TaxTMI 
TaxTMI 
TaxTMI 
SERVICE TAX ON RENTING OF COMMERCIAL PREMISES –UPHELD BY FOUR HIGH COURTS WITH RETROSPECTIVE EFFECT.
RETROPSEECTIVE AMENDMENTS – VERY UNFORTUANTE BUT HAVE BECOME ORDER OF THE DAY AS GOVERNMENT SHIELDS MISTAKES BY SUCH AMENDMENTS.
Relevant links of judgments:
HOME SOLUTIONS RETAILS (INDIA) LTD. Versus UNION OF INDIA & ORS 2011 -TMI - 205801 - DELHI HIGH COURT No. - WP(C) No.3398/2010 Dated - 23 September 2011
Section 65(105)(zzzz) and Section 66 of the Finance Act, 1994.
Service tax on renting of commercial premises have been a subject matter of litigation. The main contentions raised by applicant was only in respect of legislative powers. In earlier article the author has pointed out that the grounds of legislative power was not a proper ground to challenge the levy of service tax on rent- reason being service tax can be levied even if states have levied some other tax. The author has also suggested some more reasons for invalidity of service tax on rent of commercial properties. However, it appears that those contentions have not been raised by applicants and as a result we find that first Punjab and Hariyana High Court upheld levy with retrospective effect, then Bombay High Court, then Gujrat High Court and recently Delhi High Court (larger bench) has also upheld levy of service tax.
We find that Larger Bench of Delhi High Court in a judgment delivered on 23rd September 2011 in the case of Home Solutions Retails (India) Ltd. and Others Versus Union of India & Others has upheld Constitutional validity of retrospective amendment by Finance Act, 2010 in definition of taxable service of commercial renting. Earlier decision of Delhi HC in case of Home Solutions has been overruled. As a result Landlords are liable to pay service tax on commercial renting with effect from 1st June 2007. The larger bench has inter alia held on the following lines:
(I) The provisions, of Section 65(105)(zzzz) and Section 66 of the Finance Act, 1994 and as amended by the Finance Act, 2010,are intra vires the Constitution of India. The Central Government is empowered to levy tax on services in form of renting of commercial properties for use in course or furtherance of commerce.
(II) The decision rendered in the first Home Solution case holding that there is no service by way of value addition does not lay down the correct law because in view of larger bench there is value addition when the premises is let out for use in the course of or furtherance of business or commerce.
(III) The amendment with retrospective effect is declared as constitutionally valid.
(IV) Consequently, the writ petitions, being sans substratum, have been dismissed.
(V) On the question of penalty due to non-payment of tax, it is open to the government to examine whether any waiver or exemption can be granted.
(VI) The appeal against Home Solutions-I is pending before the Supreme Court but the operation of the said judgment has not been stayed.
(VII) The larger bench have overruled the first Home Solution case, therefore court thought that the provisions would operate from 2007 as the amendment brought by the Parliament is by way of ex abundanti cautela.
Thus we find that in a landmark judgment Larger Bench of Hon’ble Delhi High Court has confirmed the levy of service tax on renting of immovable property with effect from 01.06.2007 (as amended by the Finance Act 2010).
In India the rule of strict interpretation is very highly diluted:
The foremost rule of interpretation of any law that law is to be read as it is no word can be added or omitted. In case of levy of tax, the law as it stood at the time of taxable event should prevail because a tax payer can work only on that basis.
In case of tax laws, the leniency allowed by the Supreme Court, towards retrospective amendments to clarify the law, appears to be misused by the government as a routine manner. When legislative provisions are interpreted by courts as per the law taking into account the law then prevailed and also the reasons for such law, there should not be leniency to allow retrospective amendments in name of amendment brought by way of abundant caution or to rectify mistake. If a mistake has been committed by government in drafting lf law, then government must accept consequence of such mistake and should rectify the law prospectively and remove the mistake. For mistake of government, why public should be burdened with tax with retrospective effect?
Making retrospective amendments in law with retrospective effect makes laws uncertain and unreliable as a consequence the whole process of enacting laws and implementing them becomes unreliable. The future of public becomes uncertain.
It is unfortunate for the public of India that courts are allowing retrospective amendments in tax laws considering them to be clarificatory, rectificatory and with a view of abundant caution ETC. In fact it is more unfortunate for the government, that it has to bring a large number of amendments with retrospective effect to shield its officers, and mistakes made by them on behalf of government. On perusal of several amendments which have been brought with retrospective effect, we can conclude that many amendments are result of bureaucratic whims that why we find amendments with retrospective effect that provisions of petty items like tea, coffee, snacks etc. constitute entertainment which can be subjected to disallowance, and that amendment was made after the Supreme Court took view that such expenses are not entertainment expenses.