Service tax on rent of immovable property now get seal of approval from Delhi High Court. Hundreds of lawyers including Sri Harish Salve and Dr Avishek M Sighvi could not pursue the Court that the service tax on renting of immovable property is unconstitutional.Delhi High Court vide its order dated 23/09/2011 dismissed the Hundreds of Writ Petitions filed by different persons .
Service Tax Artificial Liability
It was contented by the petitioner that an artificial liability has been created on the tenants by the Finance Act, 1994 which introduced the service tax. Reference has been made to sub-section 90(a) which was inserted in Section 65 of the Finance Act, 1994 by the Finance Act, 2007 to tax any “service provided to any person by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce”. The said provision came into force with effect from 1.6.2007.Service Tax Authority issued a notification No.24/2007 dated 22.5.2007 and issued, a circular dated 4.1.2008 in relation to Section 65(105)(zzzz) as it stood in 2007.
The constitutional validity of the notification and the circular was questioned before this Court in the case of Home Solution Retail India Ltd. v. Union of India, 158 (2009) DLT 722 (DB).
Division Bench of Delhi High Court in Home Solution Retail India Ltd. v. Union of India, 158 (2009) DLT 722 (DB) held that Section 65(105)(zzzz) could not have brought in its ambit and sweep the renting out of immovable property for use in the course of furtherance of business or commerce to constitute a taxable service and thereby exigible to service tax and, accordingly, the notification and circular were declared ultra vires.
After the said decision was rendered, Section 65(90)(a) and Sections 65 and 66 were amended.
Service Tax Unconstitutional ??
Challenging the validity of the amendments, Mr. Harish N.Salve, learned senior counsel, has submitted that the Parliament has no authority to enact the impugned legislation as renting of immovable property is a tax on lands and buildings which squarely comes within
Entry 49 of List II of the Seventh Schedule of the Constitution of India.
Dr. Singhvi, learned senior counsel appearing in some of the writ petitions, has submitted at the fore that there is no service involved in the letting of immovable property and consequently, it is not open to the Parliament to impose service tax on the assumption that the taxable service is involved in letting of immovable property. It is submitted by him that it is well settled in law that the Legislature in enacting a law is entitled to enact or prescribe a deeming fiction but the exercise of the
11. Dr. Singhvi, drawing analogy from the internationally followed principles, further submitted that even internationally, leasing / letting of immovable property is exempted from value added taxation since it has been construed that the same does not provide any value addition and since the Government of India has sought to rely upon the internationally accepted value added tax regime, it needs to follow the same fully and exempt leasing / letting of immovable property from the domain of value added tax. In this regard, he has placed reliance on the decision of the House of Lords in Commissioners of Custom and
Excise v. Sinclair Collis Limited (2001) UKHL 30 (7th June, 2001).
Mr. S. Ganesh, learned senior counsel , in his submission that letting of immovable property is merely a property transaction and does not involve remotely any value addition whatsoever which results from the rendering of the service and therefore, the service tax is not leviable. He has heavily relied on the decision rendered in All India Federation of Tax Practitioners (supra) wherein the Apex Court has noted that a service tax is a tax on value addition made by rendering of services.
Mr. A.S. Chandhiok, learned Additional Solicitor General contended that the amendment incorporated by the Finance Act, 2010, the levy is on the very activity of renting, leasing, letting, licensing of the immovable property or permitting the immovable property through any
arrangement whatsoever to be used in the course or furtherance of business or commerce and for the said purpose, transfer of right, title and interest is totally irrelevant. It is his further submission that the activity which is sought to be taxed under Section 65(105)(zzzz) is
allowing/permitting the usage of immovable property in the course and furtherance of business which is neither covered under the Transfer of Property Act nor under the Indian Easements Act and by no means is a tax on land and building to come within the ambit and sweep of Entry 49 of List II of the Seventh Schedule of the Constitution
It is canvassed by him that the tax in the present case is an indirect tax and the impost is on the activity and not on renting or leasing.
Hon,ble Delhi High Court Held as under
(a) The provisions, namely, Section 65(105)(zzzz) and Section 66 of the Finance Act, 1994 and as amended by the Finance Act, 2010, are intra vires the Constitution of India.
(b) The decision rendered in the first Home Solution case does not lay down the correct law as we have held that there is value addition when the premises is let out for use in the course of or furtherance of business or commerce and it is, accordingly overruled.
(c) The challenge to the amendment giving it retrospective effect is unsustainable and, accordingly, the same stands repelled and the retrospective amendment is declared as constitutionally valid. Consequently, the writ petitions, being sans substratum, stand dismissed without any order as to costs.