2018 (5) TMI 1367 - SC - Service Tax

Renting of immovable property service - whether service tax under Section 65(105)(zzzz) of the Finance Act, 1994 on 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 is within the legislative competence of the Union Parliament? Held that - The question is directly relatable to the scope and ambit of Entry 49 of List II of the Seventh Schedule to the Constitution of India dealing with Taxes on lands and buildings . If the impost/levy is directly relatable to the lands/buildings contemplated in Entry 49 of List II of the Seventh Schedule to the Constitution of India we would have had no hesitation in saying that the Union Parliament would lack legislative competence to enact the particular provision in the Finance Act, 1994. These matters should await the decision of the nine judges Bench in the case of MINERAL AREA DEVELOPMENT AUTHORITY ETC. VERSUS M/S STEEL AUTHORITY OF INDIA & ORS 2011 (3) TMI 1554 - SUPREME COURT , whereafter the hearing of these matters will be taken up once again in the course of which it will be open for the parties to urge such additional points as may be considered relevant - The matter is accordingly deferred until disposal of the issues pending before the nine judges Bench.

Issues Involved:
1. Legislative competence of the Union Parliament regarding service tax under Section 65(105)(zzzz) of the Finance Act, 1994 on renting of immovable property.
2. Interpretation of Entry 49 of List II of the Seventh Schedule to the Constitution of India.
3. Pending questions before a nine-judge Bench regarding royalty under the Mines and Minerals (Development and Regulation) Act, 1957.

Analysis:

1. Legislative Competence of Union Parliament:
The central issue in the judgment revolves around determining whether the imposition of "service tax" on renting of immovable property falls within the legislative competence of the Union Parliament under Section 65(105)(zzzz) of the Finance Act, 1994. The Court deliberates on the direct and indirect nexus of the tax levy with lands and buildings as specified in Entry 49 of List II of the Seventh Schedule to the Constitution of India. While acknowledging the arguments presented by the Assessees, the Court refrains from conclusively deciding on the matter due to the pending reference before a nine-judge Bench in Mineral Area Development Authority and others vs. Steel Authority of India and others.

2. Interpretation of Entry 49 of List II:
The judgment delves into the interpretation of Entry 49 of List II of the Seventh Schedule to the Constitution, which deals with "Taxes on lands and buildings." The Court examines whether the service tax on renting of immovable property directly relates to the subject matter contemplated in Entry 49. The Court notes the importance of establishing a clear connection between the tax levy and the lands/buildings to determine the legislative competence of the Union Parliament in enacting such provisions under the Finance Act, 1994.

3. Pending Questions Before Nine-Judge Bench:
The judgment highlights the questions referred to a nine-judge Bench regarding royalty under the Mines and Minerals (Development and Regulation) Act, 1957. These questions include the nature of royalty, the scope of taxation on mineral rights, and the interplay between State and Central legislation concerning mineral development. The Court defers the decision on the present matters until the resolution of the issues pending before the nine-judge Bench, allowing parties to raise additional relevant points during subsequent hearings.

In conclusion, the judgment extensively analyzes the legislative competence of the Union Parliament concerning service tax on renting of immovable property, interprets the scope of Entry 49 of List II of the Seventh Schedule to the Constitution, and defers the decision pending the resolution of related questions before a nine-judge Bench.

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