Delhi High Court
Home Solution Retail India Ltd vs Uoi & Ors on 18 April, 2009
Author: Badar Durrez Ahmed
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 18.04.2009
+ WP(C) 1659/2008
HOME SOLUTION RETAIL INDIA LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 4130/2008
LIFESTYLE INTERNATIONAL P. LTD & ANR ... Petitioners
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 4131/2008
SHOPPER'S STOP LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 4749/2008
FUN MULTIPLEX P. LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 5036/2008
WADHAWAN LIFESTYLE RETAIL P. LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 5643/2008
DEVYANI INTERNATIONAL LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 5976/2008
MAHTANI FASHION PVT LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 5978/2008
BARISTA COFFEE COMPANY LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 6033/2008
M/S GKB OPTOLAB (PVT) LTD BARDEZ, GOA ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 6734/2008
BIBA APPARELS P. LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 6744/2008
ASHOK KUMAR JAIN ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 6993/2008
VARDHAMAN PROPERTIES LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 7004/2008
WADHAWAN LIFESTYLE RETAIL P. LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 7122/2008
ASHOK JAIN AND ANOTHER ... Petitioners
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 7164/2008
VATIKA LTD AND ANR ... Petitioners
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 7212/2008
VATIKA HOSPITALITY PVT. LTD AND ANR ... Petitioners
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 7654/2008
SAFFRON FOODS (P) LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 7664/2008
M/S FOOD PLAZA EXPRESS KITCHEN AND ORS ... Petitioners
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 7722/2008
SSIPL RETAIL LTD AND ANR ... Petitioners
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 7723/2008
GENESIS COLORS PVT LTD AND ORS ... Petitioners
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 8538/2008
M/S BATA INDIA LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
AND
+ WP(C) 7964/2008
VINNAMR HOSPITALITY P. LTD ... Petitioner
- versus -
UOI ... Respondent
AND
+ WP(C) 8771/2008
M/S BPTP LTD ... Petitioner
- versus -
UOI & ORS ... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr S. Ganesh, Sr Advocate with Mr Birendra Sarat, Mr Ameet
Naik, Mr Rishi Agarwal and Ms Hemangi Abhyankar for the
Petitioner in WP(C) 1659/2008.
Mr Jayant Bhushan, Sr Advocate with Mr Shamik Sanjanwala,
Mr Tapas Ram Mishra and Mr Shambhavi Sinha for the Petitioner.
Dr A. M. Singhvi, Sr Advocate with Mr Mahesh Agarwal, Mr Rishi
Agrawala, Mr Bhagvan Swarup Shukla, Mr Rajeev Kumar,
Mr Akshay Ringe, Ms Rohma Hameed, Mr Ankit Shah and
Mr Jaiveer Shergill for the Petitioner in WP(C) 4131/2008.
Mr S. Ganesh, Sr Advocate with Mr S. Sukumaran and Mr B.
Karunakaran for the Petitioner in WP(C) 8554/2008.
Ms Saanjh N. Purohit for the Petitioner in WP(C) 9642/2007.
Ms Anshul Singh for the Petitioner in WP(C) 5643/2008,
5976/2008, 5978/2008 & 7043/2008.
Mr N. S. Arora for the Petitioner in WP(C) 7043/08, 7664/08.
Ms Aradhana Patra for the Petitioner in WP(C)6734/08.
Mr Sanjay Goswami with Mr H. K. Balajee for the Petitioner in
WP(C)Nos. 6744/08, 6993/08.
Mr J. K. Mittal with Mr Sunil Upadhyay for the Petitioner in WP(C)
7964/08.
Ms Rupal Bhatia for Mr Alishan Naqvee the Petitioner in WP(C)
7722/08 & WP(C) 7723/08.
Mr S. S. Pandit for the Petitioner in WP(C) 7654/08.
Mr Raman Kapur for the Petitioner Nos. 1 and 2 in
WP(C) 7122/2008.
Mr A. R. Madhav Rao with Mr Pawan Shree Agrawal and
Mr Tarun Jain for the Petitioner in WP(C)8538/08.
Mr R. D. Jolly with Ms Rani Kiyala for the Petitioner in
WP(C) 6033/08.
For the Respondents: Mr P.P. Malhotra, ASG with Mr S. K. Dubey with Mr Deepak
Kumar and Mr K. B. Thakur for the Respondent No.1/UOI in
WP(C) 10757/06.
Mr Mukesh Anand with Mr Shailesh Tiwari for the
Respondent/UOI in WP(C) Nos. 1659/08, 9642/07, 6033/08 &
5643/08.
Mr Dalip Mehra for the Respondent/UOI in WP(C) 5643/2008.
Mr Vivek Sibal with Mr Prabal Bagchi for the Respondents 10 & 11
in WP(C) 4130/08.
Mr Amrendra Kr. Singh for the Respondent No. 5 in WP(C)
5036/08.
Mr S. C. Rana for the Respondent in WP(C)5036/08.
Mr S. K. Nanda for Mr Rakesh Tiku for the Respondents 16 and 17
in WP(C) 5978/08.
Mr Rohit Kumar for the Respondents, 4 & 11-13
in WP(C) 6033/08.
Mr Ajay Kapur with Ms Savita Rajdor for the Respondents 5, 6 & 7
in WP(C)7164/08.
Mr Ajay Kumar for the Respondent No. 5 in WP(C)1659/08.
Mr Ajay Kumar for the Respondent No. 12 in WP(C) 4130/08.
Ms Anjana Gosain for the Respondent/UOI in WP(C) Nos.9642/07,
5036/08, 6734/08 & 8554/08.
Mr R. S. Mathur for the Respondents 17 & 18 in WP(C) 6033/08.
Mr Prakash Kumar for the Respondent No. 3 in WP(C) 4749/08.
Mr Pradeep Aggarwal with Mr Deep Dhamija for the Respondent
No. 6 in WP(C) 1659/2008.
Ms Sonia Mathur with Mr Sushil Kr Dubey for the Respondent in
WP(C) 4130/08, 4131/08, 4749/08, 5976/08, 5978/08, 6744/08,
6993/08, 7004/08, 7122/08, 7164/08, 7212/08, 7654/08, 7664/08,
7722/08, 7723/08.
Mr Amit Bhagat with Mr Pulkit Gupta for the Respondent No. 16 in
WP(C) 5978/08.
Mr Ankit Jain for the Respondent No. 4 in WP(C) 5643/08.
Mr Rajesh Mahna with Mr Ramanand Roy for the Respondents 14-
16 in WP(C) 6033/08.
Ms Priyadeep for the Respondent No. 6 in WP(C) 4131/2008.
Mr Sachin Sood for the Respondent No. 5 in WP(C) 4130/08.
Mr Sachin Sood for the Respondent No. 7 in WP(C) 4131/08.
Mr Sachin Sood for the Respondent No. 14 in WP(C) 5978 /08.
Mr Tarun Gulati with Mr Tushar Jarwal for the Respondent No. 11
in WP(C) 7043/08.
Mr Tarun Gulati with Mr Tushar Jarwal for the Respondent No. 4 in
WP(C) 8554/08.
Mr Tarun Gulati with Mr Tushar Jarwal for the Respondent No. 3 in
WP(C) 9642/07.
Mr Rajiv Tyagi with Ms Chanchal Biswal and Mr Udit Kumar for
the Respondent No. 3 in WP(C) 7664/08.
Mr S. S. Pandit for the Respondent 27 in WP(C)5036/08.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER
1. Whether Reporters of local papers may be allowed to
see the judgment ? YES
2. To be referred to the Reporter or not ? YES
3. Whether the judgment should be reported in Digest ? YES
BADAR DURREZ AHMED, J
1. In this batch of writ petitions the legality, validity and vires
of notification no. 24/2007 dated 22/05/2007 and circular no.
98/1/2008-ST dated 04/01/2008 issued by the Secretary, Ministry of
Finance, Department of Revenue, Government of India, New Delhi is
challenged. It is alleged that by virtue of the said notification and
circular a completely erroneous interpretation is placed on section 65
(90a) and section 65 (105) (zzzz) of the Finance Act, 1994 as amended
by the Finance Act, 2007. It is further alleged that because of this
incorrect interpretation, service tax is sought to be levied on the renting
of immovable property as opposed to service tax on a service provided
"in relation to the renting of immovable property".
2. In essence, the petitioners have raised the question as to
whether the Finance Act, 1994 (hereinafter referred to as the said Act)
envisages the levy of service tax on letting out / renting out of
immovable property per se ? According to the petitioners, who are
either landlords or tenants in respect of leased premises, no such tax is
envisaged under the said act. Consequently, the said notification dated
22/05/2007 and the said circular dated 04/01/2008 are sought to be set
aside as being ultra vires the said act.
3. Alternatively, the petitioners have taken the 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 Parliament inasmuch as the said subject is covered
under Entry 49 of List II of the Constitution of India and would fall
within the exclusive domain of the state legislature. As such, the said
provisions would have to be declared as un-constitutional.
4. The said notification dated 22/05/2007 is an exemption
notification purportedly issued in exercise of the power conferred by
sub-section (1) of section 93 of the Finance Act, 1994. By virtue of the
said notification, the central government exempted the "taxable service
of renting of immovable property", referred to in sub-clause (zzzz) of
clause (105) of section 65 of the Finance act, from so much of the
service tax levy as was in excess of the service tax calculated on a
value which is equivalent to the gross amount charged for renting of
such immovable property less taxes on such property, namely property
tax levied or collected by local bodies. An example has also been
provided in the said notification by way of illustration. The example is
as under:-
"Example:
Property tax paid for April to September = Rs 12,000/-
Rent received for April = Rs 100,000/-
Service tax payable for April = Rs 98,000/-(100,000-
12,000) * applicable rate of service tax"
5. It is the contention of the petitioners that though this
notification speaks of an exemption it also refers to the ―taxable service
as a taxable service of renting of immovable property‖. This,
according to the petitioners, is not so provided under the said act. It is
contended that section 65(105)(zzzz) refers to the 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 reference in the said provision is not to the taxable
service of renting of immovable property but to the taxable service "in
relation to" the renting of immovable property. It is the petitioners
contention that while the act does not treat renting of immovable
property as a taxable service, the notification proceeds on the basis that
the taxable service is the renting of immovable property itself. It is on
this basis that it has been contended that service tax is sought to be
recovered from the petitioners on a pure misreading of the statutory
provision.
6. Similarly, the impugned circular whilst giving a clarification
in respect of commercial and industrial construction service has
purported to clarify that the "right to use immovable property is
leviable to service tax under the renting of immovable property
service". Consequently, by the said clarification, the Union of India is
seeking to levy service tax on renting of immovable property instead of
on services in relation to renting of immovable property. According to
the petitioners, the clarification therefore travels beyond the provisions
of the said act by contemplating a service tax on the renting of
immovable property itself.
7. Before we proceed any further it would be appropriate if the
relevant provisions of the said act are pointed out. Chapters V and VA
which comprise of sections 64 to 96-I of the Finance act, 1994 pertain
to provisions for service tax. Section 65 of the said Act is comprised of
definitions. Section 66 provides for the charge of service tax. It
stipulates that there shall be levied a service tax at the rate of 12% on
the value of the taxable services referred to in, inter alia, sub-clause
(zzzz) of clause (105) of section 65 and collected in such manner as
may be prescribed. Clause (105) of section 65 of the said act defines
―taxable service‖. Sub-clause (zzzz) thereof reads as under:-
"Section 65. Definitions.--in this chapter, unless the
context otherwise requires,-
xxxx xxxx xxxx xxxx xxxx
(105) "taxable service" means any service provided or to
be provided,-
xxxx xxxx xxxx xxxx xxxx
(zzzz) 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.
Explanation 1. - 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,
but does not include--
(a) vacant land solely used for agriculture, aquaculture,
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.
Explanation 2. - For the purposes of this sub-clause, any
immovable property partly for use in the course or furtherance
of business or commerce and partly for residential or any
other purposes shall be deemed to be immovable property for
use in the course or furtherance of business or commerce;"
The expression "renting of immovable property" has been defined in
section 65(90a) as under:-
"(90a) "renting of immovable property" includes the 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.
Explanation 1. - For the purposes of this clause, "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;
Explanation 2. - For the removal of doubts, it is hereby declared
that for the purposes of this clause "renting of immovable
property" includes allowing or permitting the use of space in an
immovable property, irrespective of the transfer of possession or
control of the said immovable property;"
8. Mr. S Ganesh, the learned senior counsel appearing on
behalf of the petitioner in writ petition (civil) no. 1659/2008 [Home
Solutions Retail India Ltd v. Union of India], submitted that the
provisions of the said act do not provide for the levy of service tax on
the renting of immovable property as such. It was also contended that
the said act does not treat renting out of immovable property as a
service. According to him, in terms of section 65(105)(zzzz), service
tax is levied only on a service which is 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.
It was contended that on a plain reading of this provision, the service
provided must be something which is distinct and different from the
transaction of renting of immovable property as such though the
service would have to be in relation to such renting. If the legislature
wanted to treat renting of immovable property as a service, then,
nothing would have been easier or simpler for the legislature than to
use the words "service by way of renting of immovable property" or
"the service of renting of immovable property" or "service consisting of
renting of removal property".
9. It was further contended that the said provision indicates that
the service will be provided "by any other person" and not only by the
owner or lessor or person in possession of the immovable property.
Furthermore, the service could be rendered to any person provided it
was in relation to the renting of the property and not merely to the
person who takes the property on rent. If the renting of property as
such constituted a service which could be taxed, then such a service
could only be rendered to the person taking the property on rent and
not "to any person". According to the learned senior counsel, this
clearly indicates that renting of immovable property as such cannot be
regarded as a service on which service tax could be levied under the
provisions of the said act.
10. Mr. Ganesh also sought to draw a distinction between the
provisions of section 65(105)(zzzz) and section 65(88) of the said act.
The latter provision has a reference to the service of a real estate agent
in relation to the renting of immovable property. It was contended that
the language of the two provisions is similar. From this it was sought
to be contended that there is a clear indication that the expression
"service in relation to the renting of immovable property" means a
service which is distinct and different from the renting of property
itself although it may be connected with or related to such renting.
According to him, these services (which are not covered by other
specific clauses of section 65) include air-conditioning service, standby
power service, sanitation service, water supply service etc. He also
made reference to a circular dated 17/09/2004 issued by the Central
board of Excise and Customs which has been extracted at page 17 of
the petition in WP(C) no. 1659/2008 [Home Solutions Retail India Ltd
v. Union of India] and which apparently states that "the activity of
renting premises is not rendering of service".
11. It was therefore submitted that the impugned notification
dated 22/05/2007 and the impugned circular dated 04/01/2008 which
proceed on the assumption that the renting out of immovable property
is by itself a service, are contrary to and inconsistent with the charging
provision and are therefore ultra vires the Act and hence bad in law.
With reference to the decision in the case of Union Of India v.
Intercontinental: 2008 (226) ELT 16, the learned counsel submitted
that a circular or notification can never rewrite or amend the provisions
of the statute.
12. Mr. Ganesh submitted that the judgment of the Supreme
Court in the case of All India Federation Of Chartered Accountants v.
Union Of India: (2007) 7 SCC 527 fully supports the case of the
petitioner that the service contemplated and covered by section
65(105)(zzzz) is a property-based or property related service, but it
must be a service all the same. Reliance was placed on paragraphs 7
and 48 of the said decision. He also referred to the Supreme Court
decision in the case of T. N. Kalyana Mandapam Association v. Union
of India & Others: (2004) 5 SCC 632 and submitted that the said
decision also supports the case of the petitioners. According to him,
the said judgment makes it clear that a particular property can be
regarded as a Kalayana Mandapam (supra) only if it has all the
apparatus, equipment and infrastructure which enables it to be utilised
for rendering services for the holding of ceremonial, religious or social
functions. It was also submitted by him that the Supreme Court
decision in the case of the Doypack Systems Private Limited v. Union
of India: (1998) 2 SCC 299, which had interpreted the words "in
relation to", also contemplated that it applied to a different subject
matter as compared to the thing to which it was related. In this
backdrop, the learned counsel submitted that the service in relation to
the renting of immovable property necessarily has to be a distinct
subject matter as compared to the renting out of the property itself.
There is no doubt that the words "in relation to" have a wide ambit but
that only means that a wide variety of services relating to the renting a
property would be covered by the charge of service tax.
13. It was further contended that a bare room in a commercial
building could not be considered to be an office unless and until it was
fully equipped with equipment and also manned by personnel. It is
only then that the renting of such an office or permitting its use would
constitute the rendering of a service. Similarly, renting out of a large
property does not constitute a service in itself even though the tenant
may use it for the purpose of conducting a wedding or other ceremonial
function. Referring to the Supreme Court decision in the case of BSNL
v. Union of India: (2006) 3 SCC 1, the learned counsel submitted that
the very same transaction cannot constitute both a transfer of property
and also the rendering of a service. Whether the property is granted by
way of a lease or licence it is merely a property transaction and cannot
possibly be construed as the rendering of a service.
14. The learned counsel appearing for the petitioner in writ
petition (civil) number 8554/2008 [Alpha Future Airport Retail
(India) Ltd v. Union of India] submitted that his case had an added
dimension. He submitted that Delhi International airport Limited has
the right to operate duty-free shops in designated areas in the Delhi
International airport. The said Delhi International airport Limited has
granted a licence to the petitioner to operate the said duty-free shops.
The licence agreement is a single indivisible agreement which grants to
the petitioner the licence to operate the said duty-free shops and also
permits the petitioner to use the space in the said areas. For this
purpose, the petitioner pays a composite licence fee to Delhi
International airport Limited which is partly a fixed amount and partly
a percentage of the gross sale proceeds of the duty-free shops. It is
impossible to ascertain what part of it is attributable to the user of the
immovable property as distinct from the grant of the licence to operate
a duty-free shop. It was submitted that in the very nature of things, the
user of the property and the grant of the licence were inseparable
because the duty-free shops could not be operated in any place other
than the said designated areas in the Delhi International airport. It was
submitted that there is no machinery or provision under the said act to
determine the amount which is attributable to the user of the property
as distinct from the grant of the licence to operate the duty-free shops.
Consequently, the charge of service tax would in any event break
down. Thus, it was contended, that when the computation was not
possible the charge itself would fail. Reliance was placed on the
decision of the Supreme Court in Commissioner of Income-tax,
Bangalore v. B.C. Srinivasa Shetty: 128 ITR 294 [(1981) 2 SCC 460].
15. Dr. Abhishek Singhvi, senior advocate, who appeared for the
petitioner in writ petition civil number 4131/2008 [Shoppers Stop
Limited v. Union of India], submitted that the expression "in relation
to" separates objects from each other. According to him the phrase by
itself conceives of two separate things. He submitted that service tax is
a value-added tax and therefore only the value addition is liable to be
taxed by way of a service tax. He referred to the decision of the
Supreme Court in the case of All India Federation of Tax
Practitioners (supra). In particular, he referred to paragraph 8 of the
said decision which reads as under:-
"8. As stated above, service tax is VAT. Just as excise
duty is a tax on value addition on goods, service tax is on
value addition by rendition of services. Therefore, for our
understanding, broadly "services" fall into two categories,
namely, property-based services and performance based
services. Property-based services cover service providers
such as architects, interior designers, real estate agents,
construction services, mandapwallas, etc. Performance-
based services are services provided by service providers
like stockbrokers, practising chartered accountants,
practising cost accountants, security agencies, tour
operators, event managers, travel agents, etc."
16. On the strength of these observations, it was contended by
Dr. Singhvi that 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 and importance.
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 can 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. According to Dr. Singhvi, the legislature used
the words "in relation to" with a clear intent of divorcing the actual
renting of the property from the services to be rendered in relation to
such renting. Thus, the transaction of renting of immovable property
by itself is not taxable under section 65 (105) (zzzz) of the said Act.
Consequently, the notification dated 22/05/2007 which purports to tax
the entire rent received by a landlord/owner tends to distort the
legislative intent made clear through the said Act by means of an
administrative interpretation.
17. It was further emphasised by Dr. Singhvi that an examination
of the various entries falling within the scope of "taxable service"
would reveal that it is only the value addition which is taxable. In the
case of a stockbroker, real estate broker, auctioneer, travel agent, etc it
is only the commission received by the service provider which is
subjected to service tax and not the main transaction of sale or
purchase. This by itself clearly indicates that it is only the service
rendered by a person to another which is the intangible value addition
to the main transaction which is subjected to service tax. Consequently
in respect of renting of immovable property also the main transaction
of renting of immovable property and the rents paid therefor cannot be
subjected to service tax. It is only the value addition by a service
relating to renting of immovable property that can be the subject matter
of service tax.
18. Mr. Jayant Bhushan who appeared for the petitioners in writ
petition civil numbers 7164/2008 and 7212/2008 and Mr. Mittal who
appeared for the petitioner in writ petition civil number 7964/2008,
reiterated and adopted the arguments of Mr. Ganesh and Dr. Singhvi.
Both of them also contended that renting of immovable property by
itself did not constitute a service.
19. Mr. PP Malhotra, the learned Additional Solicitor General of
India, appearing for the Union of India contended that the user of
land/building itself is the service. He referred to the decision of the
Supreme Court in the case of All India Federation (supra) and
contended that service tax is a value-added tax which in turn is a
general tax which applies to all commercial activity involving
production of goods and provision of services. He contended that the
transfer of the right to use a particular property for a commercial or
business purpose was itself the service which was contemplated in
section 65 (105) (zzzz) of the said act. According to him, the mere
renting of immovable property in itself constituted a service. He
submitted that the definition of renting of immovable property in
section 65 (90a) was an all inclusive definition. Referring to the
decision in Kalyana Mandapam Association (supra), Mr. Malhotra
submitted that even if premises were made available for a few hours for
the purpose of utilisation as a mandap, whether with or without other
services, would itself be a service and could not be classified as any
other kind of legal concept. He submitted that merely providing a
premises on a temporary basis for organising a financial, social or
business function would also include other facilities in relation there to
and would therefore constitute a taxable service.
20. In response to the argument that the expression "in relation
to renting of immovable property‖ does not refer to the renting itself
but to some other service in relation to the renting of immovable
property, Mr. Malhotra submitted that such an argument is
demonstrably untenable. For this purpose he referred to section 65
(105) (zt) which defines the service provided or to be provided to any
person, by a dry cleaner in relation to dry-cleaning. Here, the service
provided in relation to dry-cleaning clearly includes the service of dry-
cleaning. Mr. Malhotra then referred to section 65 (105) (zv) which
defines the service provided or to be provided to any person, by a
fashion designer in relation to fashion designing. Here, too, the service
provided in relation to fashion designing includes the service of fashion
designing itself. By this analogy, Mr. Malhotra contended that the
expression "in relation to renting of immovable property" also covered
the act of renting of immovable property. He submitted that the giving
of a premises for commercial or business activity was itself a service.
21. He referred to Words and Phrases, permanent edition,
volume 38A, page 542 wherein it is noted as under:-
"The term "services" generally includes any act
performed for benefit of another under some
arrangement or agreement whereby such act must have
been performed."
He also drew our attention to page 555 thereof wherein it is written:-
"use of a garage is "service" within rent control
regulation."
A reference was also made to the following at page 193:-
"in common usage, a "service" is not property, tangible
or otherwise, but, rather, is an act."
Mr. Malhotra also referred to Jowitt's Dictionary of English law,
second edition, where service in connection with a landlord-tenant
relationship has inter alia been shown to include:-
"certain services were such as were fixed in quantity, as to
pay a certain rent, or to plough a field for three days every
year;"
From the above references, Mr. Malhotra sought to contend that the use
of the property by itself was a service. He contended that letting out
the property or permitting another person to use the same as a licensee
by itself constituted an act which could be classified as a service.
22. With reference to the Supreme Court decision in Doypack
Systems Private Limited (supra), he contended that the expression "in
relation to" is used in an expansive sense. It is an expression of
expansion and not of contraction. Therefore, the expression "in
relation to renting of immovable property" must be given an expansive
meaning of the widest amplitude. Consequently, he said that the
expression would definitely cover the renting of immovable property
itself and not be limited to some service in connection with the renting
of immovable property.
23. Our attention was also drawn to the decision of the Supreme
Court in the case of Lucknow development authority v. MK Gupta:
(1994) 1 SCC 243, wherein at page 254 the following observation is to
be found:-
"4. What is the meaning of the word 'service'? Does it
extend to deficiency in the building of a house or flat? Can
a complaint be filed under the Act against the statutory
authority or a builder or contractor for any deficiency in
respect of given property. The answer to all this shall
understanding of the word 'service'. The term has variety of
meanings. It may mean any benefit or any act resulting in
promoting interest or happiness. It may be contractual,
professional, public, domestic, legal, statutory etc. The
concept of service thus is very wide. How it should be
understood and what it means depends in the context in
which it has been used in an enactment."
(emphasis supplied)
24. A reference was also made by Mr. Malhotra to the Supreme
Court decision in NS Nayak and Sons v. State of Goa: (2003) 6 SCC
56, wherein the court observed:-
"the expression "in relation to" is of the widest import as
held by various decision of this court in Doypack Systems
Private Limited ...‖
―... when the legislature has used the expression "in relation
to", a proper meaning has to be given. This expression
does not admit of restrictive meaning."
25. On the basis of the foregoing, Mr. Malhotra contended that
there is no occasion for any debate after the decision of the Supreme
Court in the case of TN Kalyana Mandapam Association (supra)
where the mere making available of a mandap with or without other
services was itself regarded as a service exigible to service tax under
the said act. The said decision also settled any debate about the
constitutional validity of service tax. In conclusion, Mr. Malhotra
submitted that the writ petitions deserve to be dismissed.
26. In rejoinder, Mr. Ganesh submitted that a mere property
transaction cannot be a service. He submitted that even in the T.N.
Kalyana Mandapam case it has not been held that a mere property
transaction could constitute a service and that too a taxable service
under the said act. He submitted that a mandap was not a bare piece of
property but property with other furniture, etc. Moreover the service
was to be provided by a mandap keeper as defined in section 65 (67) of
the said act. The Supreme Court decision itself noted that a mandap
keeper provided a bundle of services and it was not the case of a mere
permission to use a particular property. The expression with or without
other services appearing in paragraph 55 of the said decision does not
mean with or without services but has a clear reference to "other
services", other than the services provided by a mandap keeper such as
catering services.
27. He submitted that whenever the meaning of words in a
statute is in question the same has to be seen in the context in which
they are used. Reliance was placed upon the Supreme Court decision
reported in His Holiness Kesavananda Bharati Sripadagalvaru and
Ors. v. State of Kerala and Anr.: (1973) 4 SCC 225 [at page 316]. He
submitted that the expression "in relation to" was used in varying
contexts in section 65 (105) of the Act itself. For example, in section
65 (105) (zm) there is reference to a service provided or to be provided
to any person by a banking company or a financial institution including
a nonbanking financial company, or any other body corporate or
commercial concern, in relation to banking and other financial services.
The expression in relation to clearly refers also to the banking and
other financial services. The activity, that is, banking and other
financial services, is clearly an unmistakably a service. The service
provider is identified and the nature of the service is such that it can be
provided by the service provider. But, the renting of immovable
property is merely a property transaction. There is no service provider.
Section 65 (105) (zzzz) does not specify the service provider. It also
does not identify the service receiver. Nor is the nature of the service
indicated.
28. Mr. Ganesh referred to other sub-clauses of section 65 (105)
which were similar to the sub-clause relating to banking and other
financial services. He referred to sub-clauses (zn) which pertained to
Port services; (zo) service stations; (zq) beauty treatment; (zr) cargo
handling services; and (zs) cable services. He then referred to section
65 (88) which defined a ―real estate agent‖ to mean a person who is
engaged in rendering any service in relation to sale, purchase, leasing
or renting, of real estate and includes a real estate consultant. He
submitted that here the expression "in relation to" did not cover the
activity of sale purchase leasing or renting of real estate. It only
referred to a service in connection with the activity of sale purchase
leasing or renting of real estate. Consequently, the meaning of the
expression "in relation to" has changed with the context. Similarly, he
referred to section 65 (105) (v) which refers to a service provided or to
be provided to any person by a real estate agent in relation to real
estate. It is obvious that real estate by itself is not a service and
therefore the expression "in relation to" has to be read in a manner
where real estate does not constitute the service but there is a reference
to some other service having a connection with real estate. Mr. Ganesh
finally contended that just as section 65(105)(v) refers to a service in
connection with real estate and not to real estate itself as a service,
section 65 (105) (zzzz) refers to a service in connection with the
renting of immovable property and not to the activity of renting of
immovable property itself as a service. This being the clear intention
of the legislature, the notification and circular which tend to give a
different construction are clearly ultra vires the said act and ought to be
set aside.
29. The counsel appearing on both sides have sought to place
reliance on T.N. Kalyan Mandapam (supra), All India Federation
(supra) and Doypack Systems Pvt Ltd (supra). It would, therefore, be
necessary to examine these decisions of the Supreme Court. In T.N.
Kalyana Mandapam (supra), the Supreme Court considered the issue
of the taxable service provided by a mandap keeper. The said taxable
service was earlier indicated under Section 65(41)(p) of the said Act.
At present, with minor modifications, the relevant provision is Section
65(105)(m) of the said Act. Earlier, ‗mandap keeper' was defined
under Section 65(20) and ‗mandap' itself was defined under Section
65(19). At present, ‗mandap keeper' is defined under Section 65(67)
and ‗mandap' is defined under Section 65(66). There are only minor
changes. As the provisions stood at the time of the decision of the
Supreme Court in All India Federation (supra), the taxable service in
question was:-
―Any service provided to a client, by a mandap keeper in
relation to use of a mandap in any manner, including the
facilities provided to the client in relation to such use and also
the service, if any, rendered as a caterer‖;
‗Mandap keeper' was defined to mean a person who allowed temporary
occupation of a mandap for consideration for organising any official,
social or business function. Mandap was defined to mean any
immovable property as defined in Section 3 of the Transfer of Property
Act, 1882 and included any furniture, fixtures, light fittings and floor
coverings therein let out for consideration for organizing any official,
social or business function. In the context of these provisions, one of
the questions that arose before the Supreme Court was whether the tax
imposed under the Finance Act on catering services did not amount to a
tax on sale and purchase of goods. The Supreme Court held that the
taxable service provided as a caterer by a mandap keeper was within
the legislative competence of the Parliament and could not be construed
as a tax on the sale and purchase of goods. In this context, the Supreme
Court observed that it was well-settled that the measure of taxation
cannot affect the nature of taxation and, therefore, the fact that service
tax is levied as a percentage of the gross charges for catering did not
alter or affect the legislative competence of the Parliament in the
matter. The Supreme Court then observed as under:-
―47. The legislative competence of Parliament
also does not depend upon whether in fact any services
are made available by the Mandapmam -Keepers within
the definition of taxable service contained in the Finance
Act. Whether in the given case taxable services are
rendered or not is a matter of interpretation of the statute
and for adjudication under the provisions of the statute
and does not affect the vires of the legislation and/or the
legislative competence of Parliament. In fact, a wide
range of services are included in the definition of taxable
services as far as Mandapmam -Keepers are concerned.
The said definition includes services provided "in relation
to use of Mandapmam in any manner" and includes "the
facilities provided to the client in relation to such use"
and also the services "rendered as a caterer". The phrase
"in relation to" has been construed by this Court to be of
the widest amplitude. In Doypack Systems Pvt. Ltd. vs.
Union of India and Ors.:1988 (2) SCC 299 at p.302, this
Court observed as under:
"The expressions 'pertaining to', 'in relation to' and
'arising out of', used in the deeming provision, are
used in the expansive sense. The expression
'arising out of' has been used in the sense that it
comprises purchase of shares and lands from
income arising out of the Kanpur Undertaking.
The words "pertaining to" and "in relation to"
have the same wide meaning and have been used
interchangeably for among other reasons, which
may include avoidance of repetition of the same
phrase in the same clause or sentence, a method
followed in good drafting. The word 'pertain' is
synonymous with the word 'relate'. The term
'relate' is also defined as meaning to bring into
association or connection with. The expression 'in
relation to' (so also 'pertaining to'), is a very broad
expression which presupposes another subject
matter. These are words of comprehensiveness
which might have both a direct significance as
well as an indirect significance depending on the
context."
The Supreme Court also observed:-
―51. Taxable services, therefore, could include the mere
providing of premises on a temporary basis for
organizing any official, social or business functions, but
would also include other facilities supplied in relation
thereto. No distinction from restaurants, hotels etc which
provide limited access to property for specific purpose.‖
30. Furthermore, the Supreme Court emphasized that a tax
cannot be struck down on the ground of lack of legislative competence
by enquiring whether the definition accords with what the layman's
view of service is. It noted the well-settled principle that in matters of
taxation, the courts permit greater latitude to the statute to pick and
choose objects and rates for taxation and has a wide discretion with
regard thereto. At this juncture, it may be pointed out that the main
challenge in the present petitions is not on the ground of lack of
legislative competence, but on the ground that the impugned
notification and circular are ultra vires the Act itself. Therefore, the
areas of discussion in the T.N. Kalyana Kandapam (supra) and the
present case are somewhat different.
31. In the said decision of the Supreme Court, it has also been
observed that 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 the
common understanding of the word ―service‖ so long as it does not
transgress any specific restriction contained in the Constitution. But,
the scope of discussion in the present case is entirely different. It is the
petitioners' contention that the intention of the legislature in enacting
Section 65(105)(zzzz) was not to tax the activity of renting of
immovable property, but only to levy a tax on a service which is
provided in relation to renting of immovable property.
32. As noted above, Mr P.P. Malhotra, the learned Additional
Solicitor General had placed reliance on the observation of the
Supreme Court in T.N. Kalyana Mandapam (supra), which is to the
effect that ―making available a premises for a period of a few hours for
the specific purpose of being utilized 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‖. But, we must not lose sight of the
fact that the service provided by a mandap keeper is entirely different
in nature to the service, which is in contemplation under Section
65(105)(zzzz). As noted in the Supreme Court decision in T.N.
Kalyana Mandapam (supra) itself, the service of a mandap keeper
does not involve transfer of movable property nor does it involve a
transfer of any immovable property of any kind known to law either
under the Transfer of Property Act or otherwise and, therefore, the said
activity could only be classified as a service. In the present petitions,
we find that there is a transfer of immovable property insofar as those
properties are concerned where leases have been executed. Although
the right of ownership is not transferred and is retained by the owner,
the right of possession certainly gets transferred in the case of a lease.
In the case of a licence also, the possession is of the licensee although
the nature of such possession is only permissive. Thus, the
observations of the Supreme Court in T.N. Kalyana Mandapam
(supra) that the utilization of the premises as a mandap by itself would
constitute a service would have to be distinguished from the kind of
activity that is contemplated under Section 65(105)(zzzz). We are of
the view that the case of a mandap and service provided by a mandap
keeper would not be applicable to the case of renting of immovable
property simpliciter. The Supreme Court in paragraph 56 of the said
decision itself makes it clear that mandap keepers provide a wide
variety of services apart from the service of allowing temporary
occupation of a mandap. A mandap keeper, apart from the proper
maintenance of mandap, also provides the necessary paraphernalia for
holding official, social or business functions, apart from providing the
conditions and ambience which are required by the customer, such as
providing the lighting arrangements, furniture and fixtures, floor
coverings, etc. The service provided by him, as indicated in the
Supreme Court decision, cover the method and manner of decorating
and organizing the mandap and the mandap keeper also provides the
customer with advice as to what should be the quantum and quality of
the services required keeping in view the requirement of the customer,
the nature of the event to be solemnized, etc. It is in this context that
the Supreme Court observed that the service of a mandap keeper cannot
possibly be termed as a hire-purchase agreement or a right to use goods
or property. It is obvious that there is a distinction between the
services provided by a mandap keeper and the activity of hiring or
giving on rent immovable property. The situations are different, the
activities are different. The Supreme Court observed that a tax on
services rendered by mandap keepers and outdoor caterers is in pith
and substance, a tax on services and not a tax on sale of goods or on
hire-purchase activities. We feel that this conclusion of the Supreme
Court makes the distinction clear between the case of a mandap keeper
and that of a person who rents out an immovable property for use in the
course or furtherance of business or commerce. Consequently, the
Supreme Court decision in the case of Kalyana Mandapam (supra)
does not advance the case of the respondents. On the other hand, it
does go towards clarifying the stand taken by the petitioners.
33. The next decision which requires consideration is the
decision of the Supreme Court in the case of All India Federation of
Tax Practitioners (supra). We have already quoted paragraph 8 of the
said decision wherein it has been 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 has also been 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. The Supreme Court also noted that service tax is a tax on
service and not on the service provider.
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.
BADAR DURREZ AHMED, J
RAJIV SHAKDHER, J
April 18, 2009
HJ/dutt
