2011 (8) TMI 71 - HC - Service Tax

Levy of service tax on Renting of immovable property - legislative powers - constitutional validity - Held that - Renting of any property ipso facto would not amount to service for the purpose of service charge. This is also accepted by learned counsel for the revenue. However, in case of renting of immovable property, if service recipient uses it in the course of or furtherance of business or commerce, it can safely be stated that the service provider has rendered service, enabling the service recipient in value addition. Thus, if renting of immovable property is made in the course of or for furtherance of business or commerce, value addition is made by service provider in favour of service recipient. Such activity undertaken by the service provider for value addition in the course of or for furtherance of business or commerce, i.e. to carry on activity or business or commerce of the service recipient amounts to rendition of service and will fall within the meaning of definition of service tax . - constitutional validity upheld in respect of business only - Renting of building or land in course of agriculture or residential purpose would not be subject to service tax.

Issues Involved:
1. Validity of Sub-clause [zzzz] of Clause [105] of Sec.65 of the Finance Act, 1994, as amended by Sec.75[5][h] and Sec.76 of the Finance Act, 2010.
2. Legislative competence of the Parliament to amend the provision.
3. Whether renting of immovable property constitutes a taxable service.
4. Retrospective application of the amendment.
5. Classification of immovable property for the purpose of service tax.

Issue-wise Detailed Analysis:

1. Validity of Sub-clause [zzzz] of Clause [105] of Sec.65 of the Finance Act, 1994:
The petitioners challenged the validity of this provision, arguing that it imposed a service tax on renting of immovable property, which was not a service as it did not involve any performance, skill, expertise, or knowledge. The court noted that the provision specifically deals with renting of immovable property for use in the course or furtherance of business or commerce and excludes certain categories such as properties used solely for residential purposes.

2. Legislative Competence of the Parliament:
The petitioners argued that the amendment was beyond the legislative competence of the Parliament. The court referred to the Supreme Court decision in Union of India v. Harbhajan Dhillon, stating that if a Central Act does not invade the prohibited fields, it is within the legislative competence of the Parliament. The court upheld the legislative competence of the Parliament to amend the provision.

3. Renting of Immovable Property as a Taxable Service:
The petitioners contended that renting of immovable property does not constitute a service as it does not involve any value addition by the service provider. The court referred to the Supreme Court's decision in All India Federation of Tax Practitioners, which held that service tax is a value-added tax on the activity undertaken by the service provider. The court concluded that renting of immovable property for business or commerce involves value addition and constitutes a taxable service.

4. Retrospective Application of the Amendment:
The petitioners argued that the amendment could not be enforced retrospectively. The court noted that the Finance Act, 2010, through Sec.75[5][h] and Sec.76, sought to validate all actions taken by the Union of India retrospectively from 1st June, 2007. The court held that competent legislature can validate any Act retrospectively to rectify defects and effectuate the object of the earlier law.

5. Classification of Immovable Property for Service Tax:
The court examined the classification of immovable property under the amended provision, noting the exclusions for properties used solely for residential purposes, agriculture, and other specified uses. The court upheld the classification, stating that the provision levying service tax is attracted only if the immovable property is rented for use in the course or furtherance of business or commerce.

Conclusion:
The court upheld the validity of Sub-clause [zzzz] of Clause [105] of Sec.65 of the Finance Act, 1994, as amended by Sec.75[5][h] and Sec.76 of the Finance Act, 2010. The petitions were dismissed, and the provision was held to be constitutional and within the legislative competence of the Parliament. The court concluded that renting of immovable property for business or commerce constitutes a taxable service and that the retrospective application of the amendment was valid. The classification of immovable property for the purpose of service tax was also upheld.

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