(Per
: HONOURABLE THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA)
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.
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, the petitioner
companies pay 'Common Amenities and Maintenance' ["CAM"]
charges on which service tax is charged and duly paid. They also
reimburse dues for electricity and water on actual consumption and
duly supported by the bills.
During
the course of their operation, the petitioner companies also
receive rent or license fees or conducting fees for leasing,
licensing or use of immovable properties. In these cases also,
wherever agreements so provide, the petitioner companies get
reimbursed in respect of dues for electricity, water, housekeeping,
security etc, which are based on actual consumption and duly
supported by bills.
The
Finance Act, 2007 amended Sec.65 of the Finance Act, 1994 and
defined 'renting of immovable property' including renting, letting,
leasing, licensing or other similar arrangements of immovable
property for use in the course or furtherance of business or
commerce with certain exclusions.
Clause
[105] of Sec.65 of the Finance Act, 1994, which defines 'taxable
service' was also amended to introduce sub-clause[zzzz], which
provided that a service provided by any other person in relation to
'renting of immovable property'
for use in the course or furtherance of 'business or
commerce'.
By
Notification No.24/2007-ST dated 22nd May, 2007, the
effective date for levy of service tax on renting and leasing an
immovable property was notified as 1st June, 2007.
According to the petitioners, the entire object and purpose of the
service tax provision was to tax certain categories of services 'in
relation to' renting of any immovable property for use in the course
or furtherance of business or commerce. Thus, according to the
petitioners, what the Revenue sought to tax was not the 'renting of
immovable property', but in fact any 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 of commerce. It was contended that on a bare reading of the
provision itself, it was apparent that the same does not impose a
tax 'on renting or taking the premises on rent'. This is, because,
there is no value addition by any act of the owner of the premises,
in renting his property to another person.
By
Circular No.98/1/2008-ST, dated 4th January, 2008, the
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 28th
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. 8179, 8735, 7096, 2981, 8346, 3664, 3666, 7653,
8176, 8177, 8178 and 5269, all of 2008, by common order dated 6th
August, 2008.
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 Bombay High Court,
challenging the levy of service tax on immovable property let out on
rent by virtue of amendment made in Sec.65[105][zzzz] of the Finance
Act, 2004, as amended by the Finance Act, 2007. Consequent
notifications and circulars were also under challenge. The said
case was also admitted by the Bombay High Court, wherein, interim
relief was granted on 30th
July, 2008, directing the Union of India and statutory authorities
not to take any coercive step for recovery of service tax.
One
Home Solution Retail India Limited
filed a writ petition, being W.P. [C] No. 1659 of 2008 challenging
the Notification No. 24/2007-ST dated 25th
May, 2007 and Circular No. 98/1/2008-ST, dated 4th
January, 2008, which proceeded on an assumption that renting of
immovable property was taxable service. The said writ petition was
heard by Delhi High Court along with other writ petitions preferred
on the same issue.
The
respondent, Union of India, at that stage, moved before the Supreme
Court by filing Transfer Petition [Civil] No. 807-821 of 2008 for
stay and transfer of different cases pending in different High
Courts to Delhi High Court relating
to the common issue of service tax on renting of immovable property.
In view of
pendency of such petitions,
many of the High Courts
did not pass any order, in the meantime, in
absence of any stay, the matters were heard and disposed
of by Delhi High Court by a common judgment
and order dated
18th
April, 2009.
In
case of Home Solution Retail India Limited v. Union of India,
reported in [2009] 158 DLT 722, Delhi High Court, by its
judgment dated 18th April, 2009, held that
Sec.65[105][zzzz] does not, in terms, entail that the renting out of
immovable property would, by itself, constitute taxable service and,
therefore, the notifications and circulars issued on the basis of
such assumption were ultra vires the Act. Consequently, the same
were set aside to the extent that they authorized levy of service
tax on renting of immovable property per se.
Delhi
High Court further held that service tax is value added tax levied
on value addition provided by some service provider; insofar as it
relates to immovable property, any value addition would not be
discerned, therefore, it cannot be regarded as service. Delhi High
Court in the above judgment held as follows:
"35.
From this analysis,
it is clear that we have to 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)(zzzz) does not in terms entail that the renting out of
immovable property for use in the course or furtherance of business
of commerce would by itself constitute a taxable service and be
exigible to service tax under the said Act. The obvious consequence
of this finding is that the interpretation placed by the impugned
notification and circular on the said provision is not correct.
Consequently, the same are ultra vires the said Act and to the extent
that they authorize the levy of service tax on renting of immovable
property per se, they are set aside."
The
aforesaid judgment has been challenged by the Union of India before
the Supreme Court in Special Leave Petition [Civil] No. 13850 of
2009, but in spite of the petition for interim relief, the Supreme
Court has not granted any stay and merely issued notice to the
parties.
It
appears that because of the decision rendered by the Delhi High
Court, Union of India relooked into the matter on 26th
February, 2010 and the Hon'ble Finance Minister of Union of India
presented Budget 2010 before the Parliament, being Finance Bill 2010
which received Presidential assent on 11.5.2010 giving effect to the
Finance Act, 2010.
Through
Finance Act, 2010, by Sec.75[5][h] and Sec.76, the Union of India
sought to introduce certain amendment retrospectively and thereby
sought to validate all actions taken by Union of India
notwithstanding anything in the judgment of Delhi High Court or
other High Courts and also provided liberty to the tax authorities
to make all recoveries of service tax with interest, penalty or fine
along with other charges as if amendment to Sec.65[105][zzzz], in
the Finance Act, 1994 by Finance Act, 2010, always stood
incorporated retrospectively from 1st June, 2007.
By
Notification No. 24/2010-ST dated 22nd June, 2010, the
operative date of the provisions of the Finance Act, 2010 was
notified as 1st July, 2010.
It
is in this background the present petitions were preferred
challenging the validity of Sec.75[5][h] and Sec.76 of the Finance
Act, 2010, whereby amendment was made in Clause[105] of Sec.65,
relevant portions of which are reproduced hereunder:
"75.
In the Finance Act, 1994,--
[A]
in section 65, save as otherwise provided, with effect from such date
as the Central Government may, by notification in the Official
Gazette, appoint,--
xxx xxx 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 1st 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 1st
day of June, 2007 and ending with the day, the Finance Bill, 2010
receives the assent of the President, shall be deemed to be and
deemed always to have been, for all purposes, as validly and
effectively taken or done or omitted to be done as if the amendment
made in sub-clause [zzzz] of clause [105] of section 65, by sub-item
[i] of item [h] of sub-clause [5] of clause [A] of section 75 of the
Finance Act, 2010 had been in force at all material times and,
accordingly, notwithstanding anything contained in any judgment,
decree or order of any court, tribunal or other authority,--
[a] any
action taken or anything done or omitted to be taken or done in
relation to the levy and collection of service tax during the said
period on the taxable service of renting of immovable property, shall
be deemed to be and deemed always to have been, as validly taken or
done or omitted to be done as if the said amendment had been in force
at all material times;
[b] no
suit or other proceedings shall be maintained or continued in any
court, tribunal or other authority for the levy and collection of
such service tax and no enforcement shall be made by any court of any
decree or order relating to such action taken or anything done or
omitted to be done as if the said amendment had been in force at all
material times;
[c] recovery
shall be made of all such amounts of service tax, interest or penalty
or fine or other charges which may not have been collected or, as the
case may be, which have been refunded but which would have been
collected or, as the case may be, would not have been refunded, as if
the said amendment had been in force at all material times.
Explanation.--
For the removal of doubts, it is hereby declared that no act or
omission on the part of any person shall be punishable as an offence
which would not have been so punishable had this amendment not come
into force."
The
challenge is made on the grounds that [i] the amendment is
unconstitutional being beyond the legislative competence of the
Parliament; [ii] Delhi High Court having held that renting of
immovable property is not service in absence of any value addition,
the Union of India cannot change the nature of tax by changing the
event of transaction and; [iii] the amendment being not
clarificatory in nature, it cannot be enforced retrospectively.
The
ground taken by the Union of India for amending the provision is
that renting of immovable property is taxable service if such
renting is for use in the course of or for furtherance of business
or commerce.
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.
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 put to. What is required is that there must be
a manufacture and the goods so produced must satisfy the test of
saleability and marketability. In fact, end-use is not considered as
determinative even for the classification of the goods, far from
being determinative for
concluding whether such goods have
been manufactured or not. The use of the goods/services is an
occurrence which is post taxable event and therefore, is not
relevant factor for considering whether or not the taxable event has
occurred.
Therefore,
according to the learned counsel for the petitioners,
'end-use' does not create taxable event, but at the highest, can
bring about a valid classification for the purpose of taxation etc.
Just as the goods have to be 'manufactured' or 'produced' for the
purpose of attracting levy of excise duty, which is a concept
independent of the use to which such goods are put, on the principle
of equivalence, the services also have to be 'manufactured' or
'produced' and the use to which such services are produced is not
determinative of the fact as to whether in fact, the services were
so manufactured or produced. There is legislative indication of this
proposition since Sec.65[90a] defines "renting of immovable
property" as including
renting etc. of immovable property for use in course or furtherance
of business or commerce, meaning thereby that renting of immovable
property for residence would be covered in the inclusive definition.
However, what is sought to be taxed under the present regime is
only that class of service which is renting for use in the course
of or for furtherance
of business or commerce. Sec.65[105][zzzz]
expressly makes this classification of service and excludes renting
of building used solely for residential purposes etc.
It
was further contended that renting would not amount to a service
since the lessee/licensee would only upon such renting not
necessarily, carry on his business or commerce. Same would be the
position even in case of acquisition of immovable property by
purchase which would then enable the purchaser to use it for any
purpose and may be in the course or furtherance of business or
commerce. However, such purchase would certainly not also be a
service. Therefore, according to learned counsel for the
petitioners, renting enabling a person to carry on his activity or
business 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.
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 [2001] 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, exigible to service tax.
Learned
counsel would further submit that the contention of the respondents
would lead the taxable event to a fortuitous circumstance of use by
the service recipient. This may be explained by an example where
landlord/lessor/licensor may have premises which are capable of
being used both for residential and/or for commercial purpose. If
the same premises are rented and used for residential purpose, on
the contention of the respondents, the taxable event would not have
happened as there is no provision of any service by the lessor to
the lessee, whereas if the same premises is rented and thereafter
used for commercial
purpose or partly for commercial purpose
and partly for residential purpose, would be liable to tax on the
ground that service had been provided by the service provider to the
service recipient. There is no difference in the 'activity'
undertaken by the lessor/licensor, nor value addition by him in the
latter case and in fact, there is no qualitative difference in the
transaction undertaken at all, despite which, it would be considered
as production of service in one case and not in the other. There
would be a similar irrationality even as regards service provided by
real estate agent in relation to renting of immovable property if
the contention of the respondents is accepted. The issue is not that
levy of service tax on renting for business or commerce is bad
because no such tax is levied on renting for residence, since it is
well settled that the legislature does not have to tax everything
for taxing something. The issue is sustainability of a contention
that renting of immovable property for any other purpose may not be
a service but renting of immovable property amounts to provision of
services if such property is used for commercial purpose. Such
determination of a taxable event would be irrational and the levy
would consequently be rendered invalid.
Mr.
P.S. Champaneri, learned Assistant Solicitor General appearing for
the Revenue, opposed the prayer on the ground that the writ
petitions are premature as no notice has been served on the
petitioners and even in absence of such show cause notice, the
present petitions have been preferred and therefore, they are fit to
be rejected.
Referring
to Sec.65[105][zzzz] of Finance Act, 1994 and the explanation given
thereunder, he would submit that an 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.
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.
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
renting of immovable property when it is in furtherance of business
and commerce in favour of service recipient.
Challenging
the locus standi of the petitioners, he would contend that service
tax is imposed on service recipient. The petitioners herein, are the
owners of the premises and they do not to bear the liability of
paying service tax. In view of the principle enumerated under
Sec.41[j] of the Specific Relief Act, in absence of having personal
interest of the petitioners, this Court may not grant relief. The
present petitions have not been filed in the nature of Public
Interest Litigation nor in the representative capacity and
therefore, the petitioners being not affected party, they have no
right to challenge the Central enactment. They have also failed to
show that any of their fundamental and statutory rights has been
infringed as they are not liable to pay tax and thus, the writ
petitions at the behest of the service provider, are not
maintainable.
Relying
on the Supreme Court decision in the case of
Union Of India v. Shri Harbhajan Singh Dhillon., reported in 1971 [2] SCC 779,
learned counsel would contend that if Central Act is challenged as
being beyond the legislative competence of the Parliament, it is
enough to enquire if it is a law with respect to matters of taxes
enumerated in state list, if it is not, no further question arises.
If the Central Act enters or invades the prohibited fields, there is
no point in trying to decide as to under which list or Entry the
Central Act will fit in. He also placed reliance on the Supreme
Court decision in the case of Tamil
Nadu Kalyan Mandapam Association v. Union of India, reported in 2004
[167] ELT 3 [S.C.] = AIR 2004 3757,
and submitted that the definition of 'taxable services' includes
renting in the course or furtherance of business.
Specifically
with regard to providing service of renting a premises for business
and commercial activities, learned counsel would contend that since
the event of making available premises for industrial and business
purposes is a rendition of service, though it may be even event of
leasing or licensing under Transfer of Property Act and/or Easement
Act, the concept of catering and rendering services is attracted.
The fact that the tax on sale of goods
involved in the said service can be levied does
not mean that service tax cannot be levied on the aspect 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].
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 on the decision of the Supreme Court in the case
of Gujarat
Ambuja Cement v. Union
of India, reported in 2005 [4] Supreme Court
Cases 214,
wherein, while upholding the validation Act, the Supreme Court laid
down the principle.
According
to learned counsel for the Revenue, renting of commercial property
internationally is considered as as provision/supply of service. The
Apex Court, in the case of All India
Federation
of Tax Practitioners reported in 2007 [7] STR 625[SC]
also held that; "service tax is on value addition by rendition
of services". Similar
views are expressed by the Supreme Court in the case of Moti
Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad
reported in 1995 [76] ELT 241[SC],
wherein it has been held that there is no difference between
production and manufacture of salable goods and production of
marketable/salable services in the form of an activity undertaken by
the service provider for consideration.
Learned
counsel on behalf the Revenue would contend that the Court should
give liberal approach to the taxing enactment as it is always burden
on the person who is challenging the same to prove violation of
guarantee of equal protection. In the economic and tax matters,
classification by legislature is almost sustained by the Court which
generally lacks expertise and familiarity with the local problem so
necessary for making wise decision in respect of raising and
disposing of public revenue. Reliance was placed on the Supreme
Court decision in the case of R.K. Garg v. Union of India,
reported in 1981 [4] SCC 675.
He
would further contend that the impugned provision has already been
upheld by Punjab & Haryana High Court in the case of Shubh
Timb Steels Limited, reported in 2010 [20] S.T.R. 737 [P
& H].
We
have heard the learned counsel for the parties, noticed their
respective submissions and also perused relevant provisions and
decisions rendered by one or the other Court and Supreme Court in
particular.
Sub-clause
[90a] of Clause-65 of the Finance Act,1994 defines 'renting of
immovable property' which reads as follows:
"[90a]:
'renting of immovable property' includes 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;
[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;"
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[105]: "taxable service" means any service provided,-
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.
Explanation1.--For
the purposes of this sub-clause, "immovable property"
includes--
[i] building
and part of a building, and the land appurtenant thereto;
[ii]
land incidental to the use of such building or part of a building;
[iii]the
common or shared areas and facilities relating thereto; and
[iv]in
case of a building located in a complex or an industrial estate, all
common areas and facilities relating thereto, within such complex or
estate,
[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,
but
does not include-
[a] vacant
land solely used for agriculture, acquaculture, farming, forestry,
animal husbandry, mining purposes;
[b] vacant
land, whether or not having facilities clearly incidental to the use
of such vacant land;
[c] land
used for educational, sports, 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 purpose of this sub-clause, an 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;"
Explanation-1
below sub-clause [zzzz] while defines 'immovable property',
Explanation-2 thereunder makes it clear that for the purpose of the
said sub-clause[zzzz], an immovable property partly for use in the
course or furtherance of business or commerce and partly for
residential or any other purposes shall also be deemed to be
immovable property for use in the course or furtherance of business
or commerce.
One
of the thrusts of the arguments made on behalf of the petitioners
is that renting of immovable property is a transaction by which
right in or in relation to immovable property is transferred 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.
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' as described in
Explanation-1 below sub-clause[zzzz] does not include four
categories of immovable property, which are as follows:
"[a] vacant
land solely used for agriculture, acquaculture, farming, forestry,
animal husbandry, mining purposes;
[b] vacant
land, whether or not having facilities clearly incidental to the use
of such vacant land;
[c] land
used for educational, sports, 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."
In
the case of All India Federation of Tax
Practitioners reported in [2007] 7 SCC 527, the
Supreme Court was considering the question of validity of levy of
service tax on the services rendered by the Chartered Accountants,
Cost Accountants and Architects. While so considering, the Supreme
Court held that service tax is an indirect tax levied on certain
services provided by certain categories of persons including
companies, associations, firms, body of individuals etc., it covers
wide range of activities, the service sector which is occupying
center stage of the Indian economy has become an industry by itself.
In the said case, the Supreme Court held as follows:
"7. In
the light of what is stated above, it is clear that Service Tax is a
VAT which in turn is destination based consumption tax in the sense
that it is on commercial activities and is not a charge on the
business but on the consumer and it would, logically, be leviable
only on services provided within the country. Service tax is a value
added tax.
8. As
stated above, service tax is VAT. Just as excise duty is a tax on
value addition on goods, service tax is on value addition by
rendition of services. Therefore, for our understanding, broadly
#services# fall into two categories, namely, property based services
and performance based services. Property based services cover service
providers such as architects, interior designers, real estate agents,
construction services, mandapwalas etc.. Performance based services
are services provided by service providers like stock-brokers,
practising chartered accountants, practising cost accountants,
security agencies, tour operators, event managers, travel agents
etc."
The
Supreme 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 concept based on the
principle of equivalence in a sense that consumption of goods and
consumption of services are similar as they both satisfy human needs.
Today with the technological advancement there is a very thin line
which divides a "sale" from "service". That,
applying the principle of equivalence, there is no difference between
production or manufacture of saleable goods and production of
marketable/saleable services in the form of an activity undertaken by
the service provider for consideration, which correspondingly stands
consumed by the service receiver. It is this principle of equivalence
which is inbuilt into the concept of service tax under the Finance
Act, 1994. That service tax is, therefore, a tax on an activity.
That, service tax is a value added tax. The value addition is on
account of the activity which provides value addition, for example,
an activity undertaken by a chartered accountant or a broker is an
activity undertaken by him based on his performance and skill. This
is from the point of view of the professional. However, from the
point of view of his client, the chartered accountant/broker is his
service provider. The value addition comes in on account of the
activity undertaken by the professional like tax planning, advising,
consultation, etc. It gives value addition to the goods manufactured
or produced or sold. Thus, service tax is imposed every time service
is rendered to the customer/client. This is clear from the
provisions of Section 65[105][zm] of the Finance Act, 1994 [as
amended]. Thus, the taxable event is each exercise/activity
undertaken by the service provider and each time service tax gets
attracted."
Mandap
Keepers of Tamilnadu Kalyan Mandapam Association moved before the
Supreme Court, challenging the validity of tax and services provided
by mandap-keepers in relation to use of Mandap. While dealing with
the said matter, the Supreme Court, in the case of Tamil Nadu
Kalyana Mandapam Association v. Union of India, reported in [2004] 5
SCC 632 noticed that definition of 'taxable service'
provided by mandap-keepers is not limited to providing of premises
on a temporary basis for the purpose specified, but includes even
other facilities supplied in relation thereto. Mandap-keepers
provided a variety of services apart from the services of allowing
temporary occupation of Mandap. Definition of 'taxable 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 any specific restriction contained in the
Constitution."
The
stand of the Government of India has been made clear by letter dated
26th February, 2010 issued by the Revenue Department,
Ministry of Finance, Government of India, Tax Unit, New Delhi. It
was brought to the notice of the Court by the learned counsel
appearing on behalf the Union of India that with regard to service
of renting of immovable property, stand of the respondent is that it
was introduced in the year 2007 with a view to tax all commercial
use of immovable property higher. The tax on rent paid is available
as input credit if the commercial activity involves provision of
taxable service or manufacture of dutiable goods. However, as Delhi
High Court, by its judgment dated 18th April, 2009, in
the case of Home Solutions Retail India Ltd. & Others v. Union
of India has struck down the levy by observing that renting of
immovable property does not involve any value addition and,
therefore, it cannot be regarded as service, in order to clarify the
legislative intent and also bring any certainty in tax liability,
relevant definition of tax service is being amended to clarify the
activity of renting of immovable property per se could
constitute taxable service if made or used in the course or
furtherance of business or commerce.
We
have noticed the stand taken by Union of India which is also clear
from Explanation-1 below sub-clause [zzzz] of Clause-[105] of Sec.65
which does not include vacant land only used for agriculture,
acquaculture, farming, forestry, animal husbandry, mining purpose
having facilities incidental to the use of such vacant land, land
used for educational, sports, circus, entertainment and parking
purpose and building used solely for residential purpose and
building used for purpose of accommodation, including hotels,
hostels, boarding houses, holiday accommodation, tents, camping
facilities. It is only 'renting of immovable property' which
includes renting, letting, licensing or other similar arrangements
of immovable property for the use 'in course or furtherance of
business or commerce'. It comes within the definition of
'taxable service'.
Renting
of any property ipso facto would not amount to service for
the purpose of service charge. This is also accepted by learned
counsel for the revenue. However, in case of renting of immovable
property, 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, 6th
Edition, 11th 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 activity in favour of service
recipient for helping forward business, promotion of business,
advancement of business and progress of business. It automatically
generates value addition and comes within the meaning of 'service
tax' as defined under Sec.65[105][zzzz].
The
Supreme Court in the case of Tamil Nadu Kalyana Mandapam
Association v. Union of India, reported in [2004] 5 SCC 632,
has already held that levy of service of particular kind of service
would not be struck down on the ground that it does not conform to a
common understanding of the word 'service' so long it does not
transgress any specific restriction contained in the Constitution.
The
aforesaid impugned Sec.65[105][zzzz] fell for consideration before
the Bench of Punjab & Haryana High Court in Shubh
Timb Steels Limited v. Union of India, reported in 2010 [20] S.T.R.
737 [P & H]. In the said case, the Punjab &
Haryana High Court upheld the validity of Sec.65[105][zzzz] and
dismissed the appeal.
For
the reasons aforesaid, while upholding Sec.65[105][zzzz] of Finance
Act, 1994 as amended by Sec.75[5][h] and Sec.76 of the Finance Act,
2010, we hold that the provision of Sec.65[105][zzzz] introducing
service tax is not attracted if [i] the vacant land is used solely
for agriculture, acquaculture, farming, forestry, animal husbandry,
mining purposes; [ii] it is a vacant land, whether or not
having facilities clearly incidental to the use of such vacant land;
[iii] land is used for educational, sports, circus, entertainment
and parking purposes and; [iv] building
is used solely for residential purposes and buildings are used for
the purposes of accommodation, including hotels, hostels, boarding
houses, holiday accommodation, tents, camping facilities. The said
provision levying service tax will be attracted if the immovable
property is rented for the use in the course of or for furtherance
of the business of commerce.
In
view of the discussion as made above and as we find that the
petitioners could not make out a case to declare Sec.65[105][zzzz]
as unconstitutional or ultra vires any provisions of the
Constitution, we have no option but to dismiss the writ petitions in
absence of any merit. The Writ petitions are accordingly dismissed.
There shall be no order as to costs.
[S.J.
MUKHOPADHAYA, CJ.]
[J.B.PARDIWALA,
J.]
pirzada/-
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