The central government is keen to implement its service tax on commercial space rentals rule but the Supreme Court (SC) has issued a reprieve. The SC declined to lift a Delhi high court stay on recovery of service tax from a company for renting immovable property.

The apex court order assumes significance as the issue of service tax on renting commercial space had become a concern across metros and similar petitions were filed in other high courts, including the Bombay high court, which too had stayed the service tax provisions on sale of under-construction and preferential locations.

The service tax on sales and rentals was introduced by an amendment to the Finance Act in 2010. But owners were worried as it would translate into higher property costs and developers would have to bear a share of it.

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On November 18, the SC heard a special leave petition filed by the Union of India against an interim order passed in May 2010.

The Delhi HC had stayed the recovery of service tax from Home Solutions for renting of immovable property.

A bench of Justices Mukundakam Sharma and Anil Dave heard counsel Harish Salve and Mukul Rohatgi, who appeared with advocates Ameet Naik and Rishi Agarwal for the company. They opposed the Centre’s plea and argued that the high court would decide the issue next month.

The SC directed the Delhi HC to hear and dispose of the petition. There will be no recovery of service tax until the final disposal of the petition by the Delhi HC.

The Supreme Court will hear the matter after eight weeks.

In Mumbai too, legal and constitutional challenges raised to the introduction of service tax on under-construction buildings was admitted by the HC in July.

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