2012 (8) TMI 133 - HC - Service Tax

Writ Petition - levy of service tax - renting of immovable property whether amendment is retrospective - petitioner is engaged in renting/leasing warehouses and storage space for agro and other products Held that - Amendment was clarificatory in nature and Parliament certainly possesses the necessary legislative competence to declare the said amendment to be retrospective in operation - imposition of service tax on renting of immovable property was within the legislative competence of the Parliament and it does not fall within the legislative competence of the State under entry 49 of List II of the Seventh Schedule to the Constitution levy of service tax is retrospective

Issues Involved:
1. Constitutionality of the levy of service tax on renting of immovable property.
2. Retrospective application of the Finance Act, 2010.
3. Legislative competence of the Union of India to impose service tax on renting of immovable property.
4. Validity of the circulars and notifications issued under the Finance Act, 1994 and 2010.
5. Applicability of the aspect theory in the context of service tax on renting of immovable property.

Detailed Analysis:

1. Constitutionality of the Levy of Service Tax on Renting of Immovable Property:
The petitioner challenged the levy of service tax on renting of immovable property, arguing that it is illegal, arbitrary, and ultra vires the Constitution. The court noted that the Finance Act, 1994, and subsequent amendments, including the Finance Act, 2010, introduced service tax on renting of immovable property. The petitioner argued that no value addition is involved in renting immovable property, and thus it cannot be considered a service. However, the court referred to the Full Bench of the Delhi High Court in Home Solutions Retails Ltd. v. Union of India, which held that renting of immovable property involves value addition and constitutes a service. The court concluded that the provisions of Section 65(105)(zzzz) and Section 66 of the Finance Act, 1994, as amended by the Finance Act, 2010, are intra vires the Constitution of India.

2. Retrospective Application of the Finance Act, 2010:
The petitioner contended that the retrospective application of the Finance Act, 2010, which validated the levy of service tax on renting of immovable property from 1.6.2007, is unconstitutional. The court observed that it is permissible for the legislature to pass a law retrospectively to remove the base on which a judgment is delivered. The Full Bench of the Delhi High Court in Home Solutions Retails (India) Ltd. upheld the retrospective amendment as constitutionally valid. The court also cited the Supreme Court's decisions in Bakhtawar Trust v. M.D. Narayan and State of HP v. Narain Singh, which support the legislature's power to enact laws with retrospective effect to validate previous actions.

3. Legislative Competence of the Union of India:
The petitioner argued that the Union of India lacks the legislative competence to impose service tax on renting of immovable property, as it falls under Entry 49 of the State List (taxes on lands and buildings). The court rejected this argument, stating that service tax is a tax on the activity of renting immovable property for business or commercial purposes, which involves value addition and falls under the residuary entry (Entry 97 of List I). The court referred to several judgments, including Federation of Hotels & Restaurant Association of India v. Union of India and All India Federation of Tax Practitioners v. Union of India, which support the Union's competence to levy service tax on services, including renting of immovable property.

4. Validity of Circulars and Notifications:
The petitioner challenged the validity of various circulars and notifications issued under the Finance Act, 1994, and 2010, arguing that they are arbitrary and ultra vires the Constitution. The court upheld the validity of these circulars and notifications, stating that they are consistent with the legislative intent and the provisions of the Finance Act. The court noted that the legislative basis for subjecting taxable services involved in renting of property to service tax is sound and cannot be questioned.

5. Applicability of the Aspect Theory:
The court discussed the aspect theory, which allows the same transaction to be taxed under different aspects by different legislative authorities. The court cited several judgments, including Federation of Hotels & Restaurant Association of India v. Union of India and State of West Bengal v. Kesoram Industries Ltd., to support the application of the aspect theory in the context of service tax on renting of immovable property. The court concluded that service tax on renting of immovable property is a tax on the activity of renting for business or commercial purposes, which involves value addition and falls within the legislative competence of the Union of India.

Conclusion:
The court dismissed the writ petitions, upholding the constitutionality and legislative competence of the Union of India to impose service tax on renting of immovable property. The court also upheld the validity of the retrospective application of the Finance Act, 2010, and the circulars and notifications issued under the Finance Act, 1994, and 2010. The stay applications were also dismissed.

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