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TMI Blog2011 (8) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... f 'service tax'. - constitutional validity upheld in respect of business only - Renting of building or land in course of agriculture or residential purpose would not be subject to service tax. - 8032 of 2010, 9661 of 2010, 11111 of 2010, 12933 of 2010, 707 of 2011, 11032 of 2010 - - - Dated:- 23-8-2011 - S J Mukhopadhaya, J B Pardiwala, JJ. Appellant Rep by: Mr S N Soparkar, Sr Counsel with Mr P R Nanavati Respondent Rep by: Mr P S Champaneri and Mr Y N Ravani JUDGEMENT Per: S J Mukhopadhaya: 1. In these writ petitions, as common question of law is involved and validity of Sub-clause [zzzz] of Clause[105] of Sec.65 of Finance Act, 1994 as amended by Sec.75[5][h] and Sec.76 of the Finance Act, 2010 is under challenge, they were heard together and are disposed of by this common judgment. 2. In most of the petitions, the petitioners are tenants paying rents or license fees or business conducting fees for leasing/licensing of immovable properties in their favour for conducting/operating business from the said immovable properties in the course of business activities. Apart from the rent paid in case of the properties taken on rent or conducting fees basis, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ministry of Finance, Government of India authorized proceeding of recovery of service tax on the same assumption that renting out of immovable property was by itself a service. One Iskrupa Mall Management Company Private Limited filed Special Civil Application No. 5269 of 2008 before this Court challenging the levy of the service on immovable property let out on rent by virtue of amendment made in Sec.65[105][zzzz] of the Finance Act, 2004, as amended and inserted by Finance Act, 2007, subsequent notifications and circulars were also challenged. This Court, by its order dated 28 th March, 2008, restrained the respondents from making any coercive recovery of service tax in respect of the amount of license fees for use of immovable property. Similar directions were also issued by this Court in other writ petitions, including Special Civil Application Nos. 8 17 9, 8735, 7096, 2981, 8346, 3664, 3666, 7653, 8176, 8177, 8178 and 5269, all of 2008, by common order dated 6 th August, 2008. 7. One Retailers Association of India and another Multiplex Association of India of which one of the petitioners is a member, filed a writ petition being Writ Petition No. 1263 of 2008 before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o understand as to whether renting of immovable property for use in the course or furtherance of business or commerce by itself is a service. There is no dispute that any service connected with the renting of such immovable property would fall within the ambit of Section 65(105)(zzzz) and would be exigible to service tax. The question is whether renting of such immovable property by itself constitutes a service and, thereby, a taxable service. We have already seen that service tax is a value added tax. It is a tax on the value addition provided by some service provider. Insofar as renting of immovable property for use in the course or furtherance of business or commerce is concerned, we are unable to discern any value addition. Consequently, the renting of immovable property for use in the course or furtherance of business of commerce by itself does not entail any value addition and, therefore, cannot be regarded as a service. Of course, if there is some other service, such as air conditioning service provided along with the renting of immovable property, then it would fall within Section 65(105)(zzzz). 36. In view of the foregoing discussion, we hold that Section 65(105)(zz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxx [5] In clause [105],--, xxx xxx xxx [h] in sub-clause [zzzz],-- [i] for the portion beginning with the words to any person and ending with the word business or commerce , the following shall be substituted and shall be deemed to have been substituted with effect from the 1 st day of June, 2007, namely:- to any person, by any other person, by 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 ; [ii] In Explanation 1, after item [iv], the following item shall be inserted, namely:- [v] vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce; 76. Any action taken or anything done or omitted to be done or purported to have been taken or done or omitted to be done under sub-clause [zzzz] of clause [105] of section 65 of the Finance Act 1994 [32 of 1994], at any time during the period commencing on and from the 1 st day of June, 2007 and ending with the day, the Finance Bill, 2010 receives the assent of the President, shall be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g is for use in the course of or for furtherance of business or commerce. 16. Mr. S.M. Soparkar, learned Sr. Counsel and Mr. Mihir Joshi, learned Sr. Counsel appearing on behalf of one or the other petitioners, submitted that renting of immovable property is, in fact, a transaction by which rights in or in relation to immovable property are transferred for a certain period and for consideration. It is not an activity involving performance, skill, expertise or knowledge and the amount received by the lessor or licensor is merely consideration for transfer of right in or in relation to immovable property on the basis of the market value thereof; the same does not amount to service at all. It was further contended that the use which the licensee/lessee puts the property to, viz. end-use, is not determinative of the nature of the transaction as to whether the same is taxable service or not. They placed reliance on some of the decisions of the Supreme Court and other High Courts which will be discussed at appropriate stage. 17. By analogy, it was submitted that concept of manufacture under the provisions of the Central Excise Act, 1944 is independent of the use to which article is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness or commerce would not amount to a service for the purpose of charging service tax. He, therefore, submitted that if renting of immovable property is not service at all, the utility value or use of the premises/immovable property is irrelevant for considering whether such transaction is or is not a service in the first place. 20. The next contention advanced on behalf of the petitioners is that the act of the consumer is not value addition contemplated for considering an activity 'a service'. The value addition must be by the service provider. He relied upon the decision of the Supreme Court in the case of All India Federation of Tax Practitioners and others v. Union of India and others, reported in [2007] 7 SCC 527 and in the case of Association of Leasing and Financial Service Companies v. Union of India and others, reported in [2011] 2 SCC 352. Therefore, according to the counsel for the petitioners, in absence of any activity being undertaken by the lessor/licensor in the transaction of renting and there being no value addition on account of renting of immovable property simplicitor, albeit for commercial purpose, the same does not amount to a service, exigib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable property used solely for residential purpose would not be covered under the definition of 'immovable property' for the purpose of taxing event. It is only in the event if immovable property is used for furtherance of business or commerce partly and partly for residential purpose or for any other purpose, the same shall be deemed to be immovable property for use in the course or for furtherance of business for the purpose of attracting service tax. 24. He would further contend that for valid classification of imposing service tax by defining 'immovable property' in the Service Tax and making it limited when services, to any person, by any other person by renting of immovable property or any other service in relation to such renting for use in the course or for furtherance of business of commerce, the legislature has specifically made a class different than what is defined under other enactment, namely Transfer of Property Act or any other Act. 25. Learned counsel submitted that in a transaction there may be two or more taxing events which may occur, therefore, any of them cannot be ignored. There is always value addition by rendering service of rentin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of catering. Similarly, rent is to be collected while providing service of renting the premises, it does not mean that service tax cannot be levied on the aspect of rendition of service of renting the premises. Reliance was placed on a decision of Punjab Haryana High Court in the case of Shubh Timb Steels Limited , reported in 2010 [20] S.T.R. 737 [P H]. 29. So far as the validation of Act is concerned, learned counsel for the Revenue would contend that the Act can be validated by the validation Act. It is settled law that competent legislature can validate any Act even retrospectively by an enactment or validation Act. It is within the domain of competent legislature to clarify or validate law retrospectively. The object of validating law is to rectify the defect in phraseology or lacuna and to effectuate and to carry out the object for which earlier law was enacted. Now, the Parliament has made by way of amendment, even renting of immovable property as covered by definition of 'taxable service' instead of service 'in relation to renting of property'; amendment is made by clarifying the intention of the legislation and curing the defects. He placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able property by a religious body or to a religious body; [ii]renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre. Explanation.[1]- For the purposes of this clause, for use in the course or furtherance of business or commerce includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings. Explanation.[2]- For the removal of doubts, it is hereby declared that for all the purposes of this clause renting of immovable property includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property; 35. Clause [105] of Sec.65 defines 'taxable service' which means any service provided and shown thereunder. Sub-clause [zzzz] brings renting of immovable property or any other service in relation to such renting for the use in the course of or for furtherance of the business or commerce within the definition of 'taxable service' which reads as follows: Section 65[10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferred for certain period. It is not an activity involving performance, skill, expertise or knowledge and the amount received by the lessor/licensor is consideration for transfer of right in or in relation to immovable property. But such analogy cannot be applied in the case of renting of immovable property by a service provider to a service recipient, who hires the property for use in the course of or for furtherance of business or commerce. Such renting of immovable property is an activity which amounts to rendition of service in the course of or for furtherance of business or commerce. 37. It is true that in the normal course of renting of immovable property, provision of service tax is not attracted, in absence of any activity involving performance, skill, expertise or knowledge. This is also accepted by counsel on behalf of the Revenue who relied upon the impugned provision which stipulates that only when any person rents immovable property for use in the course or furtherance of business or commerce. The provision of Sec.65[105][zzzz] specifically deals with exclusion category while defining 'immovable property'. That definition of 'immovable property' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court added that service tax is a value added tax and value addition is on account of activity, as in the case of manufacture of goods and thereby it attracts service tax. In other words, the word 'service' is substituted in place of the word 'goods' by applying principle of prevalence. In the case of Association of Leasing and Financial Services v. Union of India , reported in [2011] 2 SCC 352, the Supreme Court, while dealing with banking and other financial services observed that service tax is tax on activity whereas sales tax is tax on sale of thing or goods. Taxable event under the service tax is each exercise/activity undertaken by service provider and it is imposed every time service is rendered to customer/client, it is a value added tax. Relevant observation is quoted hereunder: 38. In All-India Federation of Tax Practitioners Case this Court explained the concept of service tax and held that service tax is a value added tax [ VAT , for short] which in turn is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an economic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble service' included service provided 'in relation to use of mandap in any manner' and includes 'facilities provided to the client in relation to such use' and also services 'rendered as a caterer'. The Supreme Court observed and held as follows: Taxable services, therefore, could include the mere providing of premises on a temporary basis for organising any official, social or business functions, but would also include other facilities supplied in relation thereto. No distinction from restaurants, hotels, etc. which provide limited access to property for specific purpose. The Supreme Court further observed that service could not be struck down on the ground that it does not conform to a common understanding of the word service . It further held that it does not certainly involve transfer of movable property nor does it involve transfer of movable property of any kind known to the law. The Supreme Court observed as under:- Therefore, a levy of service tax on a particular kind of service could not be struck down on the ground that it does not conform to a common understanding of the word service so long as it does not transgress an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty, if service recipient uses it in the course of or furtherance of business or commerce, it can safely be stated that the service provider has rendered service, enabling the service recipient in value addition. Thus, if renting of immovable property is made in the course of or for furtherance of business or commerce, value addition is made by service provider in favour of service recipient. Such activity undertaken by the service provider for value addition in the course of or for furtherance of business or commerce, i.e. to carry on activity or business or commerce of the service recipient amounts to rendition of service and will fall within the meaning of definition of 'service tax'. The meaning of 'furtherance', as per Black's Law Dictionary, 6 th Edition, 11 th reprint, 1997, is act of furthering, help forward, promotion, advancement or progress . Furtherance of business will, thus mean, act of furthering business, helping forward business, promotion of business, advancement of business or progress of business. Therefore, if a service provider is renting the property in the course of or for furtherance of business or commerce, it will amount to an ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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