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TMI Blog2015 (3) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... of India. Therefore, the challenge made to Section 65(105)(zzzz) and 65(90-a) of the Finance Act, 1994, as amended by the Finance Act, 2010 and Section 77 of the Finance Act, 2010, fails. Renting of premises by IRCTC/Railways - it is argued that when the Railways is an essential public utility service for carriage of goods and transport of passengers throughout the country, a portion of the Railway premises is being used for the Railways for running refreshment stalls and the said part of the railway station premises and catering services through eating joints is nothing but part of essential passenger amenity to enable the travelling public to find easy access to eateries and the said catering service is not done by the railway administration with any profit motive - Held that:- Tehre is no valid arugment - further for want of alternate remedy, writ petition dismissed. - W.P. Nos.16400/2013, 23983/2009, 16789/2008, 16790/2008, 21564/2008, 23355 & 23356/2008, 24234/2008, 25280-25286/2008, 27820-27823/2008, 27917 & 27918/2008, 28021 & 28022/2008, 29188/2008, 662/2009, 747 & 748/2009, 2766-2770/2009, 3995/2009, 6346/20 - - - Dated:- 20-6-2014 - M. Sathyanarayanan And T. S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be filed by the parties. Having heard learned counsel for the appellants on the question of stay with regard to the arrears of service tax due as on 30th September 2011, we direct that on each of the appellant's clearing all the arrears as on the said date in three equated instalments, on or before 1st March 2012; 1st May 2012 and 1st July 2012, no coercive steps shall be taken against the appellants for the recovery of the said arrears. However, in the event of default on the part of the appellants in deposit of any of the instalments by the due date, it will be open to the respondents to recover the entire amount in arrears forthwith. We clarify that there is no stay of imposition of service tax under sub-clause (zzzz) of clause 105) of Section 65 read with Section 66 of the Finance Act, 1994 (as amended), insofar as the future liability towards service tax with effect from 1st October 2011 is concerned. Tag with Civil Appeal No.8390 of 2011. Similarly, a Division Bench of the Madhya Pradesh High Court has also upheld the validity of the said provisions in the judgment reported in 2012 (25) STR 231 (M.P.), Entertainment World Developers Ltd. vs. Union of India a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment was brought forth with retrospective effect from 01.06.2007. The amended provision of Section 65(105)(zzzz) reads as follows: 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. 11 The respective learned counsel appearing for the petitioners who made a challenge to the above said provisions, submitted that the levy of service tax on renting of immovable property is beyond the legislative competence of the Parliament for the following reasons: a Taxes on land and buildings are included in List II of the State List and therefore, it is within the power of the State Legislatures to frame appropriate law and hence, the Union Government is precluded or prohibited from enacting any law on the said subject. b Entry 49 of List II (State List) is a specifically enumerated Entry and therefore, primacy has to be given to the said Entry and since the subject matter of service tax deals with the relationship of a landlord and a tenant, tax on service provided by the landlord to the tenant, would fall only under Entry 49 of List II. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Costs Accountants, Security Agencies, Tour Operators, Event Managers, Travel Agents, etc. and such a levy was upheld by the Hon'ble Supreme Court of India in the above said decision. 16 In the decision reported in 2010 (4) LW 626, Infotech Software Dealers Association vs. Union of India, Ministry of Finance, Department of Revenue, Central Board of Excise and Customs, New Delhi-1 and 4 others, two writ petitions were filed seeking to declare Section 65(105)(zzzze) of Chapter V of the Finance Act, 1994 (as amended by the Finance Act 2 of 2009) as null and void in and by which, an Information Technology software is also brought under the meaning of taxable service and the said amendment was brought in by virtue of residuary power under Entry 97 of List I of Schedule VII. It was contended that the software, being goods, involves no element of service, when it is sold to customer and therefore, the said provision is unconstitutional and also beyond the legislative competence of the Parliament. A Division Bench of this Court, has dismissed the writ petitions holding that the software is goods and whether such transaction would amount to sale or service, would depend upon the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not necessarily result in intrinsic changes and value addition is sufficient to impose service tax and the activity of renting of immovable property being service, such a kind of tax can be levied. Insofar as challenge made on the ground of retrospective amendment, it is contended by the Revenue that it is always open to the Legislature to clarify or validate a law retrospectively and the object of validating a law is to rectify the defect in overlapping or lacuna and to effectively carry out the object for which the earlier law was enacted. 20 It is a well settled position of law that when the State is empowered to levy taxes on goods, it is empowered to levy such taxes on other aspects of such goods. The levy is a constitutional concept and the mode of collection is a statutory concept. It is also a trite law that the legislative enactment can be struck down only on two grounds, viz., (a) appropriate Legislature lacks competence to make the law and (b) it does not take away or abridge or deprive the fundamental rights enshrined in Part III of the Constitution of India or in other Constitutional provisions. 21 The Hon'ble Supreme Court of India, in a catena of decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manner of quantification of the levy of service tax has no bearing on the factum of legislative competence. ii Taxable services can include providing of premises on a temporary basis for organizing any official, social or business function but also other facilities supplied in relation thereto. iii. Levey of service tax on a particular kind of service cannot be struck down on the ground that it does not conform to a common understanding of the word service as long as it does not transgress any specific restriction embodied in the Constitution. iv Service tax is a levy on the event of service. v The contempt of service tax is an economic concept. vi Consumption of service as in case of consumption of goods satisfies human needs. vii Service tax is a value added tax which, in turn, is a general tax applicable to all commercial activities involving provision of service. viii Value added tax is a general tax as well as destination based consumption tax leviable on services provided within the country. ix The principle of equivalence is in-built into the concept of service tax. x The activity undertaken in a transaction can have two components, namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such renting and that too in the course or furtherance of business or commerce, the last part being a general tax as well as a destination based consumption tax levied on services. Sometimes services can be property bases services and performance based services . The architects, interior designers and real estate agents would come in the category of performance service providers. 64 It is contended that when a property is leased or rented, the element of service is absolutely absent. In this context, the contempt of rent has to be appositely understood. A rent is basically a reward paid for the use of the land. The tenant or the occupant pays the same to use the premises. In the economic concept, rent can be categorized into two heads, namely, contract rent and economic rent. Contract rent fundamentally refers to the total amount of money paid for use of the land and economic rent is a part of the total payment which is made for the use of land and it is estimated on many a ground. The economic rent can be contract rent minus interest on the capital invested. To give an example, a tenant pays ₹ 20,000/- per year as contract rent but the interest on capital invested i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses. When a particular building or premises has the effect potentiality to be let out on rent for the said purpose, an element of service is involved in the immovable property and that tantamounts to value addition which would come within the component of service tax. To further clarify, an element of service arises because a person who intends to avail the property on rent wishes to use it for a specific purpose. The value of the building gets accentuated because of scarcity of land or building, goodwill, accessibility and similar ancillary advantages which constitute value addition. 66 The modern economic theory of rent also has a nexus with demand and supply. In this analysis, rental is hiked because supply of land is scarce in relation to its demand. This economic concept is called scarcity theory of rent . This includes the facet of competition and quality. According to the modern theory, rent is not peculiar to land alone but arises in the case of many a factor which earn over and above the transfer earnings. There is a distinction between actual earnings and transfer earnings . According to the modern analysis of rent, it is not peculiar to land alone and the concep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dverted to. Once there is a value addition and the element of service is involved, in conceptual essentiality, service tax gets attracted and the impost gets out of the purview of Entry 49 of List II of the Seventh Schedule of the Constitution and falls under the residuary entry, that is, Entry 97 of List I. 25 In the aforesaid decision, the retrospective applicability of the said provisions was also considered and by placing reliance upon the decision reported in (2003) 5 SCC 298, Bakhtawar Trust and Others vs. M.D. Narayan and Others and (2009) 13 SCC 165, State of Himachal Pradesh v. Narain Singh, the Full Bench of the Delhi High Court held that it would be permissible for the Legislature to remove a defect in legislation and it can be removed both retrospectively and prospectively by legislative action and the previous actions can be validated. As already pointed out above, in the Special Leave Petition preferred against the said decision rendered by the Full Bench of Delhi High Court, leave has been granted and no stay of imposition of service tax under the above said provisions has been granted insofar as future liability with effect from 01.10.2011. 26 A Division Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Concurrent List mentions such a tax. Therefore, Parliament purported to use its powers derived from Entry 97 of the Union List, read with Article 248 of the Constitution. This power admittedly could not be invoked if the subject of taxes on gifts could be said to be comprehended in any entry in the State List. The High Court has accepted the contention of the tax-payers that it is so comprehended in Entries 18 and 49 of the State List. Those entries read: 18. Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonisation. 49. Taxes on lands and buildings. 7. The argument is that by Entry 18, land of all description is made subject to legislation in the States and by Entry 49 taxes of whatever description on lands in that large sense and buildings generally fall also in the jurisdiction of the State. Reference is made to Entries 45, 46, 47 and 48 of the State List in which certain taxes are to be imposed on land and agricultural land or income from agriculture exclusively by the States in contrast wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and Others, the nature of taxation in respect of royalty came up for consideration and the Hon'ble Supreme Court of India, having noted that in view of conflict between the decisions rendered by 5-Judge Bench and 7-Judge Bench, the matter requires consideration by a Bench comprising 9 Judges, had framed 11 questions of law to be decided by a Larger Bench. Question No.5 is whether the majority decision in State of West Bengal v. Kesoram Industries Ltd., reported in (2004) 10 SCC 201, could be read as departing from the law laid down in the 7-Judge Bench decision in India Cement Ltd. vs. State of Tamil Nadu reported in (1990) 1 SCC 12. Question No.6 is whether taxes on land and buildings in List II, Entry 49 of the VII Schedule of the Constitution of India contemplate a tax levied directly on the land as a unit having definite relationship with the land. Of course, reference made to the Larger Bench in the decision reported in (2011) 4 SCC 450, was not brought to the knowledge of the Full Bench of Delhi High Court in Home Solutions-II case. But, the fact remains that the validity of Section 65(105)zzzz and 65(90-a) of the Finance Act, 1994, has been upheld by a number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.4417 of 2011 is filed seeking to declare levy, impost, demand or collection of service tax from the petitioners by the respondents for the payment of licence/rental fee paid by the petitioner to the fifth respondent as illegal, unconstitutional and ultra vires the Finance Act. 32 W.P. Nos.24586 and 24588 of 2010 are filed seeking to declare that (i) the impugned provisions, i.e. Section 65(105)(zzzz) read with Section 65(90-a) of the Finance Act, 1994, as amended by the Finance Act, 2010, as null and void and ultra vires and violative of Entry 49, List-II, Seventh Schedule, Articles 14, 19 and 246(3) of the Constitution of India, (ii) Section 76(A)(6)(h) and Section 77 of the Finance Act, 2010 as null and void and ultra vires the Constitution of India insofar as the petitioners are concerned; and (iii) the Notification No.24/2007 dated 22.05.2007 and Circular 98/1/2008-ST dated 04.01.2008 as revived by the Finance Act, 2010, issued by the first respondent, as illegal, null and void and ultra vires the provisions of the Finance Act, 1994, as amended subsequently, insofar as the petitioners are concerned. 33 W.P. Nos.14887, 19322, 20982 and 24804 of 2010 are filed seeking a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alties under Section 77 and 78 of the Finance Act, 1994. 39 The learned Senior Counsel appearing for the petitioner would contend that when the Railways is an essential public utility service for carriage of goods and transport of passengers throughout the country, a portion of the Railway premises is being used for the Railways for running refreshment stalls and the said part of the railway station premises and catering services through eating joints is nothing but part of essential passenger amenity to enable the travelling public to find easy access to eateries and the said catering service is not done by the railway administration with any profit motive. It is the further submission of the learned Senior Counsel appearing for the petitioner that upto the year 2005, the said act was performed by the Railway administration directly and on account of policy decision, it was entrusted to IRCTC and the Ministry of Railways is having 100% shares in the said Corporation and it is also a Government company; there was change of policy once again in the year 2010 by which, the entire catering service, except food plaza, fast food units and food courts were again taken over by the Rail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second respondent, can prefer a statutory appeal to the Appellate Tribunal and since effective alternative remedy is available, the writ petition is not maintainable. 43 In W.P. No.26460 of 2011, challenge is made to the show cause notice dated 14.10.2010 issued by the second respondent, calling upon the petitioner as to show cause as to why service tax should not be levied for renting of immovable property for the period 01.02.2009 to 31.08.2010 and the arguments put forth by the learned counsel for the petitioner and the learned Standing Counsel for the Revenue were similar to that of the arguments advanced by them in W.P. No.26458 of 2011. 44 IRCTC made a challenge to Section 65(90a) and 65(105)(zzzz) of the Finance Act, 1994, as amended by the Finance Act, 2010 and Section 77 of the Finance Act, 2010 by filing W.P. No.26459 of 2011 and in the light of the decision rendered by the Full Bench of the Delhi High Court and Rajasthan High Court, this Court is of the considered view that the provisions are intra vires the Constitution of India and once the vires of the provisions have been upheld, an obligation is cast upon the petitioner to pay service tax. Therefore, the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and it is accordingly dismissed. 48 W.P. No.23983 of 2009 is filed by Gobichettipalayam Municipality Kadai Kuthagaikarargal Sangham, W.P. No.3279 of 2013 is filed by Gudalur Nagaratchi Vaniha Valaga Viyabarigal Nala Sangam and W.P.No.8562 of 2009 is filed by one V. Chellammal. These three writ petitions are filed seeking to declare the provisions of Section 65(90a) and Section 65(105)(zzzz) of the Finance Act, 1994 as ultra vires the Constitution of India and unforceable. 49 It is the stand of the Revenue that the Commissioner of the local body was requested to furnish details of rent collected by them and it was also furnished and in fact, the local body was also registered with the Department under the category of Service Tax for vide Registration Certificate bearing No.TMPAX6963ZST001 dated 18.09.2008; show cause notice was also issued calling upon the petitioner as to why service tax should not be levied and it is yet to be collected. It is further contended that the local body cannot be an aggrieved person as it is passing on the burden of paying service tax to the lessees/licencees and licencees/lessees are using the premises for commercial purposes and hence, they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to service tax and they should get themselves registered and pay service tax and they got registered on 16.04.2008 and thereafter, the Superintendent of Service Tax called upon the petitioner to furnish details of income earned as rent from shops and other commercial establishments and on receipt of the reply, the impugned proceedings dated 03.12.2010 came to be passed and if the petitioner is aggrieved, it is entitled to invoke the appellate remedy and if it is of the view that it has to be exempted from levy of service tax, the appropriate authority is the second respondent who has to consider and pass orders on the representation dated 29.03.2011. 54 Since the validity of provisions of Section 65(90a) and Section 65(105)(zzzz) of the Finance Act, 1994 has been upheld in paragraph no. 30 above and further, the petitioner, viz., the Tamil Nadu Slum Clearance Board have got themselves registered with the authorities and thereafter, the impugned order came to be passed on 03.12.2010, it is always open to them to invoke appellate remedy before the competent authority. Moreover, Section 93 of the Finance Act, 1994 gives power to the Central Government to grant exemption from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect from 01.06.2007. Once again, challenge was made to the said amendment and a Full Bench of the Delhi High Court, in the decision in Home Solutions-II case, has upheld the validity and also the retrospective amendment and further held that the Division Bench judgment of the Delhi High Court in Home Solutions-I case, is no longer a good law and the portion which is apposite in this regard is extracted hereunder: 75. In view of the aforesaid analysis, we proceed to enumerate four conclusions in seriatim as follows: b) The decision rendered in the first Home Solutioncase does not lay down the correct law as we have held that there is value addition when the premises is let out for use in the course of or furtherance of business or commerce and it is, accordingly over-ruled. 62 Since the order declaring that Section 65(105)(zzzz) of the Finance Act, 1994, is ultra vires, was held to be no longer a good law, in the subsequent judgment rendered by the Full Bench of the Delhi High Court in Home Solutions-II case and since the Civil Appeal which is filed before the Hon'ble Supreme Court of India, challenging the said Full Bench judgment of Delhi High Court is pending, chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on renting of immovable property, as the same is totally without jurisdiction. 69 Hereagain, since the validity of Section 65(105)(zzzz) and 65(90-a) of the Finance Act, 1994, as amended by the Finance Act, 2010, has been upheld in paragraph no.30 above, following the decision in Home Solutions-II case and the judgment reported in [2012] 52 VST 409 (Raj.), Purshottam Das Malpani vs. Union of India and Others, as a natural corollary, W.P. Nos.6114/2010, 3259/2011 and 20466/2011 deserve dismissal and they are accordingly dismissed. However, the petitioners are given two weeks' time, from the date of receipt of a copy of this order, to give reply to the show cause notices. 70 In W.P. No.20580 of 2009, the petitioner has made a challenge to the communication dated 23.06.2009, sent by the office of the Deputy Commissioner of Service Tax, calling upon him to pay service tax, till a favourable decision is accorded by the Supreme Court in respect of the matter / appeal preferred against the decision of the Division Bench judgment of the Delhi High Court in Home Solutions-I case. 71 It is the case of the petitioner that in Home Solutions-I case, since the Division Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76 In the light of the above, W.P. Nos.8109 of 2009 and 13880 of 2013 are dismissed with liberty to the petitioner to submit its reply to the impugned show cause notices, within a period of two weeks from the date of receipt of a copy of this order. 77 The petitioners in W.P. No.3522 of 2010 made a challenge to the notice dated 22.01.2010 issued by the Commissionerate of Service Tax, Chennai, calling upon them to furnish particulars and documents as to the rental/lease agreement entered into by the petitioners with their clients with effect from 01.06.2007 onwards. 78 The petitioners would contend that in the light of the decision of the Division Bench of Delhi High Court in Home Solutions-I case, the impugned notice is unsustainable in law. 79 This Court, following the decision rendered by the Full Bench of Delhi High Court in Home Solutions-II case and the subsequent Division Bench judgment of the Rajasthan High Court reported in [2012] 52 VST 409 (Raj.), Purshottam Das Malpani vs. Union of India and Others, has upheld the validity of Section 65 (105)(zzzz) and 65(90a) of the Finance Act, 1994 and also the amendment made to the Finance Act, 2010 with retrospective effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi High Court, the Full Bench judgment of Delhi High Court is yet to be reversed. That apart, following the decision rendered in Home Solutions-II case and the subsequent Division Bench judgment of the Rajasthan High Court reported in [2012] 52 VST 409 (Raj.), Purshottam Das Malpani vs. Union of India and Others, this Court, at paragraph no.30 above, has upheld the provisions of Section 65 (105)(zzzz) and 65(90a) of the Finance Act, 1994, as amended by the Finance Act, 2010 and Section 77 of the Finance Act, 2010. Therefore, in the light of the above, the challenge made to the above said provisions is liable to be rejected. 85 The petitioners were also issued with notice to show cause as to why the amount due and payable towards service tax, should not be demanded and so also, interest and penalty. 86 Inasmuch as the validity of the above said provisions has been upheld, the impugned show cause notices are sustainable and therefore, W.P. Nos.12315 of 2011 and 9251 of 2009 are dismissed. However, the petitioners are given two weeks time from the date of receipt of a copy of this order, to respond to the impugned show cause notice. 87 W.P. No.748 of 2009 is filed challenging ..... X X X X Extracts X X X X X X X X Extracts X X X X
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