Validity of Retrospective effect of Imposition of Service Tax on Renting of Immovable Property service

PJ/Case Laws/2012-13/1104

Case: ENTERTAINMENT WORLD DEVELOPERS LTD. V/S. UNOIN OF INDIA

Citation:2012 (25) S.T.R. 231 (M.P.)

Issue:- Service Tax on renting of immovable property imposed with retrospective effect – held not ultra vires the Constitution.

Brief Facts:- Writ petitions challenge the imposition of 'service tax' on renting of immovable property.

The Supreme Court in the case of All-India Federation of Tax Practitioners and others Vs. Union of India and others [(2007) 7 SCC 527 upheld the validity of the said constitutional amendment.

In exercise of the legislative power conferred by the entry 92-C in list I of the Seventh Schedule of the Constitution of India as “TAXES ON SERVICES” , Service Tax was introduced by the Parliament.

The Delhi High Court in its judgment headed by the case of HOME SOLUTION RETAIL INDIA LIMITED V. UNION OF INDIA [2009(237) ELT 209 (Del) held that mere renting out of immovable property would not amount to ‘service’ and, therefore, would not be amenable to service tax.

A SLP by the Union of India against the said decision of the Delhi High Court was pending in the Supreme Court. However, the legislature without waiting for the decision of the SLP amended the definition of “taxable service” by enacting the Finance Act, 2010, wherein sub-clause (zzzz) of clause (95) of section 65 was amended and “taxable service” was defined to include “any service provided or to be provided to any person, by any other person, by renting of immovable property”.

Further by Section 77 of the Finance Act, 2010 this amendment was given retrospective effect. This amendment as well as retrospective of the same is under challenge in this petition.

Appellant’s Contention: - It has been argued that restrospectivity was not permissible because this amendment to the definition of “taxable service” is not merely clarificatory but brings about a substantive liability of taxation upon the service providers. It has also contended that by giving a retrospective effect to this amendment to the definition of “taxable service”, the service provider is also saddled with liability to pay interest as well as penalty on the default in payment of service tax for the past period.

Reasoning of Judgment:- The Court noted that the issues raised by Petitioner were answered against the petitioner given the reference of the following cases:

- SHUMB TIMB STEELS LTD. V. UNION OF INDIA AND OTHERS, 2010 (20) S.T.R 737(P&H)

- RETAILERS ASSOCIATION OF INDIA V. UNION OF INDIA AND OTHERS, W.P., 2011(23) S.T.R. 561 (BOM)

- CINEMAX INDIA LTD. THROUGH DIRECTOR V. UNION OF INDIA, 2011(24) S.T.R. 3 (GUJ)

- UTKAL BUILDERS LIMITED V. UNION OF INDIA, W.P, 2011(22) S.T.R. 257(ORI)

The Court held that even if it is assumed for the sake of argument that the amendment is not merely clarificatory but creates a substantive liability or right, the Parliament's right to legislate and create liabilities or rights with retrospective effect can be curtailed only by a restriction placed upon the legislative power of Parliament by one or the other provision of the Constitution of India, for example, the restriction of creating an offence with retrospective effect or the restriction from enhancing the punishment for an offence with retrospective effect as found in Article 20(1) of the Constitution of India. The Court noted that no provision of the Constitution of India has been shown which restricts the right of Parliament to legislate retrospectively creating a lax liability.

It was noted that according to the case of T.N. KALYANA MANDAPAM ASSOCIATION V. UNION OF INDIA AND OTHERS [(2004)5 SCC 632, the Supreme Court held that “a levy of service tax on a particular kind of service could not be struck down on the ground that it does not conform to a common understanding of the word “service” so long as it does not transgress any specific restriction contained in the Constitution.

That in fact, making available premises for a period of a few hours for the specific purpose of being utilised as a Mandap whether with or without other services would itself be a service and cannot be classified as any other kind of legal concept. It does not certainly involve transfer of movable property of any kind known to law either under the Transfer of Property Act or otherwise and can only be classified as services.”

No force was found in the petitions.

Decision:- Petitions dismissed.

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PJ/Case Laws/2012-13/1104

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