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Tenant has no locus standi to challenge levy of service tax on commercial renting – a new twist. |
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Tenant has no locus standi to challenge levy of service tax on commercial renting – a new twist. |
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Challenge of a levy on ground of being ultra virse: We find many judgments in which virse of a tax provision is challenged on ground of being unconstitutional or being ultra virse the constitution or ultra virse the main enactment etc. We find that challenges are made by any party who is directly or indirectly affected by such levy. In many cases the petitioner is the trade union or association of affected party. As per little understanding of the provisions which the author have, he considered that any citizen of India can challenge provision of a tax law on ground of being ultra virse. This is because he may not like that the government should levy tax in an illegal manner, that his fellow citizens should not suffer due to illegal levy or that he may be affected in future if he is required to bear such tax and there can be many other such reasons which can be considered as ‘cause of action’ to challenge levy of any tax on ground of being unconstitutional, unreasonable, having restrictive impact impairing different type of freedoms granted under the Constitution. Land lord vis a vis Tenant: It is true that in case of levy of service tax on rent of commercial properties, the property owners that is land lord is considered a service provider and he is liable to pay service tax. The tenant is not considered as a ‘service provider’, and he is not required to get registered as a person liable to pay service tax. However, it is ground reality that service tax on commercial renting is a new levy and it is a substantial levy which was never born by land lord. As per customs, trade practices and usages amongst people concerned with such levy, it is general understanding that service tax shall be payable by the tenant. We find that in new contracts, there are specific clauses that service tax on rent shall be borne by the tenant as may be applicable from time to time. Thus Service Tax is generally borne by the tenant, therefore, tenant is a party directly affected if the levy of service tax is imposed. Therefore it can be said that tenant is a party affected by levy of service tax. Hence even in case of tenant, cause of action arises if there is a levy of service tax. Whether service tax is collected from the tenant directly or it is collected through the land lord, does not make any difference so far burden on tenant is concerned. Earlier cases: We find that in earlier cases before various High Courts, many tenants have challenged levy of service tax. For examples: HOME SOLUTIONS RETAILS LTD Versus UOI 2010 -TMI - 79031 - DELHI HIGH COURT Other Citation: 2011 (21) S.T.R. 109 (Del.) HOME SOLUTION RETAIL INDIA LTD. Versus UOI & ORS. 2009 -TMI - 33136 - DELHI HIGH COURTLIFESTYLE INTERNATIONAL P. LTD & ANR Versus UOI & ORS. SHOPPER'S STOP LTD. Versus UOI & ORS:. FUN MULTIPLEX P. LTD. Versus UOI & ORS. WADHAWAN LIFESTYLE RETAIL P. LTD. Versus UOI & ORS. DEVYANI INTERNATIONAL LTD. Versus UOI & ORS. ]2011 -TMI - 202415 - KARNATAKA HIGH COURT] MAHTANI FASHION PVT LTD. Versus UOI & ORS. BARISTA COFFEE COMPANY LTD. Versus UOI & ORS. M/S GKB OPTOLAB (PVT) LTD BARDEZ, GOA Versus UOI & ORS. BIBA APPARELS P. LTD. Versus UOI & ORS namely the following: ASHOK KUMAR JAIN Versus UOI & ORS. [2010 -TMI - 78225 - BOMBAY HIGH COURT] VARDHAMAN PROPERTIES LTD. Versus UOI & ORS. WADHAWAN LIFESTYLE RETAIL P. LTD. Versus UOI & ORS. ASHOK JAIN AND ANOTHER Versus UOI & ORS. [2010 -TMI - 78225 - BOMBAY HIGH COURT] VATIKA LTD AND ANR Versus UOI & ORS. VATIKA HOSPITALITY PVT. LTD AND ANR Versus UOI & ORS. SAFFRON FOODS (P) LTD. Versus UOI & ORS. M/S FOODPLAZA EXPRESS KITCHEN AND ORS. Versus UOI & ORS. SSIPL RETAIL LTD AND ANR. Versus UOI & ORS. [2009 -TMI - 35371 - HIGH COURT OF DELHI], GENESIS COLORS PVT LTD AND ORS. Versus UOI & ORS. M/S BATA INDIA LTD. Versus UOI & ORS. VINNAMR HOSPITALITY P. LTD. Versus UOI M/S BPTP LTD. Versus UOI & ORS. MAVERICK VENTURES Versus UNION OF INDIA 2011 -TMI - 202077 - KARNATAKA HIGH COURT Other Citation: 2010 (20) S.T.R. 757 (Kar.) We find that in above cases large number of petitioners are tenants. In fact we find that DEVYANI INTERNATIONAL LTD is also a party. The same party challenged Service Tax on rent before Karnatak High Court also and the Karnataka High Court dismissed the petition holding that the petitioner being tenant has no locus standi. Case before Karnataka high /court: In DEVYANI INTERNATIONAL Versus UOI 2011 -TMI - 202415 – (KAR.) the petitioner filed a Writ Petition being W.P.No. 30344/ 2010 and other petitions. The High Court dismissed the petition observing and holding inter alia as follows: in these petitions, the petitioner is a lessee of the schedule premises. He challenges the imposition of service tax on renting. Of course, prior to the amendment of (sic by) Finance Act, 2010 what was permissible is, except for service provided other than by way of renting, the tax could be collected. But by the amendment, what is provided is service tax on renting itself. Hence. These petitions. In so far as the question of imposition of service tax on renting is concerned, at the first instance, the tenant is not a ‘Service Provider’. Secondly, the payment of service tax, even if it is held to be valid on renting, there is privity of contract between landlord and tenant. The petitioner being only a tenant in occupation of the premises which a let out by the landlord subject to the conditions in the contract, whether the landlord collects the rent and pays to the Revenue or the landlord pays out of the rent amount without passing the liability on to the tenant, is a different aspect. Since the petitioner is not a ‘Service Provider’, he has no locus standi to challenge the impositions of service tax on renting. As the ‘tenant does not fill within the definition of ‘Service Provider’, the petitions are disposed of as not maintainable. Thus the petition was disposed off as not maintainable. Land lords dilemma: As stated in the circular of CBDT about TDS from rent clarifying that service tax is collected on behalf of GOI so income-tax need not be deducted from element of service tax on rent. The landlords are thus only a conduit to collect tax. However, land lords are in dilemma. Cases are noticed when the same landlord is getting payment of service tax from some of tenants (who can avail CENVAT credit) and not from other tenants (who are not eligible to fully avail CENVAT credit). Now the difficult question is that paying service tax in relation to some tenants may be considered as if landlord has accepted the levy though the fact is that the landlord is just passing over the service tax collected from tenants. Comments of author: Common trade practices and general understanding in trade circles is that service tax is payable by service receiver, in addition to agreed value of services. In various clauses found in tenancy agreements entered into during last many years, particularly after attempts to levy service tax started in thinking process of government, it has been specifically provided that any such levy will be payable/ reimbursable by the tenant. Thus, the petitioners (Tenants) in this case as well as tenants as service receiver are ultimately liable to pay service tax and also any other liability. Though the landlords are assessed to service tax, however service tax will be payable by tenants, in addition to rent in case the courts ultimately held the levy of service tax on rent as valid. The honorable Karnataka High Court has also not considered the aspect that courts have admitted WP by tenants in many other cases. Therefore, the decision of Karnataka High court need a reconsideration. Let us hope that the Service Tax Department shall not contend that various petitions filed by tenants which have been admitted and are pending are not maintainable in view of ruling of the Karnataka High Court. Landlords may be added as party and petitioners: Various petitioners can take steps to add their landlords also as a party to the case as a petitioners to avoid controversy.
By: C.A. DEV KUMAR KOTHARI - April 19, 2011
Discussions to this article
Thanks for updated in the matter of renting of immovable property, Dear Sir, I want to know, What is the strong arguement that even if a tenant not a assessee despite of he will challenge the unconstitution levy of service tax on renting of immovable property? Is there any clause available in the law? Because, many of the tenants are paying only rent amount (Excluding service tax) due to tenantes are waiting of final desposal in the of "Home Solution".
As noted in my articles, tenants who can avail CENVAT are paying and others are not paying service tax. In new agreements generally clause is about payment of ST by tenant. Inold agreements there is no such clause however, as per general practice and understanding, the tenant should pay service tax. The best course is that lanrlord and tenant both should be parties in challenge for such levy. In fact landlords are to be affected tehrefore, there should be challenge by landlords. There is need for a strong Associaiton of Landlords to make representations and take collective actions against governmetn policies which goes against landlords, and the activity of owning and letting out properties. Why landlords should be made responsible for paying service tax, tenants can be made to pay under reverse charge method. That will reduce service tax assessees and simplify the work. That will also reduce avoidance of tax because the major service tax is levied on properties let out to organized and large institutions like banks, insurance companies, NBFC, MF, corporate houses, retail chains etc. who can pay ST and avail CENVAT
THE LEVY OF SERVICE TAX ON RENTING OF PROPERTY SHOULD BE EXEMPTED FOR INDIVIDUAL TENANTS with rent of 15000/- or less. The levy of service tax has been chelenged in various Courts of law and the diferent courts are of different opinion regarding validity of this levy. Finally the matter is pending for disposal now a days before theHon'Ble Supreme Court of India in case of Home Solution India Pvt. Ltd for which the directions were to enlist the case for 21-01-2011 and the outcome are not known so for and not reported anywhere. This issue should be decided at priority to over the dilemma of the land lords so that if finally need be they should revise their agreements with tennants. To my opinion the levy of tax should be exempted in case of individual tennants with thrash limit upto Rs.15000/- per month for which no deduction of income tax at source is required and are not entitled for claim of cenvat
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