2011 (8) TMI 71 - HC - Service Tax

Gujarat HC validates service tax on commercial property rentals under Section 65(105)(zzzz) of Finance Act 1994

CINEMAX INDIA LIMITED THROUGH DIRECTOR Versus UNION OF INDIA THROUGH SECRETARY

Gujarat HC upheld the validity of Sec.65(105)(zzzz) of Finance Act, 1994 as amended by Finance Act, 2010, regarding service tax on renting immovable ... Validity of Sub-clause [zzzz] of Clause [105] of Sec.65 of the Finance Act, 1994, as amended by Sec.75[5][h] and Sec.76 of the Finance Act, 2010 - Taxability - immovable property is rented for the use in the course of or for furtherance of the business of commerce - legislative powers - meaning of 'furtherance'. Held that: - 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, 6 th Edition, 11 th 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]. 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. 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. Issues Involved:1. Validity of Sub-clause [zzzz] of Clause [105] of Sec.65 of the Finance Act, 1994, as amended by Sec.75[5][h] and Sec.76 of the Finance Act, 2010.2. Legislative competence of the Parliament to amend the provision.3. Whether renting of immovable property constitutes a taxable service.4. Retrospective application of the amendment.5. Classification of immovable property for the purpose of service tax.Issue-wise Detailed Analysis:1. Validity of Sub-clause [zzzz] of Clause [105] of Sec.65 of the Finance Act, 1994:The petitioners challenged the validity of this provision, arguing that it imposed a service tax on renting of immovable property, which was not a service as it did not involve any performance, skill, expertise, or knowledge. The court noted that the provision specifically deals with renting of immovable property for use in the course or furtherance of business or commerce and excludes certain categories such as properties used solely for residential purposes.2. Legislative Competence of the Parliament:The petitioners argued that the amendment was beyond the legislative competence of the Parliament. The court referred to the Supreme Court decision in Union of India v. Harbhajan Dhillon, stating that if a Central Act does not invade the prohibited fields, it is within the legislative competence of the Parliament. The court upheld the legislative competence of the Parliament to amend the provision.3. Renting of Immovable Property as a Taxable Service:The petitioners contended that renting of immovable property does not constitute a service as it does not involve any value addition by the service provider. The court referred to the Supreme Court's decision in All India Federation of Tax Practitioners, which held that service tax is a value-added tax on the activity undertaken by the service provider. The court concluded that renting of immovable property for business or commerce involves value addition and constitutes a taxable service.4. Retrospective Application of the Amendment:The petitioners argued that the amendment could not be enforced retrospectively. The court noted that the Finance Act, 2010, through Sec.75[5][h] and Sec.76, sought to validate all actions taken by the Union of India retrospectively from 1st June, 2007. The court held that competent legislature can validate any Act retrospectively to rectify defects and effectuate the object of the earlier law.5. Classification of Immovable Property for Service Tax:The court examined the classification of immovable property under the amended provision, noting the exclusions for properties used solely for residential purposes, agriculture, and other specified uses. The court upheld the classification, stating that the provision levying service tax is attracted only if the immovable property is rented for use in the course or furtherance of business or commerce.Conclusion:The court upheld the validity of Sub-clause [zzzz] of Clause [105] of Sec.65 of the Finance Act, 1994, as amended by Sec.75[5][h] and Sec.76 of the Finance Act, 2010. The petitions were dismissed, and the provision was held to be constitutional and within the legislative competence of the Parliament. The court concluded that renting of immovable property for business or commerce constitutes a taxable service and that the retrospective application of the amendment was valid. The classification of immovable property for the purpose of service tax was also upheld.