CONTROVERSY: WHETHER RENTING OF IMMOVABLE PROPERTY A SERVICE?

“However, in case a part of airport/civil enclave premises is rented/leased out, the rental/lease charges would not be subjected to service tax, as the activity of letting out premises is not rendering a service.”

The introduction of the category gave rise to resistance to pay service tax chiefly by various retail outlets selling goods and occupying licensed/ leased premises and some other licensees/lessees, engaged in business activity as they do not have the potential to claim CENVAT credit of service tax on licence fees payable for the use of commercial premises. Consequently, writ petitions were filed in various High Courts across the country challenging the levy and constitutional validity thereof. The Delhi High Court first took a position in the case of Home Solution Retail India Ltd. v. Union of India, 2009 (14) STR 433 (Del.) and held a view that in terms of section 65(105)(zzzz) of the Finance Act, 1994 (the Act), renting out of immovable property for use in the course or furtherance of business or commerce would not constitute a taxable service and as a result, the Notification dated 22-5-2007 and Circular dated 4-1-2008 were held ultra vires the Act.

In service tax law, the term ‘service’ is not defined but every taxable service introduced in the tax net is separately defined. Therefore, the issue has been that while an immovable property is rented or licensed or leased, whether there is any value addition or whether there exists any element of service?

Background of Home Solutions’ writ petition:
In this writ, the petitioner challenged the legality, validity and vires of Notification No. 24/2007, dated 22-5-2007 and Circular No. 98/1/2008-ST, dated 4-1- 2008 issued by the Government.

It was further alleged that because of the incorrect interpretation of law by the said Notification and the Circular, service tax was sought to be levied on renting of immovable property as opposed to service tax on a service provided in relation to the renting of immovable property.

The petitioners also took an alternative plea that in case it is held that such a tax is envisaged, then the provisions of section 65(90a), section 65(105) (zzzz) and section 66 insofar as they relate to the levy of service tax on renting of immovable property would amount to a tax on land and would therefore fall outside the legislative competence of the Parliament as the subject was covered under Entry 49 of List II of the Constitution of India and would fall within the exclusive domain of the State Legislatures and therefore the same be declared unconstitutional.

It was, inter alia, submitted that the impugned Notification and the Circular which proceeded on the assumption that the renting of immovable property was itself a service, were contrary to and inconsistent with the charging provision and therefore ultra vires the Act. Since service tax is a value-added tax and can only be levied on the value addition, the words ‘in relation to’ in section 65(105)(zzzz) of the said Act are of great significance. The value addition of service in the present context could be an improvement or the betterment of the property provided by the owner to the lessee or licensee. It is that betterment alone which could qualify as a service. The act of renting of the immovable property by itself does not provide any value addition to any person and therefore cannot be treated as a service. To support this contention reference was made to the various entries falling within the scope of ‘taxable service’, which would reveal that it is only the value addition which is taxable.

The Court held that in terms of section 65(105) (zzzz) of the Finance Act, 1994, renting out of immovable property for use in the course or furtherance of business or commerce would not constitute a taxable service and as a result, Notification dated 22-5-2007 and Circular dated 4-1-2008 were ultra vires the Act. The Court distinguished the observations made by the SC in the case of Tamil Nadu Kalyana Mandapam’s case [2004 (167) ELT 3 (SC)], on which the respondent had placed reliance to the effect that “making available a premises for a period of a few hours for the specific purpose of being utilised as a mandap whether with or without other services would itself be a service and cannot be classified as any other kind of legal concept”. The Court also referred to the observations made by the SC in the case of All India Federation of Tax Practitioners [2007 (7) STR 625 (SC)] wherein the SC, inter alia, had observed that “service tax is a value added tax and that just as excise duty is a tax on value addition on goods, services tax is on value addition by rendition of services. A distinction was also sought to be made between property-based services and performance-based services. The property-based services cover service providers, such as architects, interior designers, real estate agents, construction services, mandap keepers, etc. Whereas the performance-based services are those provided by persons, such as stock-brokers, practising chartered accountants, practising cost accountants, security agencies, tour operators, event managers, travel agents, etc.” Applying the same to renting of immovable property service, the High Court observed “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. Service tax is a value added tax. It is a tax on the value addition provided by some service providers. Insofar as renting of immovable property for use in the course or furtherance of business or commerce is concerned, any value addition could not be discerned. Consequently, the renting of immovable property for use in the course or furtherance of business or commerce by itself does not entail any value addition and, therefore, cannot be regarded as a service.” (emphasis supplied). The Delhi High Court however did not examine alternative plea of constitutional validity. The Government filed an SLP against the said ruling which is admitted, but no stay has been granted against the Delhi HC Ruling. The same is pending for disposal.

The amendment by the Finance Act, 2010:
To overcome the above ruling, the Finance Act, 2010 redefined ‘taxable service’ with retrospective effect from 1-6-2007 as under :

“(105) ‘taxable service’ means any service provided or to be provided –

(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.”

* Words substituted for (in relation to renting of immovable property).

As a result, a service provided by renting of immovable property or a service ‘in relation to’ such renting of immovable property, is brought within the tax net. TRU, Circular No. 334/1/2010 — TRU dated 26-2-2010 clarified the amendment as under:

Para 9.2:

Thus, renting of immovable property by itself is considered to be a taxable service. In the Finance Act 2010, it has been declared:
“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.”

Recently, the Bombay High Court and Gujarat High Court have delivered their judgments on this burning issue and have decided the scope of powers of the Parliament to enact the activity of renting of premises for the use of or for furtherance of business or commerce, as service. Earlier, during F.Y. 2010-11 the other High Courts viz. Orissa High Court, in Utkal Builders Limited v. UOI, [2011 (22) STR 257 (Ori)] and P&H High Court in Shubh Timb Steels Ltd. v. UOI, [2010 (20) STR 737 (P&H)] have also held to the effect that renting of property for commercial purpose was certainly a service and had a value for the service receiver. While the Bombay High Court has extended the interim order to remain in force till September 30, 2011 and some of the petitioners have decided to knock the door of the Supreme Court, hopes of getting a decision in favour of retailers in the special leave petition filed before the Supreme Court against UOI v. Home Solutions Retail India Ltd., [2009 (15) STR J23 (SC)] appears to have dimmed. Both the decisions are briefly analysed below:

Retailers Association of India & Other v. UOI’s case, 2011 (23) STR 561 (Bom.):

The petitioners had in their petition, inter alia, challenged the legislative competence of the Parliament in the context of Entry 49 of List II of the Constitution of India. The constitutional challenge to the legislative competence of the Parliament was premised on the submission that:

•     The tax which has been imposed on a taxable service which is defined to mean renting of immovable property is a tax on lands and buildings within the meaning of Entry 49 of List II of the Seventh Schedule.

•    All four judgments of the Supreme Court, referred to later herein, did not deal with a situation where the legislation would fall within the purview of a specific entry in List II.

•     Article 246 of the Constitution empowers the State Legislature to make laws “with respect to any of the matters enumerated in List II”.

•     In consequence, the power of the State Legislature is not only to make laws imposing taxes on lands and buildings, but to enact legislation with respect to taxes on lands and buildings;

•     Entry 49 of List II must receive the broadest possible interpretation and amplitude.

•     Especially when read in the context of Entry 97 of List I, the width and ambit of Entry 49 of List II cannot be curtailed with reference to the residuary power of the Parliament; and

•     A tax whether levied on the basis of rent, annual value, or capital value would constitute a tax on lands having regard to the ambit of Entry 49 of List II. A tax based on leasing of a land and computed by rental value cannot be rested on Entry 97 of List I, because it is in substance, a tax on a transaction of letting of land and Entry 49 of List II would preclude a levy by the Parliament of a service tax on letting.

Relevant legal provisions:

Article 246 of the Constitution of India:

“246. Subject-matter of laws made by the Parliament and by the Legislatures of States.

(1)    Notwithstanding anything in clauses (2) and (3), the Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the Union List).

(2)    Notwithstanding anything in clause (3), the Parliament, and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the Concurrent List).

(3)    Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the ‘State List’).

(4)    The Parliament has power to make laws with respect to any matter for any part of the territory of India not included (in a State) notwithstanding that such matter is a matter enumerated in the State List.”

Seventh Schedule of the Constitution of India:

List I — Union List — Entry 97 — Residuary power:

97.    Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.

List II — State List — Entry 49:

49.    Taxes on lands and buildings.

In order to address the constitutional challenge in the above petitions, the Court briefly traced the evolution of judicial thought on the issue of imposition of service tax (paras 5 to 10) by referring to the following four Supreme Court decisions in which the controversy was analysed:

(i)    Tamil Nadu Kalayana Mandapam Association v. UOI, 2004 (167) ELT 3 (SC)

(iv)    Association of Leasing and Financial Service Companies v. UOI, 2010 (20) STR 417 (SC).

The Court, based on the analysis of the legislative provisions contained in (i) Article 246 of the Constitution of India read with respect to any of the matters enumerated in List II read with Entry 49, and (ii) residuary powers under Entry 97 of List I, noted that “If the subject on which the Parliament has enacted legislation is found, upon determining its true nature and character not to fall within the purview of a field reserved to the States, the Parliament would have legislative competence in any event under Entry 97 of List I read with Article 248. The essential question that falls for determination in the present case is whether the levy of a service tax on a taxable
service which the Parliament defined to be the renting of immovable property falls within the exclusive province of the State Legislatures under Entry 49 of List II.”

The Court referred to the following judgments of the Supreme Court where the scope and ambit of Entry 49 of List II has been interpreted:

•    Ralla Ram — AIR 1949 FC 81:

In this case, the Federal Court held that merely because the Income- tax Act adopted annual value as the standard for determining income, it would not necessarily follow that if the same standard were to be employed as a measure for any other tax (in the given case — an annual tax on buildings and lands situated in the rating areas as stipulated in the Schedule at a particular rate), that tax also became a tax on income. The Court distinguished between the nature of tax and nature of machinery quantifying the tax and the Bombay High Court averred that Ralla Ram’s case is an authority for the proposition that it is the essential nature of the tax and not the nature of the machinery, which must be looked at in determining the validity of the impost.

•    Sudhir Chandra v. Wealth Tax Officer

— AIR 1969 SC 59:

This case dealt with a challenge to the constitutional validity of the Wealth Tax Act of 1957 on the ground that it transgressed upon a field reserved to the State Legislature under Entry 49 of List II. The Bombay High Court noted that while explaining the scope of Entry 49, the Supreme Court held:

“But the legislative authority of the Parliament is not determined by visualising the possibility of exceptional cases of taxes under two different heads operating similarly on taxpayers. Again Entry 49, List II of the Seventh Schedule con-templates the levy of tax on lands and buildings or both as units. It is normally not concerned with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee.”
(emphasis supplied).

•     Second Gift Tax Officer, Mangalore v. D. H. Hazareth — AIR 1970 SC 999:

In this case, the constitutional validity of the Gift Tax Act, 1958 was considered. The Court ruled that however wide a taxing entry in the State List may be, it would still not authorise a tax which is not expressly mentioned. If the pith and substance of the law did not fall within the purview of Entry 49 of the State List, the Parliament, it was held, would undoubtedly possess that power under Article 248 and Entry 97 of the Union List. While holding that the Gift Tax Act, 1958 was not a tax on lands and buildings, the Constitution Bench came to the conclusion that Entry 49 postulates a tax resting upon the general ownership of lands and buildings and a tax which is imposed directly upon lands and buildings.

•    D. G. Gose & Co. v. State of Kerala — 1980 2 SCC 410:

The Bombay High Court noted that in this case the above principle was reiterated by the Constitution Bench of the Supreme Court holding that a tax on buildings is “a direct tax on the assessee’s buildings as such, and is not a personal tax without reference to any particular property”.

•     India Cement Ltd. — AIR 1990 SC 85:

Referring to the observation by the Supreme Court in this case to the effect that “there is a clear distinction between tax directly on land and tax on income arising from land” and held that the tax levied under the Income-tax Act, 1961 on income “though computed in an artificial way from house property” was levied on the income and not house property and therefore, did not fall within the purview of Entry 49 of List II. The Bombay High Court also noted that a principle was enunciated (in a judgment of two learned Judges of the Supreme Court in Bhagwan Dass Jain v. Union of India) that a tax on lands and buildings would not comprehend within its purview a tax on income arising from land or building.

The Bombay High Court observed that the above judgments of the Supreme Court clearly indicate that the settled principle of law is that a tax on lands and buildings is a tax on the general ownership of lands and buildings. In order that a tax must fall under Entry 49 of List II, the tax must be one directly on lands and buildings. A tax which is levied on the income which is received from lands or buildings is not a tax on lands or buildings.

The petitioners’ submission was that a tax on land within the meaning of Entry 49 of List II can take into account the use to which the land is put. The service tax imposed by the Parliament on renting of immovable property takes account of the user of the land or building and, hence, the service tax on renting of immovable property is a tax which the State Legislatures could conceivably impose under Entry 49 of List II. In support of the contention, it was urged that the judgment of the Supreme Court in Ajoy Kumar Mukherjee v. Local Board of Barpeta, (AIR 1965 SC 1561) is an authority for the proposition that in order to be a tax on land, the charge under the legislation must be on the land as a unit. In that case, a tax was imposed u/s.62 of the Assam Local Self Government Act, 1953. Section 62(1) stipulated that the local Board may order that no land shall be used as a market otherwise than under a licence to be granted by the Board. U/ss.(2) which was the charging provision, it was stipulated that on the issue of an order u/ss.(1), the Board may grant a licence for the use of any land as a market and impose an annual tax thereon. While upholding the validity of the tax, the Supreme Court noted that the tax was, in substance, a tax on the land but the charge only arises on land which was used for a market.

Reliance was also placed on the decision of the Supreme Court in Goodricke Group Ltd. v. State of W.B., [1995 Supp (1) SCC 707] which dealt with a challenge to the validity of a cess imposed under the West Bengal Rural Employment and Production Act, 1976. The levy was challenged in Goodricke on the ground that it was not a tax on lands and buildings. The Supreme Court held that the subject -matter of the tax and the levy was land on the premise that the entire land covered in the tea estate was treated as a separate category of land as a unit for the purposes of the levy of tax. Merely because a tax on lands or buildings is imposed with reference to the income or yield of lands or buildings, it would not cease to be a tax on lands or buildings.

Residuary power of the Parliament to legislate: Referring to observations made by the SC in the cases of:

•     UoI v. H. S. Dhillon — AIR 1972 SC 106,

•     Assistant Commissioner of Urban Land Tax — AIR 1970 SC 169,

•     Sat Pal & Co. — AIR 1979 SC 1550,

•     International Tourist Corp. — 1981 2 SCC 318, and few of the above-referred judgments, the Bombay High Court noted that “while the Court must give a broad and liberal interpretation to Entry 49 of List II, the interpretation to be placed on that entry must nevertheless be meaningful. In each case, the Court must have regard to the true nature and character of the levy in determining as to whether in pith and substance, the tax is a tax on land and buildings. If the essential nature of the levy is the imposition of a tax on land and buildings, it would fall within Entry 49 of List II. If on the other hand, the essential nature and character of the levy is not a tax on land and buildings, then the exercise of interpretation would not bring within its purview a tax which is not one on land and buildings.”

To determine the character of the levy under challenge, analysis of section 66 (charging section), section 65(105)(zzzz), section 65(90a) and section 67 of the Finance Act, 1994 was made and it was held that:

(a)    The charge of tax is not on lands or buildings.
(b)    The charge of tax is on a taxable service.
(c)    The measure of tax is the gross amount charged by the service provider.
(d)    The charge of tax is not on lands or buildings as a unit nor is the tax on lands or buildings.
(e)    To be a tax on lands and buildings under Entry 49 of List II, the tax must be directly a tax on lands and buildings. That is not the true character of an impost on taxable services.

On behalf of the petitioners reliance was placed on the judgment of the Supreme Court in the State of West Bengal v. Kesoram Industries Limited, [(2004) 10 SCC 201] in support of the submission that the law in the present case is a law which imposes a tax on land and buildings. It was urged that in paragraph 129 of the judgment the Supreme Court, inter alia, has laid down the following principles regarding:

“(6) ‘Land’, the term as occurring in Entry 49 of List II, has a wide, connotation. Land remains land though it may be subjected to different user. The nature of user of the land would not enable a piece of land being taken out of the meaning of land itself. Different uses to which the land is subjected or is capable of being subjected provide the basis for classifying land into different identifiable groups for the purpose of taxation. The nature of user of one piece of land would enable that piece of land being classified separately from another piece of land which is being subjected to another kind of user, though the two pieces of land are identically situated except for the difference in nature of user. The tax would remain a tax on land and would not become a tax on the nature of its user.

(7)    To be a tax on land, the levy must have some direct and definite relationship with the land. So long as the tax is a tax on land by bearing such relationship with the land, it is open for the Legislature for the purpose of levying tax to adopt any one of the well-known modes of determining the value of the land such as annual or capital value of the land or its productivity. The methodology adopted, having an indirect relationship with the land, would not alter the nature of the tax as being one on land.”

In this frame of reference, the Bombay High Court noted that though as per this decision the expression ‘land’ in Entry 49 of List II has a wide connotation, the judgment in Kesoram Industries (supra) does not mark a departure from the ambit and content of Entry 49 of List II which has been laid down in the previous decisions of the Court including the judgments of the Constitution Bench in Nawn’s case and in Hazareth’s case (supra) or for that matter the decision of the Bench of seven learned Judges in Dhillon’s case (supra) and held that service tax that has been legislated upon by the Parliament is not a tax on land. The true nature and character of the levy is not a tax on land or buildings. The charge of tax is a taxable service which the Parliament regards as being rendered. The renting of immovable property is an activity which in the legislative wisdom of the Parliament involves a conferment of service and it is in that legislative exercise that the Parliament has proceeded to impose a levy of service tax. The measure of tax u/s.67 is the gross amount charged by the service provider for the service which is provided or which is to be provided by him. In the case of renting of immovable property, the measure is the rental. The measure of the tax does by no means indicate that the tax is a tax imposed on land or buildings.

The Bombay High Court noted that the decision in Godfrey Philips [(2005) 2 SCC 515] is not a decision which elucidates the scope of Entry 49 of List II to the Seventh Schedule. Whereas, the ambit of Entry 49 has been explained in several judgments of the Constitution Bench of the Supreme Court as well as in the judgment of the Bench consisting of seven Judges in Dhillon (supra).

The Bombay High Court reiterated that since properly construed a tax which has been imposed by the Parliament is not in essence and in its true character a tax on land and buildings, the tax cannot nonetheless be held as a tax within the meaning of Entry 49 of List II in spite of the true nature and character of the levy. The essential nature and character of the levy is one which is referable to the residuary power of the Parliament under Article 248 of the Constitution read with Entry 97. The Parliament, it may be noted, introduced Entry 92C into List I by the Constitution (Eighty Eighth Amendment) Act, 2003 to specifically deal with taxes on services. That provision has still not been enforced. In the circumstances, the true nature and character of the levy of service tax in the present case is a levy under the residuary power which has been conferred upon the Parliament.

Whether renting of immovable property has an element of ‘service’?

The Court did not accept the submission of the petitioners that there is no service involved in letting out of the immovable property and, there-fore, it was not open to the Parliament to impose service tax on the supposition that taxable service is involved on the premise that “The submission cannot be accepted for more than one reason. As a matter of constitutional doctrine, the Parliament when it legislates upon a matter is entitled to make an assessment of fact on the basis of which the legislation is designed and drafted. An underlying assessment of fact by the Parliament on the basis of which a law has been enacted cannot be amenable to judicial review absent a case of manifest arbitrariness. That apart, it is equally well settled that the Legislature in enacting a law is entitled to provide for a deeming fiction …….. The fact that the service which is provided may not, to the petitioners, accord with what is commonly regarded as a service would not militate against the validity of the legislation…….. In the affidavit in reply that has been filed in these proceedings it has been stated that renting of property is considered to add value to the activity of the person who has rented the property. When a person has a property at a particular location, he is able to charge a higher sum for the merchandise sold therefrom than he would be able to charge if he were to sell the same merchandise from a place which does not have the same locational advantage. Renting of a property, it has been submitted, adds value to the activities of a person renting the property.” The Court also referred to the judgment of the SC in the case of Navnitlal C. Jhaveri v. K. K. Sen, Assistant Comm. of I. Tax AIR 1965 SC 1375. [refer paras 28 to 31].

The Court finally decided “Therefore in our view, looked at from either standpoint, the legislative basis that has been adopted by the Parliament in subjecting taxable services involved in the renting of property to the charge of service tax cannot be questioned. The assumption by a legislative body that an element of service is involved in the renting of immovable property is certainly not an assumption which can be regarded by the Court as being so manifestly absurd or perverse as to lead to an inference that the Parliament had treated as a service, an item which in no rational sense could be regarded as involving service. But more significantly, even if the Court were to proceed on the basis, suggested by the petitioners that no element of service is involved, that would not make the legislation beyond the legislative competence of the Parliament. So long as the legislation does not trench upon a field which has been reserved to the State Legislatures, the only conclusion that can be drawn is that the law must be treated as valid and within the purview of the field set apart for the Parliament. There is, it must be emphasised, no violation set up of any provision in Part III of the Constitution, (save and except on the issue of retrospectivity which would be considered subsequently).”

Retrospectivity:

The Court did not accept the challenge to the legislation on the ground that it is retrospective is lacking in substance by referring to (i) the plenary power of the Parliament to enact legislation, (ii) the Delhi High Court’s judgment in the case of Home Solutions and further observing that: “The provision was given retrospective effect so as to cure the deficiency which was found upon interpretation by the Delhi High Court”, (iii) the affidavit in reply by the UOI, (iv) the SC’s judgment in the case of Bakhtawar Trust v. M. D. Narayan, 2003 5 SCC 298, and (v) to the judgments in the cases of Shubh Timb Steels Limited v. Union of India, 2010 (20) STR 737 (P&H) and Utkal Builders Limited v. Union of India, 2011 (22) STR 257 (Ori.) wherein the constitutional validity of the provision has been upheld.

Cinemax India Limited’s case — 2010 TIOL 535 HC AHM-ST:

Petitioners in these petitions challenged the levy of service tax on renting of immovable property on the grounds that:

(i)    The amendment is unconstitutional being beyond legislative competence of the Parliament.
(ii)    The Delhi High Court having held that renting of immovable property is not a service in absence of any value addition, the Union of India can never change the nature of tax by changing the event of transaction.
(iii)    The amendment not being clarificatory cannot be retrospectively enforced.

The Union of India, on the other hand took the ground that renting of immovable property is taxable service if such renting is for use in the course of or for furtherance of business or commerce.

The petitioners inter alia contended that renting of immovable property does not amount to service as it is a transaction whereby rights in or in relation to immovable property is transferred for a certain period for consideration based on market value of the property. It is not an activity involving performance, skill or knowledge on behalf of petitioners, it was also contented that end- use i.e., the use which the licensee/lessee puts the property to cannot be determinative of the nature of transaction or can create a taxable event. At the most, it can bring about valid classification for taxation. The act of the consumer is not value addition for considering an activity a ‘service’. The value addition must be done by the service provider and in this context reliance was placed on All India Federation of Tax Practitioners & Others v. UOI & Others, 2007 (7) STR 625 (SC) and Association of Leasing and Financial Service Companies v. UOI, 2010 (20) STR 417 (SC). Further, with reference to an example it was discussed that when a landlord/licensor has property capable of being used both for residence and/or for commercial purpose, it is an irrational proposal to contend that if it is licensed for commercial use, there is value addition and therefore taxable ‘event’ occurs and no taxable event occurs when provided for residential use. There is no difference per se in the activity.

Whereas, the Revenue inter alia contended that the Legislature defined immovable property for the purpose of taxing event and only when it is used for furtherance of business or commerce, it is taxed and thus it made a class different from what is defined under other enactment like Transfer of Property Act. There is always a value addition when an immovable property is provided for furtherance of business and commerce to the recipient of service. Relying on Tamil Nadu Kalyan Mandap Association v. UOI, 2004 (167) ELT 3 (SC), it was contended that definition of taxable service includes renting in the course of furtherance of business. Like in the case of catering contracts, for the fact that tax on sale of goods is involved does not mean that service tax cannot be levied on the aspect of catering which is a service. The event of making available business premises is rendition of service though it may be an event of leasing or licensing under the Transfer of Property Act and/or Easement Act. Reliance was placed on the case of Shubh Timb Steels Ltd., 2010 (20) STR 737 (P&H). For the purpose of validation of the Act for retrospective amendment relying on Gujarat Ambuja Cement v. UOI, 2005 TIOL 53 SC-ST, it was contended that the amendment cured defect and which was within legislative competence. Relying on All India Federation of Tax Practitioners, 2007

(7)    STR 625 (SC), it was contended that service tax is on value addition by rendition of services. Relying on similar view expressed in Moti Laminates P. Ltd. v. CCE, 1995 (76) ELT 241 (SC) wherein it was held that there is no difference between production and manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration.

The Gujarat High Court observed that in normal course of renting of immovable property, service tax is not attracted in absence of any activity in-volving performance, skill, expertise or knowledge. Renting of immovable property for use in the course of or for furtherance of business or commerce is an activity which amounts to rendition of service in the course of or for furtherance of business or commerce. Relying on the decisions of Association of Leasing and Financial Services v. UOI (supra), the Court observed that service tax is a tax on activity, whereas sales tax is a tax on sale of thing or goods. Taxable event under the service tax is each exercise/activity undertaken by the service provider and it is imposed every time service is rendered to customer/client, it is a value added tax. Citing Tamil Nadu Kalyan Mandapam (supra)’s case, it was held that 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.

Thus, when a service recipient uses an immovable property in the course of or for furtherance of business or commerce, it can safely be stated that the service provider has rendered service enabling the service recipient in value addition. Meaning thereby that such activity undertaken by service provider for value addition in the course of or for furtherance of business or commerce i.e., to carry on the activity or business or commerce of the service recipient amounts to rendition of service and will fall within the meaning of the definition of ‘service tax’ and there was no case made out to declare section 65(105)(zzzz) as unconstitutional or ultra-vires any provision of the constitution.

Conclusion:

In summation, various petitions before both the Courts viz. the Bombay High Court and the Gujarat High Court, respectively, have been dismissed upholding the activity of renting/leasing/licensing of immovable property for use in the course of or for furtherance of business as service. In addition thereto, the constitution validity is also upheld as service tax on the activity of renting is not considered a tax on land or buildings. Also the Courts have concluded to the effect that there exists value addition for the recipient or consumer of service when premises are provided for the use of business. The grounds of rejection of petitions by the P&H High Court in Shubh Timb (supra) and the Orissa High Court in Utkal Builders (supra) are not discussed hereinabove. While the Orissa High Court has not dealt with whether or not value addition exists in renting of immovable property or whether it is a necessary ingredient for a transaction to be held as ‘taxable service’, the P&H High Court has observed that even if there is no value addition, the impugned provision cannot be held void. Whereas, all the four High Courts have upheld legislative competence of the Parliament and retrospectivity with a focus on different aspects, it appears that litigation at the level of the Apex Court may mainly revolve around the aspect of value addition and whether or not the tax levied as service tax could be considered a tax on land and buildings.