Service Tax on Property Rent Upheld; Penalties Dropped and Case Remitted Pending Supreme Court Review.

The HC confirmed the payment and appropriation of service tax on renting immovable property but set aside penalties under Sections 77 and 78 of the Finance Act, 1994. The case was remitted to the respondent, pending the SC's decision on the levy's vires. The writ petition was disposed of without costs.

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Issues:
1. Confirmation of proposals in the Show Cause notice.
2. Imposition of penalties under Section 77 and Section 78 of the Finance Act, 1994.
3. Previous challenges to the Show Cause Notice.
4. Subjecting petitioners to penalty under Section 78 of the Finance Act, 1994.
5. Vires of levy of service tax on renting of immovable property.
6. Pending issue before the Hon'ble Supreme Court regarding service tax on renting of immovable property.

Analysis:

1. The petitioners challenged the impugned Order in Original confirming the proposals in the Show Cause notice related to service tax on renting of immovable property. The order confirmed that the petitioners failed to discharge the service tax liability after collecting it from the lessee. The impugned order imposed penalties under Section 77 and Section 78 of the Finance Act, 1994.

2. The petitioners had previously challenged the Show Cause Notice in a writ petition, which was dismissed. Subsequently, they filed a writ appeal, which was also dismissed. The respondent argued that the writ petition lacked merit due to the availability of an alternate remedy and delay caused by the petitioners in adjudicating the Show Cause Notice.

3. The main issue was whether the petitioners could be subjected to penalty under Section 78 of the Finance Act, 1994. The respondent contended that even though the disputed tax was deposited by the petitioners, the department could still levy penalties under Section 78.

4. The High Court noted that there have been multiple challenges to the levy of service tax on renting out immovable property across various High Courts. These challenges were dismissed, and the issue is now pending before the Hon'ble Supreme Court, which has granted interim stay on recovery proceedings subject to lessees depositing 50% of the tax.

5. After hearing arguments from both sides, the High Court decided to confirm the payment of service tax and appropriation but set aside the imposition of penalties under Sections 77 and 78. The Court remitted the case back to the respondent to await the orders of the Hon'ble Supreme Court regarding the vires of the levy of service tax on renting of immovable property.

6. In conclusion, the High Court disposed of the writ petition without costs and closed the connected miscellaneous petition. The Court's decision was influenced by the pending issue before the Hon'ble Supreme Court and the temporary relief granted to lessees regarding the deposit of service tax.

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