The Hon?ble Delhi High Court in case of Home Solution Retail India Ltd. Vs. Union of India and Others (2009- TIOL-196-HC-DEL-ST) had held that renting per se is not a taxable service under the provisions of Section 65(105)(zzzz) of the Finance Act, 1994 („Act?). The Court also held that service tax is a tax on value addition provided by the service provider in the course of renting and insofar as mere renting of immovable property for use in the course of business or commerce is concerned, no value addition is discernible. The said decision has been challenged in the Hon?ble Supreme Court by the Government and is pending disposal. In the Finance Bill, 2010 the definition of Renting of Immovable Property services is sought to be amended with retrospective effect from June 1, 2007 so as to include renting per se within the scope of Section 65(105)(zzzz) of the Act. The levy of service tax on renting has been challenged on various grounds in writ petitions before the Hon?ble High Courts of Delhi and Andhra Pradesh respectively.
Writ Petition before the Hon’ble Delhi High Court
The petitioner has challenged the levy of Section 65(105)(zzzz) of the Act inasmuch as it purports to levy service tax on renting of immovable property. The Court observed that by virtue of the proposed amendment in Section 65(105)(zzzz) in the Act, renting itself has been regarded as a service even though the judgement in the petitioner?s own case (supra) had categorically concluded that renting of immovable property by itself cannot be regarded as a service. The Court expressed that no stay has been granted by the Hon?ble Apex Court in the appeal filed before it by the Government against this decision and the amendment is perhaps introduced as a consequence of this judgement. The Court has stayed the recovery of service tax in respect of mere renting of immovable property but any other service in relation to renting would continue to be exigible to service tax as in the past.
Writ Petition before the Hon’ble Andhra Pradesh High Court
The petitioner in this case contended that renting per se would not constitute any value addition falling within the lubric of service and the provisions of Section 65(105)(zzzz) of the Act are inconsistent with the ratio legis of service tax. The petitioner further contended that the Parliament does not have legislative competence to tax “land and buildings” and such power vests with the State legislature. The petitioner also put forth that such retrospective operationalisation of a taxing provision under the Section 76 of the Finance Act, 2010 is arbitrary. It was also argued that the amendment seeks to remove the substratum of the ratio of the judgement of the Hon?ble Delhi High Court (supra) and hence cannot be held as a valid exercise. The Court expressed that the contentions put forth by the petitioner are eminently arguable although it was not prima facie satisfied to interdict the operation of the provisions of the Section 65(105)(zzzz) from prospective application. Thus, the Court directed the respondents not to initiate any coercive steps for recovery of service tax under the amended provisions of Section 65(105)(zzzz) of the Act for the period June, 2007 to March, 2010. The Court however directed that the petitioner shall be liable to pay service tax under the amended provisions prospectively subject to the result of the writ petition.