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TMI Blog2011 (8) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... ties taken on rent or conducting fees basis, the petitioner companies pay 'Common Amenities and Maintenance' ["CAM"] charges on which service tax is charged and duly paid. They also reimburse dues for electricity and water on actual consumption and duly supported by the bills. 3. During the course of their operation, the petitioner companies also receive rent or license fees or conducting fees for leasing, licensing or use of immovable properties. In these cases also, wherever agreements so provide, the petitioner companies get reimbursed in respect of dues for electricity, water, housekeeping, security etc, which are based on actual consumption and duly supported by bills. 4. The Finance Act, 2007 amended Sec.65 of the Finance Act, 1994 and defined 'renting of immovable property' including renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce with certain exclusions. Clause [105] of Sec.65 of the Finance Act, 1994, which defines 'taxable service' was also amended to introduce sub-clause[zzzz], which provided that a service provided by any other person in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n No. 1263 of 2008 before the Bombay High Court, challenging the levy of service tax on immovable property let out on rent by virtue of amendment made in Sec.65[105][zzzz] of the Finance Act, 2004, as amended by the Finance Act, 2007. Consequent notifications and circulars were also under challenge. The said case was also admitted by the Bombay High Court, wherein, interim relief was granted on 30 th July, 2008, directing the Union of India and statutory authorities not to take any coercive step for recovery of service tax. 8. One Home Solution Retail India Limited filed a writ petition, being W.P. [C] No. 1659 of 2008 challenging the Notification No. 24/2007-ST dated 25 th May, 2007 and Circular No. 98/1/2008-ST, dated 4th January, 2008, which proceeded on an assumption that renting of immovable property was taxable service. The said writ petition was heard by Delhi High Court along with other writ petitions preferred on the same issue. The respondent, Union of India, at that stage, moved before the Supreme Court by filing Transfer Petition [Civil] No. 807-821 of 2008 for stay and transfer of different cases pending in different High Courts to Delhi High Court relating to the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oregoing 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." The aforesaid judgment has been challenged by the Union of India before the Supreme Court in Special Leave Petition [Civil] No. 13850 of 2009, but in spite of the petition for interim relief, the Supreme Court has not granted any stay and merely issued notice to the parties. 9. It appears that because of the decision rendered by the Delhi High Court, Union of India relooked into the matter on 26 th February, 2010 and the Hon'ble Finance Minister of Union of India presented Budget 2010 before the Parliament, being Finance Bill 2010 which received Presidential assent on 11.5.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y time during the period commencing on and from the 1 st 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 ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Courts which will be discussed at appropriate stage. 17. By analogy, it was submitted that concept of manufacture under the provisions of the Central Excise Act, 1944 is independent of the use to which article is put to. What is required is that there must be a manufacture and the goods so produced must satisfy the test of saleability and marketability. In fact, end-use is not considered as determinative even for the classification of the goods, far from being determinative for concluding whether such goods have been manufactured or not. The use of the goods/services is an occurrence which is post taxable event and therefore, is not relevant factor for considering whether or not the taxable event has occurred. 18. Therefore, according to the learned counsel for the petitioners, 'end-use' does not create taxable event, but at the highest, can bring about a valid classification for the purpose of taxation etc. Just as the goods have to be 'manufactured' or 'produced' for the purpose of attracting levy of excise duty, which is a concept independent of the use to which such goods are put, on the principle of equivalence, the services also have to be 'ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r/licensor in the transaction of renting and there being no value addition on account of renting of immovable property simplicitor, albeit for commercial purpose, the same does not amount to a service, exigible to service tax. 21. Learned counsel would further submit that the contention of the respondents would lead the taxable event to a fortuitous circumstance of use by the service recipient. This may be explained by an example where landlord/lessor/licensor may have premises which are capable of being used both for residential and/or for commercial purpose. If the same premises are rented and used for residential purpose, on the contention of the respondents, the taxable event would not have happened as there is no provision of any service by the lessor to the lessee, whereas if the same premises is rented and thereafter used for commercial purpose or partly for commercial purpose and partly for residential purpose, would be liable to tax on the ground that service had been provided by the service provider to the service recipient. There is no difference in the 'activity' undertaken by the lessor/licensor, nor value addition by him in the latter case and in fact, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel submitted that in a transaction there may be two or more taxing events which may occur, therefore, any of them cannot be ignored. There is always value addition by rendering service of renting of immovable property when it is in furtherance of business and commerce in favour of service recipient. 26. Challenging the locus standi of the petitioners, he would contend that service tax is imposed on service recipient. The petitioners herein, are the owners of the premises and they do not to bear the liability of paying service tax. In view of the principle enumerated under Sec.41[j] of the Specific Relief Act, in absence of having personal interest of the petitioners, this Court may not grant relief. The present petitions have not been filed in the nature of Public Interest Litigation nor in the representative capacity and therefore, the petitioners being not affected party, they have no right to challenge the Central enactment. They have also failed to show that any of their fundamental and statutory rights has been infringed as they are not liable to pay tax and thus, the writ petitions at the behest of the service provider , are not maintainable. 27. Relying on the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble service' instead of service 'in relation to renting of property'; amendment is made by clarifying the intention of the legislation and curing the defects. He placed reliance on the decision of the Supreme Court in the case of Gujarat Ambuja Cement v. Union of India , reported in 2005 [4] Supreme Court Cases 214, wherein, while upholding the validation Act, the Supreme Court laid down the principle. 30. According to learned counsel for the Revenue, renting of commercial property internationally is considered as as provision/supply of service. The Apex Court, in the case of All India Federation of Tax Practitioners reported in 2007 [7] STR 625 [SC] also held that; "service tax is on value addition by rendition of services". Similar views are expressed by the Supreme Court in the case of Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad reported in 1995 [76] ELT 241 [SC], wherein it has been held that there is no difference between production and manufacture of salable goods and production of marketable/salable services in the form of an activity undertaken by the service provider for consideration. 31. Learned counsel on behalf the Revenue would con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brings renting of immovable property or any other service in relation to such renting for the use in the course of or for furtherance of the business or commerce within the definition of 'taxable service' which reads as follows: Section 65[105]: "taxable service" means any service provided,- xxx xxx xxx [zzzz] 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. Explanation1.--For the purposes of this sub-clause, "immovable property" includes-- [i] building and part of a building, and the land appurtenant thereto; [ii] land incidental to the use of such building or part of a building; [iii] the common or shared areas and facilities relating thereto; and [iv]in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, [v] vacant land given on lease or license for construction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving performance, skill, expertise or knowledge. This is also accepted by counsel on behalf of the Revenue who relied upon the impugned provision which stipulates that only when any person rents immovable property for use in the course or furtherance of business or commerce. The provision of Sec.65[105][zzzz] specifically deals with exclusion category while defining 'immovable property'. That definition of 'immovable property' as described in Explanation-1 below sub-clause[zzzz] does not include four categories of immovable property, which are as follows: " [a] vacant land solely used for agriculture, acquaculture, farming, forestry, animal husbandry, mining purposes; [b] vacant land, whether or not having facilities clearly incidental to the use of such vacant land; [c] land used for educational, sports, circus, entertainment and parking purposes; and [d] building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities." 38. In the case of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by service provider and it is imposed every time service is rendered to customer/client, it is a value added tax. Relevant observation is quoted hereunder: " 38. In All-India Federation of Tax Practitioners Case this Court explained the concept of service tax and held that service tax is a value added tax ["VAT", for short] which in turn is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an economic concept based on the principle of equivalence in a sense that consumption of goods and consumption of services are similar as they both satisfy human needs. Today with the technological advancement there is a very thin line which divides a "sale" from "service". That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther observed that service could not be struck down on the ground that it does not conform to a common understanding of the word "service". It further held that it does not certainly involve transfer of movable property nor does it involve transfer of movable property of any kind known to the law. The Supreme Court observed as under:- "Therefore, a levy of service tax on a particular kind of service could not be struck down on the ground that it does not conform to a common understanding of the word "service" so long as it does not transgress any specific restriction contained in the Constitution. 40. The stand of the Government of India has been made clear by letter dated 26th February, 2010 issued by the Revenue Department, Ministry of Finance, Government of India, Tax Unit, New Delhi. It was brought to the notice of the Court by the learned counsel appearing on behalf the Union of India that with regard to service of renting of immovable property, stand of the respondent is that it was introduced in the year 2007 with a view to tax all commercial use of immovable property higher. The tax on rent paid is available as input credit if the commercial activity in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd will fall within the meaning of definition of 'service tax'. The meaning of 'furtherance', as per Black's Law Dictionary, 6 th Edition, 11 th reprint, 1997, is "act of furthering, help forward, promotion, advancement or progress". Furtherance of business will, thus mean, act of furthering business, helping forward business, promotion of business, advancement of business or progress of business. Therefore, if a service provider is renting the property in the course of or for furtherance of business or commerce, it will amount to an activity in favour of service recipient for helping forward business, promotion of business, advancement of business and progress of business. It automatically generates value addition and comes within the meaning of 'service tax' as defined under Sec.65[105][zzzz]. 42. The Supreme Court in the case of Tamil Nadu Kalyana Mandapam Association v. Union of India, reported in [2004] 5 SCC 632, has already held that levy of service of particular kind of service would not be struck down on the ground that it does not conform to a common understanding of the word 'service' so long it does not transgress any specific restr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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