Court Upholds Retrospective Service Tax Amendment on Property Renting & Clarifies Service Classification

The court upheld the retrospective amendment imposing service tax on renting of immovable property and clarified the classification of services for tax purposes. It directed DIAL to bear the cost of the bank guarantee furnished by the petitioner. The writ petition was disposed of with each party bearing its own costs.

---

---

Issues Involved:
1. Constitutional validity of section 65(90a) read with section 65(105)(zzzz) of the Finance Act, 1994.
2. Validity of Notification No.24/2007 and Circular No. 98/1/2008.
3. Taxability of licence fees paid by the petitioner to DIAL under Section 65(105)(zzm) of the Finance Act, 1994.
4. Classification of services under Section 65(105) of the Finance Act, 1994.
5. Liability for the cost of securing a bank guarantee.

Issue-Wise Detailed Analysis:

1. Constitutional Validity of Section 65(90a) read with Section 65(105)(zzzz) of the Finance Act, 1994:
The petitioner challenged the constitutional validity of section 65(90a) read with section 65(105)(zzzz) of the Finance Act, 1994, which imposed service tax on renting of immovable property. The court referenced the decision in Home Solutions Retails Ltd. v. Union of India, which had previously addressed this issue. The court noted that the retrospective amendment by the Finance Act, 2010, which included renting of immovable property as a taxable service, was upheld in Home Solutions Retail-II, thereby negating the effect of the earlier judgment in Home Solutions Retails - I.

2. Validity of Notification No.24/2007 and Circular No. 98/1/2008:
The petitioner also challenged the validity of Notification No.24/2007 and Circular No. 98/1/2008 issued by the Ministry of Finance. The court did not specifically address the validity of these notifications and circulars in detail but implied that the retrospective amendment and the court's decision in Home Solutions Retail-II upheld the imposition of service tax on renting of immovable property, thus indirectly validating these notifications and circulars.

3. Taxability of Licence Fees Paid by the Petitioner to DIAL under Section 65(105)(zzm) of the Finance Act, 1994:
The petitioner apprehended that the service tax authorities might tax the licence fees paid to DIAL as 'taxable service' under Section 65(105)(zzm) (airport services). The court noted that the demand notices issued to DIAL were limited to taxing the alleged service under clause 65(105)(zzm) and not under clause 65(105)(zzzz). The court held that prior to 01.07.2010, the transaction could not be considered as 'airport services' under Clause (zzm) of Section 65(105) because letting of immovable property was specifically covered under Clause (zzzz). After 01.07.2010, with the amendment introducing a proviso to Clause (zzm), any service rendered within the airport could be chargeable to service tax as 'airport services'.

4. Classification of Services under Section 65(105) of the Finance Act, 1994:
The court emphasized the importance of Section 65A for classification of taxable services. It stated that the sub-clause providing the most specific description should be preferred. Since letting of immovable property was specifically covered under Clause (zzzz), it could not be classified as 'airport services' under Clause (zzm) prior to 01.07.2010. The court concluded that the transaction between DIAL and the petitioner, if considered as simple letting out of immovable property, would be exigible to service tax under Clause 65(105)(zzzz) but not under Clause 65(105)(zzm).

5. Liability for the Cost of Securing a Bank Guarantee:
The court addressed the issue of who should bear the cost of the bank guarantee furnished by the petitioner. It noted that despite a consent award stating that the petitioner would bear any tax, DIAL insisted on a bank guarantee. The court found it fair that DIAL should bear the cost of the bank guarantee, amounting to Rs. 1.06 crores, and directed DIAL to pay this amount to the petitioner within 30 days.

Conclusion:
The court upheld the retrospective amendment imposing service tax on renting of immovable property and clarified the classification of services for tax purposes. It directed DIAL to bear the cost of the bank guarantee furnished by the petitioner. The writ petition was disposed of with each party bearing its own costs.

---