14 December, 2011

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Service Tax on Renting of Immovable Property Service: Constitutional Validity & Other Aspects

Home Solutions Retails (India) Ltd. Vs. Union Of India & Others  (Delhi-HC)

1) Service Tax: Renting of Immovable Property Service: Constitutional Validity

Imposition of service tax under Section 65(105)(zzzz) read with Section 66 is not a tax on land and building which is under Entry 49 of List II. What is being taxed is an activity, and  the activity denotes the letting or leasing with a purpose, and the purpose is fundamentally  for commercial or business purpose and its furtherance.
The concept has to be  read in  conjunction. Service tax is associated with value addition as evolved by the judgments of  the Apex Court, the submission that the base of the said decisions cannot be taken away by a statutory amendment need not be adverted to. Once there is a value addition and the element of service is involved, in conceptual essentiality, service tax gets attracted and the impost gets out of the purview of Entry 49 of List II of the Seventh Schedule of the Constitution and falls under the residuary entry, that is, Entry 97 of List I. 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. (para 69,75)


2) Service Tax: Renting of Immovable Property Service: Decision of Division Bench overruled

The first Home Solution case does not lay down the law correctly inasmuch as in the said decision, it has been categorically laid down that even if a building/land is let out for commercial or business purposes, there is no value addition. Being of this view, the said decision is overruled. (para 70)



3) Service Tax: Renting of Immovable Property Service : Renting involves value addition

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. (para 75)



4) Service Tax: Renting of Immovable Property Service: Retrospective Effect

It is worth noting that the Parliament, keeping in view the first Home Solution case, substituted sub-clause (zzzz) in the present incarnation and gave retrospective effect to cure the deficiency. It is well settled in law that it is open to the legislature to pass a legislation retrospectively and remove the base on which a judgment is delivered. Having overruled the first Home Solution case, the provisions would operate from 2007 and the amendment brought by the Parliament is by way of ex abundanti cautela. 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. (para 71,74,75)


5) Service Tax: Renting of Immovable Property Service: Penalty for non-payment

On the question of penalty due to non-payment of tax, it is open to the government to examine whether any waiver or exemption can be granted. It may be noted that the appeal against Home Solutions-I is pending before the Supreme Court but the operation of the said judgment has not been stayed. (para 73)


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Source: Servicetaxonline


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