Service Tax on Renting of Property Constitutionally Valid; Retrospective Application Upheld

The Court upheld the constitutional validity of the service tax on renting of immovable property, affirming Parliament's legislative competence under Entry 97 of List I. The retrospective application of the amended provision from 1 June 2007 was also upheld, citing Parliament's authority to legislate retrospectively. The Court dismissed the petitions, emphasizing that service tax on renting is a tax on the service itself, not on the property. Previous Supreme Court decisions supported the Court's rulings, and no substantial question of law was certified for appeal.

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Issues Involved:
1. Imposition of service tax on renting of immovable property.
2. Legislative competence of Parliament to impose such tax.
3. Retrospective application of the service tax.

Detailed Analysis:

1. Imposition of Service Tax on Renting of Immovable Property:
The Finance Act of 1994 introduced a service tax, defining taxable services under Section 65 and charging them under Section 66. Subclause (zzzz) of Section 65(105) initially defined taxable service as any service provided "in relation to renting of immovable property for use in the course or furtherance of business or commerce." The Delhi High Court in Home Solution Retail India Ltd. vs. Union of India held that service tax could not be levied on renting of immovable property as it did not constitute a service. Following this, the Finance Act, 2010 amended subclause (zzzz) to include "by renting of immovable property or any other service in relation to such renting" to clarify that renting itself is a taxable service.

2. Legislative Competence of Parliament:
The Petitioners challenged the constitutional validity of the service tax on renting of immovable property, arguing it fell under Entry 49 of List II (State List) as a tax on lands and buildings. The Court, however, upheld the legislative competence of Parliament under Entry 97 of List I (residuary powers). The Court referred to several Supreme Court decisions, including Tamil Nadu Kalyana Mandapam Association vs. Union of India, Gujarat Ambuja Cement Ltd. vs. Union of India, and All India Federation of Tax Practitioners vs. Union of India, which affirmed that service tax falls within Parliament's residuary powers. The Court emphasized that a tax on land and buildings must be directly imposed on the land or buildings, whereas service tax on renting is a tax on the service of renting, not on the property itself.

3. Retrospective Application of the Service Tax:
The Petitioners also contested the retrospective application of the amended provision from 1 June 2007. The Court upheld the retrospective amendment, noting that Parliament has plenary power to legislate retrospectively. The amendment aimed to clarify the original intent of Parliament and validate the collection of service tax on renting of immovable property, which had already resulted in substantial revenue collections. The Court cited the Supreme Court's decisions in Bakhtawar Trust v. M.D. Narayan and other cases, affirming that retrospective amendments are permissible to cure deficiencies identified by judicial interpretation.

Conclusion:
The Court dismissed the petitions, upholding the constitutional validity of the service tax on renting of immovable property. It ruled that the tax is within Parliament's legislative competence under its residuary powers and that the retrospective amendment was valid. The Court also declined to certify the case as involving a substantial question of law under Article 132 of the Constitution, as the issues had been settled by previous Supreme Court rulings. The interim orders were extended for four weeks to allow the Petitioners to seek appellate remedies.

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