2013 (3) TMI 58 - HC - Service Tax

Constitutional validity of levy of service tax on renting of immovable property - retrospective amendment - held that - Even if it is assumed for the sake of argument that the amendment is not merely clarificatory but creates a substantive liability or right, the Parliament s right to legislate and create liabilities or rights with retrospective effect can be curtailed only by a restriction placed upon the legislative power, of Parliament by one or the other provision of the Constitution of India, for example, the restriction of creating an offence with retrospective effect or the restriction from enhancing the punishment for an offence with retrospective effect as found in Article 20(1) of the Constitution of India. - Writ petition dismissed - Decided against the assessee.

Summary

Issues: Challenge to imposition of service tax on renting of immovable property; Validity of constitutional amendment introducing service tax; Retrospective effect of amendment to definition of "taxable service"; Permissibility of retrospective taxation; Constitutionality of retrospective legislation creating tax liability.

Analysis:
1. Imposition of Service Tax on Renting of Immovable Property: The writ petitions challenged the imposition of service tax on renting of immovable property. The issue revolved around whether renting out immovable property constitutes a "service" amenable to service tax under the constitutional framework.

2. Validity of Constitutional Amendment Introducing Service Tax: The constitutional validity of the introduction of Service Tax through a new entry 92C in the Seventh Schedule of the Constitution of India was questioned. The Supreme Court's ruling in a related case upheld the validity of this constitutional amendment, providing a legal backdrop to the issue.

3. Retrospective Effect of Amendment to Definition of "Taxable Service": The amendment to the definition of "taxable service" by the Finance Act, 2010, to include renting of immovable property raised concerns regarding its retrospective application. Section 77 of the Finance Act, 2010, gave retrospective effect to this amendment, leading to challenges on the grounds of fairness and legality.

4. Permissibility of Retrospective Taxation: The issue of whether retrospective taxation, especially in the context of substantive liability for service providers, was permissible under the law was a key point of contention. The argument against retrospective taxation highlighted concerns about imposing additional financial burdens on service providers for past periods.

5. Constitutionality of Retrospective Legislation Creating Tax Liability: The constitutional aspect of retrospective legislation creating tax liability was debated. The absence of specific constitutional restrictions on Parliament's power to legislate retrospectively for tax purposes was emphasized, indicating the broad legislative authority in this domain.

6. Judicial Precedents and Legal Interpretations: The judgment referenced various decisions from different High Courts, such as Punjab and Haryana, Bombay, Gujarat, and Orissa High Courts, which had ruled on similar issues related to service tax on immovable property. Additionally, the judgment cited a Supreme Court case underscoring the broad scope of what constitutes a "service" for taxation purposes.

7. Final Decision: The High Court dismissed all the writ petitions challenging the imposition of service tax on renting of immovable property. The court's decision was based on the legal interpretations provided, including the lack of constitutional restrictions on retrospective taxation and the broad understanding of "service" under the law.

In conclusion, the judgment addressed complex legal issues surrounding the imposition of service tax on renting of immovable property, the validity of constitutional amendments, retrospective taxation, and the broader scope of legislative powers in tax matters. The detailed analysis and reference to legal precedents provided a comprehensive overview of the court's reasoning and decision-making process.