Should we abolish courts and institutes of law and commerce? - Yes, if we go by the trends of revenue officers as well as amendments in tax laws. - Should we agree to what the tax officer want and ignore the law? Yes.

[C.A. DEV KUMAR KOTHARI]

Summary:

In view of the proposals in the Finance Bill 2010 regarding service tax on commercial rent, it can be said that there is no need to learn law and monitoring of law by courts. Because courts judgments can be nullified any time.

The real question:

The title of the article is kept in a question form, and this question is real problem our public is facing and the problem may become intense, if the trend is allowed to continue.

Education of law:

Various institutions like law institutes, ICAI, ICWAI, ICSI, provide wholesome education and training about laws in their courses. In course of graduation in commerce, engineering courses, medical courses, management courses some basic education about law is provided. For example, the author had some preliminary studies during his class IX to XII in the subject 'commercial practices'. In three years degree course of B.Com there was sufficient studies of law which provides insight into the basic fundamentals of a good law and its enforcement. According to such fundamental studies most important learning is that law is to be read as it stands at any point of time, no words can be added or omitted except in rare cases. The law must be within authority of the law makers. During three all India courses of ICWAI, ICSI and ICAI also wholesome studies of law were made and basics of good law were reinforced.

Everyone is assumed to know law biggest dillemma:

The biggest dilemma is that every person is assumed to know the law. And excuse of not knowing legal position is generally not considered a good and sufficient excuse as cause for non compliance of law.

Retrospective amendment in tax laws:

The government has as a routine adopted mechanism to amend tax laws with retrospective effect. Such amendment are generally because of inactions and inefficiencies of revenue officers in compliance of legal procedure and taking timely actions. Every year there is whole some amendments in tax laws through regular budget (Finance Act) and several other amendments are made from time to time, yet amendments with retrospective effect are taking place as a general routine to nullify the legal opinions of courts, judgment and orders of courts and opinions of legal professionals.

The provision under study:

In this study we are concerned with provisions relating to service tax on commercial rent. To cut short the issue and directly coming to the point it is suffice to say that when the tax on renting was proposed in the Finance Bill 2007, an article written by the author was published in the Service Tax Today (A Taxmann) publication) in MARCH 22,2007 PAGE 55 (Mag.). a renowned publication of Taxmann. The publication of article was during discussion and suggestions phase and much before the Finance Bill 2007 was enacted.

Suggestions by the author on proposed charging section in the Budget 2007:

When the budget 2007 was announced, the author had written above article and request was made to reconsider levy and some suggestions- make tenant, as service receiver liable to register and pay service tax".

In the article author had made detailed observations on the budget proposals about service tax on commercial premises and expressed that only some of services in relation to renting can be brought in tax net as per proposed section. The author had also made suggestions for consideration of the Finance Minister, with highlight of the relevant suggestion in this context, as follows:

Request and suggestions to the Finance Minister:

It is requested and suggested to the honorable Finance Minister to:

Reconsider the proposal in view of constitutional validity and if found inconsistent with constitutional provisions and also inconsistent with the concept of service tax please drop the same.

If found correct and desirable, to impose tax only on portions of buildings which are used for commercial purposes.

To make the service receiver liable to pay service tax on service used. This will avoid revenue leakage. For example, suppose a building is owned by four persons who let out the same to a company each receiving rent of Rs.60000/- per month amounting to Rs.7,20,000/- per year. In this case all owners may be exempt from service tax. Whereas the tenant, if made liable to pay service tax, will have to pay tax on entire amount of Rs.28,80,000/- paid to four owners.

In case of business organizations several properties are taken on rent from several owners. It would be difficult to monitor owners, instead of that tenants who are organized persons can manage tax affairs easily and it would be easy to monitor them.

To avoid confusion words "by renting" can be used in meaning of taxable service as follows:

"taxable service" means any service provided or to be provided -

to any person, by any other person by renting of immovable property for use in the course or furtherance of business or commerce".

This is because the words 'in relation to renting' can be construed as service rendered to land lord or tenant in relation to renting of property and not the rent itself.

Therefore, as per clause (e) of the above suggestions it is clear that the author had in clear terms indicated in his article that the scope of taxable services, as per proposed charging section can be construed to be restricted to services provided by any person to other person (likely to be land lords and tenants) only in relation to renting of properties and not renting of property itself. The author had also suggested proper language to be used in charging section. However, as usual our bureaucrats being overconfident had not taken care of such an important suggestion at right time. If all the suggestions put forth by author were incorporated in the law, the revenue could have gained substantially and without doubt.  

Delhi High court's judgment and subsequent legislation:

The judgment in HOME SOLUTION RETAIL INDIA LTD. Versus UOI & ORS. 2009 -TMI - 33136 /14) S.T.R. 433 (Del.), 2009 (237) E.L.T. 209 (Del.), 2009 (92) RLT 519 (Del.), [2009] 20 STT 129 (DELHI) was rendered on 18 April 2009 and it has wide publicity also. In this judgment the court has held that the notification is ultravirse the Act and there is no service, there is no value addition in course of renting out property. After this amendment Finance (No.2) Act, 2009 was introduced and enacted. However, no amendment was made in the law. Rather in complete disregard of the judgment of Delhi High Court, revenue attempted to collect tax on rent. Again Delhi High Court was approached and the high Court held that such attempt should not been made because any stay order has not been issued by the Supreme court against its judgment. After this now we find proposals in the Finance Bill to regularize all actions of the revenue and amend law with retrospective effect.

Proposed amendment in the Finance Bill 2010:

We find the following relevant proposals vide clauses 75 and 76 of the bill (with highlights provide):

75. In the Finance Act, 1994,-

(A) in section 65, save as otherwise provided, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint,-

Xxx

(h) in sub-clause (zzzz),-

(i) for the portion beginning with the words "to any person" and ending with the words "business or commerce", the following shall be substituted and shall be deemed to have been substituted with effect from the 1st day of June, 2007, namely:-

"to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or, for furtherance of, business or commerce.";

(ii) in Explanation 1, after item (iv), the following item shall be inserted, namely:—

"(v) vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce;";

Validation of action taken under subclause (zzzz) of clause (105) of section 65.

76. Any action taken or anything done or omitted to be done or purported to have been taken or done or omitted to be done under sub-clause (zzzz) of clause (105) of section 65 of the Finance Act, 1994, at any time during the period commencing on and from the 1st day of June, 2007 and ending with the day, the

Finance Bill, 2010 receives the assent of the President, shall be deemed to be and deemed always to have been, for all purposes, as validly and effectively taken or done or omitted to be done as if the amendment made in sub-clause (zzzz) of clause (105) of section 65, by sub-item (i) of item (h) of sub-clause (5) of clause (A) of section 75 of the Finance Act, 2010 had been in force at all material times and, accordingly, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority,-

(a) any action taken or anything done or omitted to be taken or done in relation to the levy and collection of service tax during the said period on the taxable service of renting of immovable property, shall be deemed to be and deemed always to have been, as validly taken or done or omitted to be done as if the said amendment had been in force at all material times;

(b) no suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for the levy and collection of such service tax and no enforcement shall be made by any

court of any decree or order relating to such action taken or anything done or omitted to be done as if the said amendment had been in force at all material times;

(c) recovery shall be made of all such amounts of service tax, interest or penalty or fine or other charges which may not have been collected or, as the case may be, which have been refunded but which would have been collected or, as the case may be, would not have been refunded, as if the said amendment had been in force at all material times.

Explanation.—For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable had this amendment not come into force.

The suggestion of author is now implemented:

From above amendment proposed vide clause 75 in section 65(105)(zzzz) one can notice that the suggestion which the author placed after the Finance Bill 2007 was circulated, is now finding place in the law. The way in which amendments are proposed, clearly shows that we need no education of law, and courts. Because the law is totally uncertain and one cannot read law as it stands at any particular time because it can be amended at any time in future.

Looking at old published article author feels that his education in law was good and could be very useful if his suggestions were implemented on time. However, when we look at the amendment one has to be sad to know that there is no use of studies in law and their application.

Now author wonders as to

Why he studied tax law?

Is there any need to study law particularly tax laws?

Why not to just follow what the tax officer want?