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TMI Blog2009 (4) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... IL LTD AND ANR. Versus UOI & ORS. 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. HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER Judgment delivered on: 18.04.2009 WP(C) 1659/2008, WP(C) 4130/2008, WP(C) 4131/2008, WP(C) 4749/2008, WP(C) 5036/2008, WP(C) 5643/2008, WP(C) 5976/2008, WP(C) 5978/2008, WP(C) 6033/2008, WP(C) 6734/2008, WP(C) 6744/2008, WP(C) 6993/2008, WP(C) 7004/2008, WP(C)7122/2008, WP(C) 7164/2008, WP(C) 7212/2008, WP(C) 7654/2008, WP(C) 7664/2008, WP(C) 7722/2008, WP(C) 7723/2008, WP(C) 8538/2008, WP(C) 7964/2008, WP(C) 8771/2008 For the Petitioner: Mr S. Ganesh, Sr Advocate with Mr Birendra Sarat, Mr Ameet Naik, Mr Rishi Agarwal and Ms Hemangi Abhyankar for the Petitioner in WP(C) 1659/2008. Mr Jayant Bhushan, Sr Advocate with Mr Shamik Sanjanwala, Mr Tapas Ram Mishra and Mr Shambhavi Sinha for the Petitioner. Dr A. M. Singhvi, Sr Advocate with Mr Mahesh Agarwal, Mr Rishi Agrawala, Mr Bhagvan Swarup Shukla, Mr Rajeev Kumar, Mr Akshay Ringe, Ms Rohma Hameed, Mr Ankit Shah and Mr Jaiveer Shergill for the Peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 16 in WP(C) 5978/08. Mr Ankit Jain for the Respondent No. 4 in WP(C) 5643/08. Mr Rajesh Mahna with Mr Ramanand Roy for the Respondents 14-16 in WP(C) 6033/08. Ms Priyadeep for the Respondent No. 6 in WP(C) 4131/2008. Mr Sachin Sood for the Respondent No. 5 in WP(C) 4130/08. Mr Sachin Sood for the Respondent No. 7 in WP(C) 4131/08. Mr Sachin Sood for the Respondent No. 14 in WP(C) 5978 /08. Mr Tarun Gulati with Mr Tushar Jarwal for the Respondent No. 11 in WP(C) 7043/08. Mr Tarun Gulati with Mr Tushar Jarwal for the Respondent No. 4 in WP(C) 8554/08. Mr Tarun Gulati with Mr Tushar Jarwal for the Respondent No. 3 in WP(C) 9642/07. Mr Rajiv Tyagi with Ms Chanchal Biswal and Mr Udit Kumar for the Respondent No. 3 in WP(C) 7664/08. Mr S. S. Pandit for the Respondent 27 in WP(C)5036/08. Judgment per : BADAR DURREZ AHMED, J.]. - In this batch of writ petitions the legality, validity and vires of notification no. 24/2007 dated 22/05/2007 and circular no. 98/1/2008-ST dated 04/01/2008 issued by the Secretary, Ministry of Finance, Department of Revenue, Government of India, New Delhi is challenged. It is alleged that by virtue of the said notification and circular a complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service tax payable for April = Rs 98,000/-(100,000-12,000) * applicable rate of service tax" 5. It is the contention of the petitioners that though this notification speaks of an exemption it also refers to the -taxable service as a taxable service of renting of immovable property. This, according to the petitioners, is not so provided under the said act. It is contended that section 65(105)(zzzz) refers to the service provided or to be provided to any person, by any other person, in relation to renting of immovable property for use in the course or furtherance of business or commerce. The reference in the said provision is not to the taxable service of renting of immovable property but to the taxable service "in relation to" the renting of immovable property. It is the petitioners contention that while the act does not treat renting of immovable property as a taxable service, the notification proceeds on the basis that the taxable service is the renting of immovable property itself. It is on this basis that it has been contended that service tax is sought to be recovered from the petitioners on a pure misreading of the statutory provision. 6. Similarly, the impugned circular wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts, circus, entertainment and parking purposes; and (d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities. Explanation 2. - For the purposes of this sub-clause, any immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce;" The expression "renting of immovable property" has been defined in section 65(90a) as under:- "(90a) "renting of immovable property" includes the renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include- (i) renting of immovable property by a religious body or to a religious body; or (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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able property as such cannot be regarded as a service on which service tax could be levied under the provisions of the said act. 10. Mr. Ganesh also sought to draw a distinction between the provisions of section 65(105)(zzzz) and section 65(88) of the said act. The latter provision has a reference to the service of a real estate agent in relation to the renting of immovable property. It was contended that the language of the two provisions is similar. From this it was sought to be contended that there is a clear indication that the expression "service in relation to the renting of immovable property" means a service which is distinct and different from the renting of property itself although it may be connected with or related to such renting. According to him, these services (which are not covered by other specific clauses of section 65) include air-conditioning service, standby power service, sanitation service, water supply service etc. He also made reference to a circular dated 17/09/2004 issued by the Central board of Excise and Customs which has been extracted at page 17 of the petition in WP(C) no. 1659/2008 [Home Solutions Retail India Ltd v. Union of India] and which appa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g could not be considered to be an office unless and until it was fully equipped with equipment and also manned by personnel. It is only then that the renting of such an office or permitting its use would constitute the rendering of a service. Similarly, renting out of a large property does not constitute a service in itself even though the tenant may use it for the purpose of conducting a wedding or other ceremonial function. Referring to the Supreme Court decision in the case of BSNL v. Union of India: (2006) 3 SCC 1, the learned counsel submitted that the very same transaction cannot constitute both a transfer of property and also the rendering of a service. Whether the property is granted by way of a lease or licence it is merely a property transaction and cannot possibly be construed as the rendering of a service. 14. The learned counsel appearing for the petitioner in writ petition (civil) number 8554/2008 [Alpha Future Airport Retail (India) Ltd v. Union of India] submitted that his case had an added dimension. He submitted that Delhi International airport Limited has the right to operate duty-free shops in designated areas in the Delhi International airport. The said Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based services and performance based services. Property-based services cover service providers such as architects, interior designers, real estate agents, construction services, mandapwallas, etc. Performance-based services are services provided by service providers like stockbrokers, practising chartered accountants, practising cost accountants, security agencies, tour operators, event managers, travel agents, etc." 16. On the strength of these observations, it was contended by Dr. Singhvi that since service tax is a value-added tax and can only be levied on the value addition, the words "in relation to" in section 65 (105) (zzzz) of the said Act are of great significance and importance. The value addition of service in the present context could be an improvement or the betterment of the property provided by the owner to the lessee or licensee. It is that betterment alone which can qualify as a service. The act of renting of the immovable property by itself does not provide any value addition to any person and therefore cannot be treated as a service. According to Dr. Singhvi, the legislature used the words "in relation to" with a clear intent of divorcing the actual renting of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re renting of immovable property in itself constituted a service. He submitted that the definition of renting of immovable property in section 65 (90a) was an all inclusive definition. Referring to the decision in Kalyana Mandapam Association (supra), Mr. Malhotra submitted that even if premises were made available for a few hours for the purpose of utilisation as a mandap, whether with or without other services, would itself be a service and could not be classified as any other kind of legal concept. He submitted that merely providing a premises on a temporary basis for organising a financial, social or business function would also include other facilities in relation there to and would therefore constitute a taxable service. 20. In response to the argument that the expression "in relation to renting of immovable property" does not refer to the renting itself but to some other service in relation to the renting of immovable property, Mr. Malhotra submitted that such an argument is demonstrably untenable. For this purpose he referred to section 65 (105) (zt) which defines the service provided or to be provided to any person, by a dry cleaner in relation to dry-cleaning. Here, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also drawn to the decision of the Supreme Court in the case of Lucknow development authority v. MK Gupta: (1994) 1 SCC 243, wherein at page 254 the following observation is to be found:- "4. What is the meaning of the word 'service'? Does it extend to deficiency in the building of a house or flat? Can a complaint be filed under the Act against the statutory authority or a builder or contractor for any deficiency in respect of given property. The answer to all this shall understanding of the word 'service'. The term has variety of meanings. It may mean any benefit or any act resulting in promoting interest or happiness. It may be contractual, professional, public, domestic, legal, statutory etc. The concept of service thus is very wide. How it should be understood and what it means depends in the context in which it has been used in an enactment." (emphasis supplied) 24. A reference was also made by Mr. Malhotra to the Supreme Court decision in NS Nayak and Sons v. State of Goa: (2003) 6 SCC 56, wherein the court observed:- "the expression "in relation to" is of the widest import as held by various decision of this court in Doypack Systems Private Limited ..." & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the banking and other financial services. The activity, that is, banking and other financial services, is clearly an unmistakably a service. The service provider is identified and the nature of the service is such that it can be provided by the service provider. But, the renting of immovable property is merely a property transaction. There is no service provider. Section 65 (105) (zzzz) does not specify the service provider. It also does not identify the service receiver. Nor is the nature of the service indicated. 28. Mr. Ganesh referred to other sub-clauses of section 65 (105) which were similar to the sub-clause relating to banking and other financial services. He referred to sub-clauses (zn) which pertained to Port services; (zo) service stations; (zq) beauty treatment; (zr) cargo handling services; and (zs) cable services. He then referred to section 65 (88) which defined a "real estate agent" to mean a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting, of real estate and includes a real estate consultant. He submitted that here the expression "in relation to" did not cover the activity of sale purchase leasing or renting of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who allowed temporary occupation of a mandap for consideration for organising any official, social or business function. Mandap was defined to mean any immovable property as defined in Section 3 of the Transfer of Property Act, 1882 and included any furniture, fixtures, light fittings and floor coverings therein let out for consideration for organizing any official, social or business function. In the context of these provisions, one of the questions that arose before the Supreme Court was whether the tax imposed under the Finance Act on catering services did not amount to a tax on sale and purchase of goods. The Supreme Court held that the taxable service provided as a caterer by a mandap keeper was within the legislative competence of the Parliament and could not be construed as a tax on the sale and purchase of goods. In this context, the Supreme Court observed that it was well-settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that service tax is levied as a percentage of the gross charges for catering did not alter or affect the legislative competence of the Parliament in the matter. The Supreme Court then observed as under:- "4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide limited access to property for specific purpose." 30. Furthermore, the Supreme Court emphasized that a tax cannot be struck down on the ground of lack of legislative competence by enquiring whether the definition accords with what the layman's view of service is. It noted the well-settled principle that in matters of taxation, the courts permit greater latitude to the statute to pick and choose objects and rates for taxation and has a wide discretion with regard thereto. At this juncture, it may be pointed out that the main challenge in the present petitions is not on the ground of lack of legislative competence, but on the ground that the impugned notification and circular are ultra vires the Act itself. Therefore, the areas of discussion in the T.N. Kalyana Kandapam (supra) and the present case are somewhat different. 31. In the said decision of the Supreme Court, it has also been observed that 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 the common understanding of the word "service" so long as it does not transgress any specific restriction contained in the Constitution. But, the scope of dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p keeper, apart from the proper maintenance of mandap, also provides the necessary paraphernalia for holding official, social or business functions, apart from providing the conditions and ambience which are required by the customer, such as providing the lighting arrangements, furniture and fixtures, floor coverings, etc. The service provided by him, as indicated in the Supreme Court decision, cover the method and manner of decorating and organizing the mandap and the mandap keeper also provides the customer with advice as to what should be the quantum and quality of the services required keeping in view the requirement of the customer, the nature of the event to be solemnized, etc. It is in this context that the Supreme Court observed that the service of a mandap keeper cannot possibly be termed as a hire-purchase agreement or a right to use goods or property. It is obvious that there is a distinction between the services provided by a mandap keeper and the activity of hiring or giving on rent immovable property. The situations are different, the activities are different. The Supreme Court observed that a tax on services rendered by mandap keepers and outdoor caterers is in pith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;C' is the subject matter. As pointed out above by Mr Ganesh, the expression "in relation to" may be of widest amplitude, but it has been used in the said Act as per its context. Sometimes, "in relation to" would include the subject matter following it and on other occasions it would not. As in the case of the service of dry cleaning, the expression "in relation to dry cleaning" also has reference to the very service of dry cleaning. On the other hand, the service referred to in Section 65(105)(v), which refers to a service provided by a real estate agent "in relation to real estate", does not, obviously, include the subject matter as a service. This is so because real estate by itself cannot by any stretch of imagination be regarded as a service. Going back to the structured sentence, i.e.- service provided or to be provided to 'A' by 'B' in relation to 'C', it is obvious that 'C' can either be a service (such as dry cleaning, hair dressing, etc.) or not a service by itself, such as real estate. The expression "in relation to" would, therefore, have different meanings depending on whether 'C' is a service or is not a service. If ' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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