Court upholds legality of service tax on renting immovable property for business, exception for specific purposes. Writ petitions dismissed.

The court upheld the legality of the service tax on renting of immovable property for business purposes, clarifying that service tax would not apply if the property was used for specific purposes like agriculture, residential, or entertainment. As the petitioners failed to establish the unconstitutionality of the relevant section, the writ petitions were dismissed for lack of merit based on the precedent set in an earlier case. The rule was discharged, any interim relief was vacated, and no costs were awarded in this matter.

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Issues:
Challenge to the legality, validity, and vires of notification and circular regarding service tax on renting of immovable property.

Analysis:
The petitioners challenged the notification and circular issued by the Ministry of Finance, Government of India, regarding the levy of service tax on the renting of immovable property. They argued that an incorrect interpretation of the relevant sections of the Finance Act led to the imposition of service tax on renting instead of services related to renting. They sought a writ to restrain the respondents from charging service tax on renting and requested a refund of the service tax already paid. The issue was previously addressed in a similar case, where the challenge to the notification was rejected, and the petitions were disposed of together based on that judgment.

In the earlier case, it was noted that the Finance Act of 2007 defined 'renting of immovable property' and introduced sub-clause (zzzz) in the taxable service section, which pertained to services related to renting for business or commerce. The petitioners contended that the intention was to tax services related to renting, not renting itself, as there was no value addition in merely renting out property. The Ministry of Finance's circular authorized the recovery of service tax based on the assumption that renting out property constituted a service.

The court, after considering various case laws and provisions of the Finance Act, upheld the section introducing service tax on renting for business or commerce. It clarified that service tax would not apply if the property was used for specific purposes like agriculture, residential, or entertainment. However, if the property was rented for business purposes, the service tax would be applicable. As the petitioners failed to establish the unconstitutionality of the relevant section, the writ petitions were dismissed for lack of merit.

In conclusion, the court disposed of the writ petitions based on the precedent set in the earlier case, where the legality of the service tax on renting of immovable property was upheld. The rule was discharged, any interim relief was vacated, and no costs were awarded in this matter.

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