2009 (4) TMI 14 - HC - Service Tax

Renting immovable property alone not taxable; Section 65(105)(zzzz) applies only with additional services like AC

HOME SOLUTION RETAIL INDIA LTD. Versus UOI & ORS.

HC held that renting of immovable property for use in the course or furtherance of business does not by itself constitute a taxable service because it ... Legality, validity and vires of notification no. 24/2007 dated 22/05/2007 and circular no. 98/1/2008-ST dated 04/01/2008 - erroneous interpretation is placed on section 65 (90a) and section 65 (105) (zzzz) - service tax on renting of immovable property - HELD THAT:- It is a tax on the value addition provided by some service provider. Insofar as renting of immovable property for use in the course or furtherance of business or commerce is concerned, we are unable to discern any value addition. Consequently, the renting of immovable property for use in the course or furtherance of business of commerce by itself does not entail any value addition and, therefore, cannot be regarded as a service. Of course, if there is some other service, such as air conditioning service provided alongwith the renting of immovable property, then it would fall within Section 65(105)(zzzz). Thus, we hold that Section 65(105)(zzzz) does not in terms entail that the renting out of immovable property for use in the course or furtherance of business of commerce would by itself constitute a taxable service and be exigible to service tax under the said Act. The obvious consequence of this finding is that the interpretation placed by the impugned notification and circular on the said provision is not correct. Consequently, the same are ultra vires the said Act and to the extent that they authorize the levy of service tax on renting of immovable property per se, they are set aside. The writ petitions are allowed to the extent indicated above. Issues Involved:1. Legality, validity, and vires of Notification No. 24/2007 and Circular No. 98/1/2008.2. Interpretation of Section 65(90a) and Section 65(105)(zzzz) of the Finance Act, 1994.3. Levy of service tax on renting of immovable property.4. Legislative competence of Parliament in relation to Entry 49 of List II of the Constitution of India.Issue-wise Detailed Analysis:1. Legality, Validity, and Vires of Notification No. 24/2007 and Circular No. 98/1/2008:The petitioners challenged the legality, validity, and vires of Notification No. 24/2007 dated 22/05/2007 and Circular No. 98/1/2008 dated 04/01/2008 issued by the Ministry of Finance. They argued that these documents placed an erroneous interpretation on Section 65(90a) and Section 65(105)(zzzz) of the Finance Act, 1994, leading to the wrongful levy of service tax on the renting of immovable property instead of services related to renting.2. Interpretation of Section 65(90a) and Section 65(105)(zzzz) of the Finance Act, 1994:The core issue was whether the Finance Act, 1994, envisages the levy of service tax on the act of renting out immovable property per se. The petitioners contended that Section 65(105)(zzzz) refers to services provided 'in relation to' renting of immovable property, not the renting itself. They argued that the Act does not treat renting as a taxable service, and the notification and circular misinterpreted the statutory provisions.3. Levy of Service Tax on Renting of Immovable Property:The petitioners argued that the Act does not envisage service tax on the act of renting immovable property. They claimed that the notification and circular wrongly construed renting as a service. The court analyzed the provisions and concluded that renting of immovable property for business or commerce does not constitute a service by itself. Service tax is a value-added tax, and there must be some value addition by the service provider. Renting does not entail value addition and thus cannot be regarded as a service.4. Legislative Competence of Parliament in Relation to Entry 49 of List II of the Constitution of India:The petitioners alternatively argued that if renting is considered a taxable service, it would fall outside Parliament's legislative competence, as it would be a tax on land, covered under Entry 49 of List II of the Constitution, within the state's exclusive domain. However, the court did not find it necessary to examine this plea due to the conclusion reached on the main issue.Conclusion:The court held that Section 65(105)(zzzz) does not entail that renting out immovable property for business or commerce constitutes a taxable service under the Act. The interpretation in the impugned notification and circular was incorrect, making them ultra vires the Act. Consequently, the notification and circular were set aside to the extent they authorized the levy of service tax on renting of immovable property per se. The writ petitions were allowed accordingly, and the parties were left to bear their own costs.