Delhi High Court has upheld the constitutional validity of Service Tax on renting of immovable property with retrospective effect - www.taxtmi.com

In HOME SOLUTIONS RETAILS (INDIA) LTD. Versus UNION OF INDIA & ORS (2011 -TMI - 205801 - DELHI HIGH COURT), honourable HC has held that:

68. When premises is taken for commercial purpose, it is basically to subserve the cause of facilitating commerce, business and promoting the same. Therefore, there can be no trace of doubt that an element of value addition is involved and once there is a value addition, there is an element of service.  

69. In view of our aforesaid analysis, we are disposed to think that the imposition of service tax under Section 65(105)(zzzz) read with Section 66 is not a tax on land and building which is under Entry 49 of List II. What is being taxed is an activity, and the activity denotes the letting or leasing with a purpose, and the purpose is fundamentally for commercial or business purpose and its furtherance. The concept has to be read in conjunction. As we have explained that service tax is associated with value addition as evolved by the judgments of the Apex Court, the submission that the base of the said decisions cannot be taken away by a statutory amendment need not be adverted to. Once there is a value addition and the element of service is involved, in conceptual essentiality, service tax gets attracted and the impost gets out of the purview of Entry 49 of List II of the Seventh Schedule of the Constitution and falls under the residuary entry, that is, Entry 97 of List I.

70. In view of our conclusion, the decision in the first Home Solution case does not lay down the law correctly inasmuch as in the said decision, it has been categorically laid down that even if a building/land is let out for commercial or business purposes, there is no value addition. Being of this view, we overrule the said decision.  

71. The next limb of attack is with regard to the retrospective applicability of the provision. The learned counsel for the petitioners have submitted that the tax and the penalty could not have been imposed with retrospective effect. It is worth noting that the Parliament, keeping in view the first Home Solution case, substituted sub-clause (zzzz) in the present incarnation and gave retrospective effect to cure the deficiency. It is well settled in law that it is open to the legislature to pass a legislation retrospectively and remove the base on which a judgment is delivered.

For full text of decision please visit:

HOME SOLUTIONS RETAILS (INDIA) LTD. Versus UNION OF INDIA & ORS (2011 -TMI - 205801 - DELHI HIGH COURT)

Also see (Decision upholding the constitutional validity of service tax on renting):

CINEMAX INDIA LIMITED THROUGH DIRECTOR Versus UNION OF INDIA THROUGH SECRETARY (2011 -TMI - 205321 - GUJARAT HIGH COURT)

Retailers Association of India (RAI). & Others Versus Union of India & Ors. (2011 -TMI - 205187 - BOMBAY HIGH COURT)

Shubh Timb Steels Limited Versus Union of India and another (2010 -TMI - 78578 - PUNJAB AND HARYANA HIGH COURT)

Service tax on renting of immovable property treated as a taxable service, allowing retrospective levy under residuary powers. Service tax applies to letting or leasing of immovable property for commercial purposes because such transactions involve an element of value addition and thus an element of service; the levy targets the activity and not the land or building, placing it outside the State list entry and within the residuary Union entry. Parliament may validly enact retrospective amendments to cure deficiencies identified by prior judicial decisions and validate prior imposition of tax and penalties under the amended provision.