Delhi High Court strikes down levy of Service Tax on Commercial Renting

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Delhi High Court strikes down levy of Service Tax on Commercial Renting

AIT News Network

Justice New Delhi. The Delhi high court has struck down the levy of service tax on commercial renting.

The Division Bench of Delhi High Court comprising of Justice Badar Ahmad and Justice Rajiv Shakdhar deciding a Bunch of 26 Petitions challenging the levy of service tax on commercial renting as unconstitutional has ruled that mere renting of commercial space does not constitute a service and the levy of service tax is ultra vires.

HC vide a landmark ruling dated 18^th April 2009 AIT-2009-176-HC has ruled as under:

“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).

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. “

The Petitioners who challenged the levy of service tax included Shoppers Stop, Home Solution Retail India Limited , Lifestyle International, Fun Multiplex, barrista Coffee, Biba, Vatika Hosptality, Food Plaza Express Kitchen, BPTP, Bata India Limited, Vinnamr Hospitality and hordes of Retail chains.

The Petitioners challenged the constitutionality of levy of service tax on rent on twin grounds that renting does not involve any service and the Central Government is not empowered to tax consideration for transfer of rights in immovable property, being a State subject under the Schedule to the Constitution of India.

However, service tax department is already considering filing of SLP against the ruling of Delhi High Court as service tax on rent constitutes a substantial source of revenue for the Government. Several High Courts have already granted ad interim stay against the service tax on renting.

The scope of “renting of immovable property” under the Finance Act 1994 as amended by the Finance Act 2007 ; includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include-

(i) renting of immovable property by a religious body or to a religious body; or

(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;

The term “for use in the course or furtherance of business or commerce” includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings

"taxable service" means any 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.

(Click here for full text of Ruling AIT-2009-176-HC)