2010 (6) TMI 9 - HC - Service Tax

High Court reviews constitutional challenge to service tax provisions under Finance Act, 1994

TRENT LIMITED Versus UNION OF INDIA and Others

The High Court addressed the constitutional challenge to service tax provisions under the Finance Act, 1994, particularly the inclusion of renting ... Renting of immovable property - retrospective amendment - Section 66 (105) (ZZZZ) as amended by the Finance Act, 2010 - the respondents (revenue) are directed, pending further orders in this application or in the writ petition, not to initiate any coercive steps for recovery of the service tax on the renting of immovable property by the petitioners, on the basis of the provisions of Section 65 (105) (zzzz) as amended by the Finance Act, 2010, for the period 01/06/2007 to 01/04/2010. - Operation of retrospective amendment stayed Issues:Challenge to the constitutional validity of provisions of Finance Act, 1994 under Articles 14, 246, and 265 of the Constitution of India. Interpretation of Section 65 (105) (zzzz) as amended by the Finance Act, 2010. Legislative competence of Parliament to levy service tax. Retrospective efficacy of taxing provisions under Section 65 (105) (zzzz) and its application.Constitutional Validity Challenge:The writ petition challenges the constitutional validity of provisions of the Finance Act, 1994, specifically Section 65 (90a) read with Section 65 (105) (zzzz), as amended by the Finance Acts of 2007, 2008, and 2010. The petitioner, a company engaged in the business of running retail stores through rented premises, argues that the renting of immovable property being brought under the ambit of service tax is inconsistent with Articles 14, 246, and 265 of the Constitution of India. The petitioner contends that this inclusion does not add value falling under the service category, questioning the legislative competence of Parliament to expand the concept of service and levy tax on renting immovable property.Interpretation of Section 65 (105) (zzzz):The petitioner's counsel argues that the renting of immovable property does not inherently constitute a service that should be taxed. Reference is made to a previous judgment by the Delhi High Court, which stated that renting immovable property for business purposes alone does not amount to a service. The petitioner asserts that the retrospective application of the amended Section 65 (105) (zzzz) is arbitrary and questions the validity of such retrospective taxation. The High Court acknowledges the prima facie arguability of these contentions but refrains from immediately halting the application of the provision prospectively, indicating a more substantial challenge regarding its retrospective application.Legislative Competence and Retrospective Efficacy:The petitioner further argues that Parliament lacks the legislative competence to levy service tax by expanding the service concept into the domain of state legislative powers related to taxes on lands and buildings. The High Court directs the respondents not to take coercive recovery actions for service tax on renting immovable property for the period between June 1, 2007, and April 1, 2010, under the amended Section 65 (105) (zzzz). However, the petitioner remains liable for service tax post-April 1, 2010, subject to the final outcome of the writ petition. The court expresses concerns over the retrospective application of the provisions, indicating a need for further examination on substantial grounds.This judgment addresses the constitutional challenge to the service tax provisions under the Finance Act, 1994, focusing on the inclusion of renting immovable property as a taxable service. The analysis delves into the interpretation of the relevant sections, questions the legislative competence of Parliament, and scrutinizes the retrospective application of the taxing provisions. The High Court provides interim relief by restraining coercive recovery actions for a specific period while signaling the need for a more in-depth examination on the retrospective aspect of the provisions.