References:

Finance Act, 1994 (Service Tax)

Section 65 (90a) and Section 65 (105)(zzzz)

Circular no. 98/1/2008-ST dated 04/01/2008

Notification no. 24/2007 dated 22/05/2007 - Exemption form service tax

Union Of India v. Intercontinental: 2008 -TMI - 3753 - Supreme court

All India Federation of Tax Practitioners And Another Versus Union of India And Others - 2008 -TMI - 5649 - SUPREME Court

T. N. Kalyana Mandapam Association v. Union of India & Others: 2005 -TMI - 135 - SUPREME COURT OF INDIA

BSNL v. Union of India: 2006 -TMI - 309 - Supreme court

Relevant Extracts of the Decision

The relevant abstracts of decision of Honorable Delhi High Court in the matter of HOME SOLUTION RETAIL INDIA LTD. Versus UOI & ORS. 2009 -TMI - 33136 - DELHI HIGH COURT  on the issue renting of Immovable Property are as follows:

"34. From the above discussion, it is apparent that service tax is a value added tax.  It is a tax on value addition provided by a service provider.  It is obvious that it must have connection with a service and, there must be some value addition by that service.  If there is no value addition, then there is no service.  With this in mind, it would be instructive to analyse the provisions of Section 65(105)(zzzz).  It has reference to a service provided or to be provided to any person, by any other person in relation to ¯"renting of immovable property for use in the course or furtherance of business or commerce".  The wordings of the provision are so structured as to entail - a service provided or to be provided to 'A' by 'B' in relation to 'C'.  Here, 'A' is the recipient of the service, 'B' is the service provider and 'C' is the subject matter.  As pointed out above by Mr Ganesh, the expression "in relation to" may be of widest amplitude, but it has been used in the said Act as per its context.  Sometimes, "in relation to" would include the subject matter following it and on other occasions it would not.  As in the case of the service of dry cleaning, the expression "in relation to dry cleaning" also has reference to the very service of dry cleaning.  On the other hand, the service referred to in Section 65(105)(v), which refers to a service provided by a real estate agent "in relation to real estate", does not, obviously, include the subject matter as a service.  This is so because real estate by itself cannot by any stretch of imagination be regarded as a service.  Going back to the structured sentence, i.e.- service provided or to be provided to 'A' by 'B' in relation to 'C', it is obvious that 'C' can either be a service (such as dry cleaning, hair dressing, etc.) or not a service by itself, such as real estate.  The expression "in relation to" would, therefore, have different meanings depending on whether 'C' is a service or is not a service.  If 'C' is a service, then the expression "in relation to" means the service 'C' as well as any other service having connection with the service 'C'.  Where 'C' is not a service, the expression "in relation to" would have reference only to some service which has a connection with 'C'.  But, this would not imply that 'C' itself is a service.

35. From this analysis, it is clear that we have to understand as to whether renting of immovable property for use in the course or furtherance of business or commerce by itself is a service.  There is no dispute that any service connected with the renting of such immovable property would fall within the ambit of Section 65(105)(zzzz) and would be exigible to service tax.  The question is whether renting of such immovable property by itself constitutes a service and, thereby, a taxable service.  We have already seen that service tax is a value added tax.  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).

36. In view of the foregoing discussion, 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.

37. Before parting with this batch of cases, we would like to observe that we have not examined the alternative plea taken by the petitioners with regard to the legislative competence of the Parliament in the context of Entry 49 of List II of the Constitution of India.  Such an examination has become unnecessary because of the view we have taken on the main plea taken by the petitioners as indicate above.

 38. The writ petitions are allowed to the extent indicated above.  The parties are left to bear their own costs."

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HOME SOLUTION RETAIL INDIA LTD. Versus UOI & ORS. 2009 -TMI - 33136 - DELHI HIGH COURT