Case Law Details

Case Name : N.K. Bhasin Vs Union of India (Allahabad High Court)
Appeal Number : Misc. Bench No. ­1827 of 2011
Date of Judgement/Order : 30/05/2017
Related Assessment Year :
Courts : All High Courts (3699) Allahabad High Court (195)

1. Heard Sri Pradeep Agarwal, Sri Yogesh Chandra Srivastava, holding brief of Sri Piyush Agarwal and Sri Rahul Agarwal, learned counsels for petitioner and Sri Rajesh Singh Chauhan, learned counsel for respondents.

2. In all these writ petitions since common questions are involved therefore, have been heard together and are being decided by this common judgment.

3. In all the writ petitions vires of Sections 75(A)(6)(h) and 77 of Finance Act, 2010 and Sections 65(90)(a) and 65(105)(zzzz) read with Section 66 of Finance Act, 1994 as amended by Finance Act, 2007 and Finance Act, 2010, has been challenged as being illegal, arbitrary and lacking legislative competence infringing Articles 14, 246 and 265 of Constitution of India.

4. Petitioners have also challenged consequential circular dated 04.01.2008 and 22.05.2007, as void, nullity, illegal and ultra vires of provisions of Finance Act, 1994 as amended by Finance Act, 2007, Finance Act, 2008 and Finance Act, 2010.

5 .For convenience prayers made in Writ Petition no 1827 (MB) of 2011 which are common in all writ petitions are quoted as under:-

“(i) issue a suitable writ, order or direction be issued declaring that Section 75(A) (6) (h) and Section 77 of Finance Act, 2010 as null and void and ultravires to the Constitution of India and/or pleased to strike down the said provisions being illegal arbitrary and violative of Article 14, 246 and 265 of the Constitution of India.

(ii) issue a suitable writ order or direction be issued declaring Section 65(90) (a) and Section 65(105) (zzzz) read with Section 66 of the said Finance Act, 1994 as amended by Finance Act, 2007 and Finance Act, 2010 as null and void and ultravires the Constitution of India and/or pleased to strike down the said provisions being illegal arbitrary and violative of Article 14, 246 and 265 of the Constitution of India.

(iii) issue a suitable writ, order or direction be issued declaring that Article 246 read with Entry 97 of List I of the VII Schedule to the Constitution of India does not confer legislative power on the Union to enact Section 65(90) (a) read with Section 65(105) (zzzz) of the Finance Act, 1994 as amended by the Finance Act, 2007 and Finance Act, 2010.

(iv) issue a writ of prohibition, or a writ in the nature of prohibition, or any other appropriate writ, order or direction under Article 226 of the Constitution of India, prohibiting the opposite parties by their servants, agents and subordinates from,

a. directly or indirectly giving effect to the impugned provisions viz. Section 65(90) (a) read with section 65(105) (zzzz) of the Finance Act, 1994 as amended by the Finance Act, 2007 and Finance Act, 2010 and Levying or attempting to levy, collect or recover from the petitioner any service tax under the said impugned provision of the said Act.

(v) issue a writ or mandamus or a writ in the nature of mandamus or any other appropriate writ, order or direction under Article 226 of the Constitution of India.

a. Restraining the opposite parties by their servants, agents and subordinates from,

(1) directly or indirectly giving effect to the impugned provisions viz. Section 65(90a) read with Section 65(105) (zzzz) of the Finance Act, 1994 as amended by the Finance Act, 2007 and Finance Act, 2010 and

(2) Levying or attempting to levy collect or recover from the petitioner any service tax under the said impugned provision of the said Act.

(vi) issue a writ, order or direction in the nature of certiorari quashing the Circular No. 98/1/2008­ST dated 4.1.2008 and Notification No. 24/2007 dated 22nd May, 2007 as revived by the Finance Act, 2010 issued by the opposite party no. 1 as illegal, null and void and ultravires the provisions of Finance Act, 1994 as amended by Finance Act, 2007, Finance Act, 2008 and Finance Act, 2010.”

6. Petitioner, M/s N.K. Bhasin, sole petitioner in Writ Petition no. 1827 (MB) of 2011 is a Limited Company incorporated under Act, 1956. It is also in similar lease agreement of immovable properties and has challenged service tax which is now payable under provisions detailed above, by it.

7. Petitioner, M/s HCl Technologies Ltd, sole petitioner in Writ Petition no. 10347 (MB) of 2011 is a Limited Company incorporated under Act, 1956, engaged in offering integrated portfolio of service including software­led IT solutions, remote infrastructure management, engineering and RGD Industry verticals including financial services, manufacturing, consumer services, public services and health care. For the said purpose it has taken properties of respondents 6 to 15 on rent at Lucknow and aggrieved by levy of service tax on such transactions, this writ petition has been filed.

8. Petitioner, M/s HCL Comment Ltd., sole petitioner, in Writ Petition no. 10341 (MB) of 2010 is also a Limited Company incorporated under Act, 1956 having its head office at 806­808, Siddharth Nehru Place, New Delhi­ It is engaged in the business of trading in Satellite and Non­ Satellite based communication equipment, installation and maintenance of said equipment and maintenance of private network. For the aforesaid purpose it has taken on rent, property and guest houses of respondents 6 to 11 at B-1/11 GF, Section­ G, Aliganj, Lucknow and now under an obligation to pay service tax thereat, hence this writ petition.

9. Petitioner, Ing Vysya Bank Limited, Lucknow, sole petitioner in Writ Petition no. 7893 (MB) of 2010 is also a Limited Company incorporated under Act, 1956, engaged in the business of banking and allied banking services having lease of several properties for running banking services. It is now under an obligation to pay service tax by virtue of provisions whereof validity has been challenged in this writ petition.

10. Petitioner Bling Creations Private Limited in Writ Petition no. 9661 (MB) of 2010 is engaged in the business of selling goods and accessories through shops taken on rent. It has hired property of E­City Real Estates (P) Limited, Fun Republic Mall, Near Eldeco Greens, Lohia Path, Gomti Nagar, Lucknow (impleaded as respondent no. 5) in the said writ petition.

11. Petitioner, M/s Shopper’s Stop Limited sole petitioner in Writ Petition no. 10513 (MB) of 2010 is a Limited Company incorporated under Act, 1956 engaged in the business of selling of goods and accessories through shops taken on rent. Certain properties owned by respondents 5 to 7 have been taken on rent by petitioners and liability of service tax fallen on petitioner by virtue of provisions referred herein above is under challenge.

12. Petitioner, Devyani International Ltd., sole petitioner in Writ Petition no. 10514 (MB) of 2010 and 3102 (MB) of 2011, respectively, is also a Limited Company incorporated under Companies Act, 1956 (hereinafter referred to as “Act 1956”) engaged in the business of running a chain of Restaurants under different brand names “Pizza Hut, KFC, KOSTA COFFEE, DISNEY”. It has taken on lease or license, different properties at Noida, Ghaziabad, Meerut, Mathura, Agra and Varanasi, details whereof are given in para 10 and 11 respectively of the above writ petitions. Under the agreement with respective owners, liability of payment of service tax was upon owners but the said owners insist upon petitioner to make payment of service tax. This was also endorsed by Government of India vide letter dated 26.02.2010 and petitioner has challenged it since liability has been thrust upon petitioner. In other words liability has been created upon tenants under Finance Act, 1994 and that has been challenged.

13. Petitioner, M/s Barista Coffee Company Ltd. sole petitioner in Writ Petitions no. 2171 (MB) of 2011 and 3104 (MB) of 2011, is also a Limited Company incorporated under Act, 1956, having its registered office at 55, Community Centre, Basant Lok Market, Vasant Vihar, New Delhi. It is engaged in the business of running a chain of Restaurants under the name of “Barista Coffee Company”. It has also taken several properties by ways of lease or license, whereupon liability of service tax had fallen upon it and hence it has joined this bunch of writ petitions.

14. Petitioner, A.N. Traders New Delhi, sole petitioner in Writ Petition no. 3106 (MB) of 2011 is a Limited Company, incorporated under Act, 1956 engaged in the business of running a chain of Restaurants under the name of “A.N. Traders Pvt. Ltd.”. It has also taken on lease or license, certain properties with the liability of service tax which has been challenged.

15. Petitioner, K.B. Tiwari, sole petitioner in Writ Petition no. 677 (MB) of 2011 has entered into an agreement with M/s Vishal Retail Ltd. New Delhi and under the provisions, challenged in this writ petition, is liable to pay service tax and that has been challenged.

16. Petitioner, The Commercial Motors Ltd., sole petitioner in Writ Petition 1041 (MB) of 2013, is also a Limited Company incorporated under Act, 1956. It has entered into an agreement of lease with M/s Inter gold Gems Pvt. Ltd. on 07.09.2005, another lease agreement with M/s Aditya Birla Nuvo Ltd. on 05.09.2007; third lease agreement on 26.10.2008 with M/s Met life India Insurance Company Ltd; and fourth agreement dated 26.12.2009 with M/s Edelweiss Brooking Ltd.. In respect of properties let out under the said agreement, petitioner is now liable to pay service tax, hence this writ petition.

17. Service tax in India was introduced in 1994 by Chapter V of Finance Act It introduced service tax w.e.f. 01.07.1994 at the rate of five percent. It was subsequently increased to eight percent w.e.f. 14.05.2003, ten percent w.e.f. 10.09.2004 and addition of Education Cess of two percent was also increased in 2004. Applicability of net of service tax was very wide resulting in a huge revenue earning to Central Government. Encouraged thereby, rate of service tax was increased to twelve percent by Finance Act 2006 w.e.f. 18.04.2006 maintaining two percent Education Cess w.e.f. 01.04.2012. The effective rate of service tax is 12.63 percent.

18. Chapter V of Finance Act, 1994 had provisions relating to ‘service tax’ from Sections 64 to 96.

19. Section 65 contains definition for the purpose of Chapter V. Sub section (90a) was inserted by Finance Act, 2007 w.e.f. 01.06.2007. Initially it had only one Explanation. By Finance Act, 2008, w.e.f. 16.05.2008, existing Explanation was renumbered as Explanation I and another Explanation was inserted as Explanation II. Section 65 (90a) therefore now reads as under:

“Section 65 (90a) “renting of immovable property” includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include-

(i) renting of immovable property by a religious body or to a religious body; or

(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or filed, other than a commercial training or coaching center;

Explanation No. 1;­ For the purposes of this clause, “for use in the course or furtherance of business or commerce included use of immovable property as factories, office buildings, warehouses, theaters, exhibition halls and multiple use buildings.

Explanation No. 2:­ For the removal of doubts, it is hereby declared that for the purposes of this clause “renting of immovable property” includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property.”

(emphasis added)

20. Section 65(105) defines services which are taxable service. It includes Clause (a) to (zzzzw). Since in the present case, we are concerned with (zzzz), earlier it read as under:

“65(105); (taxable service) means any service provided or to be provided

……………..

(zzzz) “to any person or any other person in relation to renting of immovable property for use in the course of furtherance of business or commerce.”

Explanation 1­ For the purposes of this sub clause, ‘immovable property” includes-

(i) building and part of a building, and the land appurtenant thereto;

(ii) land incidental to the use of such building or part of a building

(iii) the common or shared areas and facilities relating thereto;

(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, and

  • but does not include-

(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;

(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;

(c) land used for educational, sports, circus, entertainment and parking purposes; and

(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, boarding houses, holiday accommodation, tents, camping, facilities.

Explanation 2­ For the purposes of this sub­ clause, an immovable property partly for use in the course of furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce.”

21. Clause (zzzz) was inserted in Section 65(105) by Finance Act, 2007 w.e.f. 01.06.1007. Subsequently by Finance Act, 2010 the substantive clause was substituted by the following; “to any person, or any other person by renting of immovable property or any other service in relation to such renting, for use in the course of or, for furtherance, business of commerce.” By the same Act i.e. Finance Act 2010 a clause (v) in Explanation I of Section 65 (105) (zzzz) was inserted which reads as under:

“vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce.”

22. Section 65A was inserted by Finance Act, 2003 w.e.f. 14.05.2003 and talks of classification of taxable services and reads as under:

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“65A. Classification of taxable services

(1) For the purposes of this Chapter, classification of taxable services shall be determined according to the terms of the sub­ clause of clause (105) of section

(2) Where for any reason, a taxable service is, prima facie, classifiable under two or more sub­ clause of clause (105) of section 65, classification shall be effected as follows:-

(a) the sub­ clause which provides the most specific description shall be preferred to sub ­clause providing a more general description;

(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service, which gives them their essential character, in so far as this criterion is applicable;

(c) when a service cannot be classified in the manner specified in clause (a) or clause (b) it shall be classified under the sub­clause which occurs first among the sub ­clause which equally merit consideration.”

23. Section 66 relates to Charge of service tax and relevant provision reads as under:

66. Charge of service tax

There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve percent of the value of taxable services referred to in sub ­clauses (a) (d) (zzzz) of clause (105) of section

65

24. A proviso has been inserted in Section 66 by Finance Act, 2012 w.e.f. 06.2012 and it reads as under:

“Provided that the provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint.”

25. Section 75(A)(5)(h) and Section 76 of Finance Act, 2010 which has made amendments in Section 65(105) (zzzz) and consequence of Section 77 of Finance Act, 2010, has also been challenged, therefore, it will be appropriate to reproduce the same:

Section 75(A) (5) (h) of Finance Act, 2010;

“75. In the Finance Act, 1994-

(A) In section 65, save as otherwise provided, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint

…………………..

(5) in clause (105)-

…………………..

(h) in sub- clause (zzzz)

(i) for the portion beginning with the words “to any person” and ending with the words “business or commerce” the following shall be substituted and shall be deemed to have been substituted with effect from the 1st day of June, 2007 namely:

“to any person, by any other person, by renting of immovable property or any other service in relation to such renting for use in the course of or, for furtherance of, business or commerce.”

(ii) in Explanation I, after item (iv), the following item shall be inserted, namely:

“(v) vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce.”

Section 76 of Finance Act, 2010;

76. Any action taken or anything done or omitted to be done or purported to have been taken or done or omitted to be done under sub ­clause (zzzz) of clause (105) of section 65 of the Finance Act, 1994 at any time during the period commencing on and from the Ist day of June, 2007 and ending with the day, the Finance Bill, 2010 receives the assent of the President, shall be deemed to be and deemed always to have been, for all purposes, as validly and effectively taken or done or omitted to be done as if the amendment made in sub ­clause (zzzz) of clause (105) of section 65, by sub ­item (i) of item (h) of sub­ clause (5) of clause (A) of section 75 of the Finance Act, 2010 had been in force at all material times and, accordingly, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority

(a) any action taken or anything done or omitted to be taken or done in relation to the levy and collection of service tax during the said period on the taxable service of renting of immovable property, shall be deemed to be and deemed always to have been, as validly taken or done or omitted to be done as if the said amendment had been in force at all material times;

(b) no suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for the levy and collection of such service tax and no enforcement shall be made by any court of any decree or order relating to such action taken or anything done or omitted to be done as if the said amendment had been in force at all material times;

(c) recovery shall be made of all such amounts of service tax, interest or penalty or fine or other charges, which may not have been collected or, as the case may be, which have been refunded but which would have been collected or, as the case may be, would not have been refunded, as if the said amendment had been in force at all material times.

Explanation­ For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable had this amendment not come into force.”

Section 77. Any action taken or anything done or omitted to be done or purported to have been taken or done or omitted to be done under sub­ clause (zzzz) of clause (105) of section 65 of the Finance Act, 1994 at any time during the period commencing on and from the Ist day of June, 2007 and ending with the day, the Finance Bill, 2010 receives the assent of the President, shall be deemed to be and deemed always to have been, for all purposes, as validly and effectively taken or done or omitted to be done as if the amendment made in sub ­clause (zzzz) of clause (105) of section 65, by sub­ item (I) of item (h) of sub­ caluse (6) of clause (A) of section 76 of the Finance Act, 2010 had been in force at all material times and, accordingly, notwithstanding anything contained in any judgment, decree or order of any Court, tribunal or other authority­ (32 of 1994)

(a) any action taken or anything done or omitted to be taken or done in relation to the levy and collection of service tax during the said period on the taxable service of renting of immovable property, shall be deemed to be and deemed always to have been, as valldly taken or done or omitted to be done as if the said amendment had been in force at all material times;

(b) no suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for the levy and collection of such service tax and no enforcement shall be made by any court of any decree or order relating to such action taken or anything done or omitted to be done as if the said amendment had been in force at all material times;

(c) recovery shall be made of all such amounts of service tax, interest or penalty offine or other charges which may not have been collected or, as the case may be, which have been refunded but which would have been collected or, as the case may be, would not have been refunded, as if the said amendment had been in force at all material times.

Explanation­ For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable had this amendment not come into force.”

26. It is contended that Section 65(90a) and (105) (zzzz) of Finance Act, 1994 as amended by Finance Act, 2007 as also Notification no. 24/2007 dated 22.05.2007 and Circular no. 98/1/08­ST dated 04.01.2008 issued by Secretary, Department of Revenue, Government of India, New Delhi, were challenged before Delhi High Court in various writ petitions led by Writ Petition (C ) no. 1659 of 2008, Home Solution Retail India Limited Vs Union of India and others, 2009 (22) VST 50. Petitioners before Delhi High Court were landlords or tenants of leased premises and contended that they could not have been saddled with liability of service tax inasmuch as it amounts to tax on ‘land’ hence was outside legislative competence of Parliament inasmuch as ‘land’ is an item covered under Entry 49 List II Schedule VII of Constitution of India and within exclusive domain of State Legislature, therefore imposition of service tax on land, by Parliament was ultra vires.

27. Division Bench of Delhi High vide judgment in Home Solutions Retail India Limited (supra) held that Section 65(105) (zzzz) does not in terms entail that renting out of immovable property for use in the course or furtherance of business of commerce would by itself constitute a taxable service and be exigible to service tax under the said Act. While interpreting circular, it was found obnoxious and beyond the said provision. Court therefore, struck down the same. Relevant extract of judgment in paras 34 to 38 is as under:

“34 . From the above discussion, it is apparent that service tax is a value added tax. It is a tax on value addition provided by a service provider. It is obvious that it must have connection with a service and, there must be some value addition by that service. If there is no value addition, then there is no service. With this in mind, it would be instructive to analyze the provisions of Section 65(105) (zzzz). It has reference to a service provided or to be 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 wordings of the provision are so structured as to entail­a service provided or to be provided to ‘A‘ by ‘B‘ in relation to ‘C‘. Here, ‘A‘ is the recipient of the service, ‘B‘ is the service provider and ‘C‘ is the subject matter. As pointed out above by Mr Ganesh, the expression”in relation to” may be of widest amplitude, but it has been used in the said Act as per its context. Sometimes, in relation to would include the subject matter following it and on other occasions it would not. As in the case of the service of dry cleaning, the expression”in relation to dry cleaning” also has reference to the very service of dry cleaning. On the other hand, the service referred to in Section 65(105) (v), which refers to a service provided by a real estate agent”in relation to real estate”, does not, obviously, include the subject matter as a service. This is so because real estate by itself cannot by any stretch of imagination be regarded as a service. Going back to the structured sentence, i.e.– service provided or to be provided to ‘A‘ by ‘B‘ in relation to ‘C‘, it is obvious that ‘C‘ can either be a service (such as dry cleaning, hair dressing, etc.) or not a service by itself, such as real estate. The expression”in relation to” would, therefore, have different meanings depending on whether ‘C‘ is a service or is not a service. If ‘C‘ is a service, then the expression”in relation to” means the service ‘C‘ as well as any other service having connection with the service ‘C‘. Where ‘C‘ is not a service, the expression”in relation to” would have reference only to some service which has a connection with ‘C‘. But, this would not imply that ‘C‘ itself is a service. WPC Nos. 1659/2008 & ors Page No.38 of 39

35. From this analysis, it is clear that we have to understand as to whether renting of immovable property for use in the course or furtherance of business or commerce by itself is a service. There is no dispute that any service connected with the renting of such immovable property would fall within the ambit of Section 65(1 05) (zzzz) and would be exigible to service tax. The question is whether renting of such immovable property by itself constitutes a service and, thereby, a taxable service. We have already seen that service tax is a value added tax. It is a tax on the value addition provided by some service provider. Insofar as renting of immovable property for use in the course or furtherance of business or commerce is concerned, we are unable to discern any value Consequently, the renting of immovable property for use in the course or furtherance of business of commerce by itself does not entail any value addition and, therefore, cannot be regarded as a service. Of course, if there is some other service, such as air conditioning service provided along with the renting of immovable property, then it would fall within Section 65(105) (zzzz).

36. In view of the foregoing discussion, we hold that Section 65(105) (zzzz) does not in terms entail that the renting out of immovable property for use in the course or furtherance of business of commerce would by itself constitute a taxable service and be exigible WPC Nos. 1659/2008 & ors Page No.39 of 39 to service tax under the said Act. The obvious consequence of this finding is that the interpretation placed by the impugned notification and circular on the said provision is not correct. Consequently, the same are ultra vires the said Act and to the extent that they authorize the levy of service tax on renting of immovable property per se, they are set aside.

37. Before parting with this batch of cases, we would like to observe that we have not examined the alternative plea taken by the petitioners with regard to the legislative competence of the Parliament in the context of Entry 49 of List II of the Constitution of India. Such an examination has become unnecessary because of the view we have taken on the main plea taken by the petitioners as indicate above.

38. The writ petitions are allowed to the extent indicated above. The parties are left to bear their own costs.”

28. We are informed that against aforesaid judgment of Delhi High Court an appeal was preferred by Union of India before Supreme Court and in one of such appeal being Special Leave Petition (Civil) No. 13850 of 2009, notices were issued and the matter is pending.

29. Thereafter Parliament has made further amendment by Finance Act, 2010 in Section 65(105) (zzzz) and the substantive provision under Clause (zzzz) is amended and given retrospective effect from 01.06.2007 while Clause (v) inserted in Explanation I to Section 65(105) (zzzz) has been given effect from the date of amendment.

30. The amended provision and its retrospective amendment came up for consideration before Division Bench of Punjab and Haryana High Court. The judgment delivered by Hon’ble Mr. Justice Adarsh Kumar Goel (as his Lordship then was) in M/s Shubh Timb Steels Limited Vs Union of India and another, 2010 (236) CTR 562 (P&H) has upheld the retrospective amendment. It has also negatived arguments that service tax on service of renting of property is exclusively covered by Entry 49 List II and therefore, argument of lack of legislative competence has also been negatived. Paras 22 to 26 of judgment are reproduced as under:

“22. In view of above discussion, we are unable to hold that service tax on service of renting of property is exclusively covered by Entry 49 List II. As already observed, Entry 49 of List II relates to tax on land and building and not any activity relating thereto. Income tax on income from property, wealth tax on capital value of assets including land and building and gift tax on gift of land and building have been upheld. It cannot be held that renting of property did not involve any service as service could only be in relation to property and not by renting of property. Renting of property for commercial purposes is certainly a service and has value for the service receiver. Moreover, the aspect of service element in renting transaction is certainly an independent aspect covered under Entry 92C read with Entry 97 of List I. In any case, subject matter of impugned levy being outside the scope of entry 49 of List II, power of Union Legislature is undoubted. Question whether levy will be harsh being in addition to income tax and 2929 of 33 ::: Downloaded on ­ 29­05­2017 17:58:09 ::: CWP No.11597 of 2010 property tax is not a matter for this Court once there is legislative competence for the levy. Even if it is held that transaction of transfer of right in immovable property did not involve value addition, the provision cannot be held to be void in absence of encroachment on List II.

23. We now come to the aspect of retrospectivity. It is well settled that competent legislature can always clarify or validate a law retrospectively. It cannot be held to be harsh or arbitrary. Object of validating law is to rectify the defect in phraseology or lacuna and to effectuate and to carry out the object for which earlier law was enacted.

24. In Shiv Dutt Rai Fateh Chand v. Union of India, (1983) 3 SCC 529, it was observed:

“32. The next point to be considered is whether the imposition and collection of penalty with retrospective effect amounts to an imposition of an unreasonable restriction on the fundamental right of the petitioners to own property and to carry on business guaranteed under Article 19(1) (f) and (g) of the Constitution. We have already indicated above the circumstances under which it became necessary to levy penalties with retrospective effect and to validate all the proceedings relating to levy of penalties and recovery thereof. The scope of the power of a legislature to make a law validating the levy of a tax or a duty retrospectively was considered by this court in Chhotabhai Jethabhai Patel & Co. v. Union of India, AIR 1962 SC 1006. The court held that Parliament acting within its legislative field had the power and could by law both prospectively and retrospectively levy excise duty under the Central Excises and Salt Act, 1944 even where it was established that by reason of the retrospective effect being given to the law, the assessees were incapable of passing on the excise duty to the buyers. After considering certain American decisions, Ayyangar, J. observed at SCR p. 37 thus:

“It would thus be seen that even under the constitution of the United States of America the unconstitutionality of a retrospective tax is rested on what has been termed ‘the vague contours of the 5th Amendment’. Whereas under the Indian Constitution that grounds on which infraction of the rights a property is to be tested not by the flexible rule of ‘due process’ but on the more precise criteria set out in Article 19(5), mere retrospectivity in the imposition of the tax cannot per se render the Law unconstitutional on the ground of its infringing the right to hold property under Article 19 (1) (f) or depriving the person of property under Article 31(1). If on the one hand, the tax enactment in question were beyond legislative competence of the Union or a State necessarily different considerations arise. Such unauthorised imposition would undoubtedly not be a reasonable restriction on the right to hold property besides being an unreasonable restraint on the carrying on of business, if the tax in question is one which is laid on a person in respect of his business activity. ”

  1. In Tata Iron & Steel Company Limited v. The State of Bihar, AIR 1958 SC 452, it was observed:

“17. Re. point No. 5: The argument on this point is that sales tax is an indirect tax on the consumer. The idea is that the seller will pass it on to his purchaser and collect it from them. If that is the nature of the sales tax then, urges the learned Attorney General, it cannot be imposed restrospectively after the sale transaction has been concluded by the passing of title from the seller to the buyer, for it cannot, at that stage, be passed on to the purchaser. According to him the seller collects the sales tax from the purchaser on the occasion of the sale. Once that time goes past, the seller loses the chance of realising it from the purchaser and if it cannot be realised from the purchaser, it cannot be called sales tax. In our judgment this argument is not sound. From the point of view of the economist and as an economic theory, sales tax may be an indirect tax on the consumers, but legally it need not be so. Under the 1947 Act the primary liability to pay the sales tax, so far as the State is concerned, is on the seller. Indeed before the amendment of the 1947 Act by the amending Act the sellers had no authority to collect the sales tax as such from the purchaser. The seller could undoubtedly have put up the price so as to include the 31 31 of 33 ::: Downloaded on ­ 29­05­2017 17:58:09 ::: CWP No.11597 of 2010 sales tax, which he would have to pay but he could not realize any sales tax as such from the purchaser. That circumstance could not prevent the sales tax imposed on the seller to be any the less sales tax on the sale of goods. The circumstance that the 1947 Act, after the amendment, permitted the seller who was a registered dealer to collect the sales tax as a tax from the purchaser does not do away with the primary liability of the seller to pay the sales tax. This is further made clear by the fact that the registered dealer need not, if he so pleases or chooses, collect the tax from the purchaser and sometimes by reason of competition with other registered dealers he may find it profitable to sell his goods and to retain his old customers even at the sacrifice of the sales tax. This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which, by the express provisions of the law, is cast upon the seller. The buyer is under no liability to pay sales tax in addition to the agreed sale price unless the contract specifically provides otherwise. See Love v. Norman Wright (Builders) Ltd. LR (1944) 1 KB 484. If that be the true view of sales tax then the Bihar Legislature acting within its own legislative field had the powers of a sovereign legislature and could make its law prospectively as well as retrospectively. We do not think that there is any substance in this contention either.”

26. In view of above, we do not find any ground to set aside giving of retrospective effect to the amendment from 1 .6.2007 on which date levy was initially provided.”

31. Orissa High Court has also examined validity of Section 65(90a) and 65(105) (zzzz) as amended by Finance Act, 2007, 2008 and 2010. In Utkal

Builders Limited Vs Union of India, 2011 (22) S.T.R. 257 (Ori.), a Division

Bench consisted of V. Gopala Gowda, C.J. (as his Lordship then was) and Indrajit Mahanty, J, has dissented with Delhi High Court judgment in Home Solution Retail India Ltd. (supra) and referred to Punjab and Haryana High Court judgment in M/s Shubh Timb Steels Limited (supra) and findings in paras 10, 11 and 12 read as under:-

“10. In the present case, we are clearly of the view that the nature of the transaction made by the Petitioner with its tenant clearly amounts to renting of an immovable property for the purpose of business or commerce and is, therefore, clearly covered by Section 65(90­a) of the Finance Act, 1994 and “service tax” is clearly livable thereon. Although challenge in the present case has been made to the Amendment Act of 2010 to Section 66(105) (zzzz), we find no justification to entertain the present writ application since we are also of the view that the amendment is clearly clarificatory in nature and Parliament certainly possesses the necessary legislative competence to declare the said amendment to be retrospective in operation and, therefore, we do not find any error or lack of competence in such legislation.

11. In view of the facts as noted herein above, we find no merits in the present challenge and accordingly, the writ petition is dismissed.

12. We may further note that the Petitioner had approached this Court at the stage where a show­cause notice had been issued to him and therefore, while dismissing the writ application, we direct that the Petitioner may respond the show­cause notice within a period of four weeks from today and the revenue authorities may proceed in the matter in accordance with law.”

32. Third judgment has come up from Bombay High Court by a Division Bench consisting of Dr. D.Y. Chandrachud (as his Lordship then was) and Anoop V. Mohra,JJ in Writ Petition no. 2238 of 2010 M/s Retailers Association of India (RAI) Vs Union of India and others, and other connected matters, decided on 04.08.2011. In para 38, Bombay High Court has referred to the judgments of Punjab and Haryana High Court in M/s Shubh Timb Steels Limited (supra) and Orissa High Court in Utkal Builders Limited Vs Union of India (supra).

33. With regard to service tax on rented property, Bombay High Court in para 33 of judgment said as under:

34. “Therefore in our view, looked at from either stand point, the legislative basis that has been adopted by Parliament in subjecting taxable services involved in the renting of property to the charge of service tax cannot be questioned. The assumption by a legislative body that an element of service is involved in the renting of immovable property is certainly not an assumption which can be regarded by the Court as being so manifestly absurd or perverse as to lead to an inference that Parliament had treated as a service, an item which in no rational sense could be regarded as involving service. But more significantly, even if the Court were to proceed on the basis, suggested by the Petitioners that no element of service is involved, that would not make the legislation beyond the legislative competence of Parliament. So long as the legislation does not trench upon a field which has been reserved to the State legislatures, the only conclusion that can be drawn is that the law must be treated as valid and within the purview of the field set apart for Parliament. There is, it must be emphasized, no violation set up of any provision in Part III of the Constitution, (save and except on the issue of retrospectivity which would be considered subsequently).”

34. The question of retrospectivity has been considered in paras 34 to 39 of the judgment and after giving its own reasons and also referring to Punjab and Haryana and Orissa High Court judgments (supra) in para 39 Bombay High Court has held as under:

39. For the reasons which we have indicated herein above, we do not find any substance in the challenge raised before the Court. All the Petitions shall accordingly stand dismissed. Rule is accordingly discharged. There shall be no order as to costs.”

35. Ultimately Bombay High Court has dismissed all the writ petitions.

36. Then comes the real sheet anchor on the part of Revenue. It is a Full Bench judgment of Delhi High Court wherein earlier judgment in Home Solution Retail India Ltd. (supra) was considered by a Larger Bench in a Bunch of writ petitions filed after Finance Act, 2010. Aforesaid amendments made in Section 65(105) (zzzz) were considered. This is also titled as Home Solutions Retails (India) Limited Vs Union of India and others, 2011 (24) S.T.R. 129 (Del.)., and other connected writ petitions decided vide judgment dated 23.09.2011. Full Bench consisted of Hon’ble Deepak Misra, CJ, Hon’ble A.K. Sikri,J (as their Lordships then were) and Hon’ble Sanjiv Khanna,J.

37. Full Bench of Delhi High Court over ruled its earlier judgment in Home Solution Retail India Ltd. (supra) and held that amendments made with retrospective effect are nothing but clarificatory and by way of ex abundanti It has also held that there is no lack of competence and earlier Bench did not properly appreciate Section 65 (90a). Consequently two amendments have been affirmed and all the writ petitions have been dismissed. Operative part contained in paras 73 to 75 reads as under:

“73. On the question of penalty due to non­payment 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 Solutions­I 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.”

38. Against aforesaid judgments appeals are pending in Supreme Court.

39. Be that as it may, the fact remains that various High Courts have affirmed the amendments which are under challenge in these writ petitions and appeals are pending before Supreme Court.

40. Learned counsel for petitioners could not advance any argument other than what has already been considered by respective High Courts namely Full Bench of Delhi High Court, Punjab and Haryana High Court, Orissa High Court and Bombay High Court in the judgments referred to above, and also could not dispute that all these these issues have been considered in these

41. We therefore, adopt reasonings given in the aforesaid judgments of respective High Courts, and refrain ourselves from making the judgment voluminous just by repeating the same. We find ourselves in respectful agreement therewith. No argument has been placed before us so as to persuade us to take a different view in the matter.

42. For the reasons stated above, we uphold validity of various provisions as noted above, which are assailed in these writ petitions, and also consequential circulars issued by Revenue.

43. In the result all writ petitions fail and are dismissed accordingly. However, there shall be no order as to costs.

Order Date :­ 30.05.2017

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One response to “Service Tax on Renting of immovable property is Constitutional: Allahabad HC”

  1. AARUN KUMAR says:

    WHO HAS TO PAY SERVICE TAX FOR RENTING/LEASING IMMOVABLE PROPERTY; BUILDING OWNER OR LEASEE ?

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