.

Decision:- Retrospective amendment stayed.

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PJ/Case Laws/2011-12/1292

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