High Court upholds Finance Act amendments, imposing service tax on renting immovable property

The High Court upheld the constitutional validity of the amendments to the Finance Act, 1994, allowing for the imposition of service tax on renting of immovable property service. The appellants were directed to remit tax from a specified date, pending the outcome of a pending Supreme Court judgment. The High Court ruled that the decision on constitutional validity would apply to all parties involved, eliminating the need for individual approaches to the Supreme Court. Detailed directions were provided for tax payment and recovery, contingent on the pending Supreme Court judgment.

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Issues:
Challenge to the constitutional validity of S. 65(105)(zzzz) and S. 66 of the Finance Act, 1994 as amended by Finance Act, 2010 regarding the levy of service tax on renting of immovable property service.

Analysis:

The Writ Appeals and Writ Petitions presented a challenge to the constitutional validity of specific sections of the Finance Act, 1994, as amended in 2010, which dealt with the imposition of service tax on renting of immovable property service. The Standing Counsel for the respondents referred to a Full Bench decision of the Delhi High Court that upheld the validity of the 2010 amendment. However, the appellants produced an order from the Supreme Court granting leave and staying the collection of service tax on rental arrangement service until a specified date. Despite this, the High Court decided to uphold the amendments to the Finance Act, 1994, based on the Delhi High Court's judgment. The High Court directed the appellants to remit tax from a certain date onwards, subject to the result of the pending Supreme Court judgment. The High Court clarified that the decision on constitutional validity would apply to all parties, eliminating the need for each party to individually approach the Supreme Court. The judgment was made subject to the outcome of the Supreme Court's decision in the pending case.

The High Court further directed that any amount collected and withheld by the Municipality before a specific date should be paid to the appellants. The recovery of arrears up to a certain date was stayed pending the Supreme Court's judgment. Individuals who had paid tax were permitted to claim a refund if eligible based on the Supreme Court's judgment. If service tax was not paid from a certain date, coercive recovery measures could be taken, but this action was also subject to the Supreme Court's judgment. The High Court provided detailed directions regarding the payment and recovery of taxes, emphasizing the importance of the pending Supreme Court judgment in determining further actions related to the service tax issue.

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