Court upholds constitutionality of Finance Act sections, validates service tax on property renting.

The court dismissed the petition, upholding the constitutionality of Section 65 (90a) and Section 65 (105) (zzzz) of the Finance Act, 1994. It affirmed the legislative competence of the Central Legislature to levy service tax on renting of immovable property and validated the retrospective application of the levy from 1.6.2007.

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Issues Involved:
1. Constitutionality of Section 65 (90a) and Section 65 (105) (zzzz) of the Finance Act, 1994.
2. Legislative competence of the Central Legislature to levy service tax on renting of immovable property.
3. Retrospective application of the levy from 1.6.2007.

Issue-Wise Detailed Analysis:

1. Constitutionality of Section 65 (90a) and Section 65 (105) (zzzz) of the Finance Act, 1994:
The petition sought a declaration that the provisions of Section 65 (90a) and Section 65 (105) (zzzz) of the Finance Act, 1994 are ultravires the Constitution. The petitioner argued that the transaction of leasing immovable property is subject to state legislation under the Indian Stamp Act, 1899 and the Transfer of Property Act, 1882, and thus outside the purview of the Central Legislature.

2. Legislative Competence of the Central Legislature to Levy Service Tax on Renting of Immovable Property:
The Union of India contended that renting of property is different from the sale of goods or transfer of property and is covered by service tax as it involves providing a service. The court examined whether the levy of service tax on renting immovable property for business purposes falls under Entry 49 List II (State List) or Entry 92C or 97 of List I (Union List). The court referred to several judgments, including Union of India v. Shri Harbhajan Singh Dhillon, Tamil Nadu Kalyana Mandapam Assn. v. Union of India, and All India Federation of Tax Practitioners v. Union of India, to conclude that service tax on renting of property is not a tax on land or buildings but on the service element, which falls under the Union List.

The court emphasized the "aspect theory," which allows different aspects of the same transaction to be taxed by different legislatures. It was held that renting of immovable property for commercial purposes is a service and has value for the service receiver, thus falling under Entry 92C read with Entry 97 of List I. The court concluded that the service tax on renting property does not encroach upon the State's legislative competence under Entry 49 List II.

3. Retrospective Application of the Levy from 1.6.2007:
The court addressed the issue of the retrospective application of the amendment made by the Finance Act, 2010, which clarified that renting of immovable property itself is a taxable service. The court held that competent legislature can clarify or validate a law retrospectively to rectify defects or lacunae. The court cited several judgments, including Shiv Dutt Rai Fateh Chand v. Union of India and Tata Iron & Steel Company Limited v. The State of Bihar, to support the view that retrospective validation of tax laws is permissible and does not per se render the law unconstitutional.

The court observed that the retrospective amendment was intended to overcome the judgment of the Delhi High Court and ensure the collection of service tax from service providers. The court found no ground to set aside the retrospective effect of the amendment from 1.6.2007.

Conclusion:
The court dismissed the petition, upholding the constitutionality of Section 65 (90a) and Section 65 (105) (zzzz) of the Finance Act, 1994, affirming the legislative competence of the Central Legislature to levy service tax on renting of immovable property, and validating the retrospective application of the levy from 1.6.2007.

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