2010 (5) TMI 3 - HC - Service Tax

Renting of immovable property - Retrospective amendment by Finance Act, 2010 - petiotioner contended that, states that the amendment sought to be introduced, puts the petitioner in a worse position than the original provision which has already held not to have any element of service so as to be exigible to service tax. Held that Prima facie, it appears that renting of immovable property itself has been regarded as a service by virtue of the recent amendment even though this Court by virtue of the said decision on 18.04.2009 had categorically concluded that renting of immovable property by itself cannot be regarded as a service. - there shall be no recovery of service tax from the petitioner in respect of renting of immovable property alone. No such service tax would also be recovered from respondents 5-10 in the meanwhile.

Summary

Issues:
Challenge to Section 65(105) (zzzz) of the Finance Act, 1994 regarding service tax on the renting of immovable property for commercial/business purposes.
Interpretation of recent amendment to Section 65(105)(zzzz) by the Finance Act, 2010.
Effect of previous court decision on the taxation of renting immovable property.
Validity of the amendment introducing renting of immovable property as a service.

Analysis:
The High Court addressed the challenge to Section 65(105)(zzzz) of the Finance Act, 1994, which levies service tax on the renting of immovable property for commercial or business use. The provision was recently amended by the Finance Act, 2010 with retrospective effect from 01.06.2007. The Court referred to a previous decision where it was held that service tax is applicable only when there is value addition by the service provider, and renting immovable property alone does not entail value addition to be considered a service. The Court clarified that renting immovable property for business purposes does not involve discernible value addition and, therefore, cannot be considered a service unless accompanied by another service like air conditioning. Consequently, the Court set aside the notification and circular authorizing service tax on renting immovable property alone.

The Court discussed the recent amendment introduced by the Finance Act, 2010, which substituted the words in Section 65(105)(zzzz) to include "any other service in relation to such renting." The petitioner argued that this amendment puts them in a worse position than the original provision, which was already held not to constitute a service for service tax purposes. The Court noted that the recent amendment seemingly categorizes renting immovable property itself as a service, contrary to its previous decision that renting immovable property alone does not qualify as a service for taxation.

The Court issued notice to the respondents and directed them to file counter-affidavits within four weeks. It ordered that no recovery of service tax from the petitioner or respondents 5-10 should occur in the interim regarding renting of immovable property alone. However, the Court clarified that if the writ petition is dismissed, the liability to pay service tax would solely fall on the petitioner. Additionally, the Court highlighted that there is no challenge in the petition to the aspect of the provision concerning "any other service in relation to such renting," indicating that service tax would apply if there is another service related to renting immovable property.

In conclusion, the Court's decision addressed the challenge to the taxation of renting immovable property for commercial/business purposes, the impact of the recent amendment, and the interpretation of what constitutes a taxable service under Section 65(105)(zzzz) of the Finance Act, 1994. The Court's ruling provided clarity on the applicability of service tax to renting immovable property and the implications of the recent legislative changes in this regard.