Delhi High Court has upheld the constitutional validity of Service Tax on renting of immovable property with retrospective effect
While upholding the levy of Service Tax on Renting, their Lordship has left open the question of imposition of penalty for period prior to 2010 to be examined by the Govt. in view of the fact that the earlier petition quashing the levy by Delhi High Court is still pending before the Supreme Court, who had declined to grant any stay in favour of the Govt.
It therefore may be expected that those liable to pay tax retrospectively may hope for some announcement inducing them to pay tax with interest but without penalty for period from June 2007 to the date of enactment of the Finance Act, 2010.
Extracts from the judgement :
68. When premises is taken for commercial purpose, it is basically to subserve the cause of facilitating commerce, business and promoting the same. Therefore, there can be no trace of doubt that an element of value addition is involved and once there is a value addition, there is an element of service.
69. In view of our aforesaid analysis, we are disposed to think that the 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. As we have explained that 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.
70. In view of our conclusion, the decision in 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, we overrule the said decision.
71. The next limb of attack is with regard to the retrospective applicability of the provision. The learned counsel for the petitioners have submitted that the tax and the penalty could not have been imposed with 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.
73. 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.
74. Quite apart from the above, as we have overruled the first Home Solution case, we are disposed to think that the provisions would operate from 2007 and the amendment brought by the Parliament is by way of ex abundanti cautela. 75. In view of the aforesaid analysis, we proceed to enumerate our conclusions in seriatim as follows:
(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.
76. Consequently, the writ petitions, being sans substratum, stand dismissed without any order as to costs.
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Rakesh Chitkara, Advocate,
Delhi High Court
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