Utkal Builders Limited Vs Union of India (UOI)

Indrajit Mahanty, J.@mdashThis writ application has been filed by the Petitioner company M/s. Utkal Builders Limited with the following prayer:

(A) declaring the impugned provision viz. Section 65(90a) read with Section 65(105)(zzzz) of the Finance Act, 1994 as amended by Finance Act, 2007, 2008 & 2010 as null and void and ultra vires the Constitution of India and/or Section 65 of the Finance Act and/or be pleased to strike down the said provision as illegal, arbitrary and violative of Article-14, 246 & 265 of the Constitution of India.

(B) issuing a writ/order/direction in the nature of certiorari or any other writ by setting aside Section 75(5)(h) and Section 76 of the Finance Act, 2010.

(C) declaring Notification No. 24/2007, dated 22-5-2007 (Annexure-4), Circular No. 98/1/2008-S.T., dated 4-1-2008 (Annexure-5) as revived by Finance Act, 2010 and the Circular D.O.F. No. 334/1/2010-TRU, dated 26-2-2010 (Annexure-6) as illegal null and void and ultra vires to the provision of the Finance Act, 1994 as amended by Finance Act, 2007, 2008 & 2010.

(D) issuing a writ or mandamus or any other appropriate writ(s)/order(s)/direction(s) restraining to the officers/authorities of O.P. Nos. 1 to 4 from directly or indirectly giving effect to or acting upon the impugned notifications/circulars or collecting any tax on the basis of Section 65(90a), Section 65(105)(zzzz) read with Section 66 as amended by Finance Act, 2010 giving retrospective operation on and from 1-6-2007.

(E) quashing the demand notice dated 25-11-2010 (Annexure-2) & summon/notice dated 21-12-2010 (Annexure-1) issued by the Opposite Party Nos. 3 & 4.

2. Mr. M. Kanungo, Learned Counsel appearing for the Petitioner, placed reliance upon the judgment rendered by the Hon''ble High Court of Delhi dated 18-4-2009 passed in WP(C) No. 1659 of 2008 in the case of Home Solution Retail India Ltd. Vs. Union of India (UOI) and Others, wherein the Hon''ble High Court of Delhi, declared that the provisions of Section 65(105)(zzzz) of the Finance Act, 1994 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. As a consequence of the aforesaid finding and the interpretation placed thereon, the impugned notification dated 22-5-2007 and circular dated 4-1-2008 were held to be incorrect and consequently, ultra vires the said Act and set aside.

Learned Counsel for the Petitioner placed great stress on various arguments raised before the Hon''ble High Court of Delhi and in particular, in Paragraphs 1, 2, 5, 6 as well as the conclusions arrived at therein in Paragraphs 33, 34, 35 & 36 and submitted that the present challenge to the amendment made to Section 65(105)(zzzz) as amended by the Finance Act, 2010 does not remedy the constitutional infirmity found by the Hon''ble Delhi High Court in the aforesaid judgment.

3. The essential contention of Mr. Kanungo on behalf of the Petitioner was that a distinction has to be made between "property based service" and "performance based service" as well. There can be no doubt that any service connected with "renting" of immovable property would fall within the ambit of Section 65(105)(zzzz) of the Finance Act and is assessable to the service tax. Yet, the question whether "renting of such immovable property" by itself constitute a taxable service or not, especially when there has been no value addition provided by the service provider, i.e. landlord or lesser is raised. It is claimed by the Petitioner that insofar as "renting of immovable property for use in the course or furtherance of business of commerce" is concerned, there is no distinct able value addition necessary and consequently, "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 recorded as service.

4. Mr. P.K. Ray, learned Counsel for the Revenue, on the other hand, contends that the very judgment of the Hon''ble Delhi High Court, relied upon by the learned Counsel for the Petitioner, has been challenged by the revenue in Special Leave to Appeal CC 16960 of 2010 before the Supreme Court of India and vide order dated 10-1-2011, the Hon''ble Supreme Court has directed interim stay of operation of the impugned judgment and, therefore, no reliance could be placed upon such judgment by the Petitioner for any purpose whatsoever.

Apart from the same, learned Counsel for the revenue submits that Section 65(105)(zzzz) of the Finance Act has been amended by the Finance Act, 2010 whereby "renting of immovable property for use in the course or furtherance of business of commerce" has been amended and that "taxable service" would include "renting of immovable property for use in the course or furtherance of business of commerce". This amendment by the Finance Act, 2010 was passed after the judgment of the Delhi High Court and obviously not the subject matter of challenge before the Hon''ble Delhi High Court.

Apart from the aforesaid fact, learned Counsel for the revenue also placed reliance on a judgment of the Hon''ble High Court of Punjab and Haryana in the case of Shubh Timb Steels Ltd. v. Union of India and Anr. 2010 (20) S.T.R. 737 wherein challenge to the scope of levy on "service tax" of "renting of immovable property" was made and turned down by the said Court vide its judgment dated 22nd November, 2010. He further submitted that the aggrieved parties thereto had moved the Hon''ble Supreme Court against the judgment of the Hon''ble Punjab and Haryana High Court mentioned hereinabove and the prayer for interim orders before the Hon''ble Apex Court was turned down.

5. In the light of the aforesaid facts, learned Counsel for the revenue submits that it is the well settled principles of law that a presumption exists in favour of the Constitutionality of a provision passed by the legislative and in the present case, it is the "renting of the immovable property" which is the "taxable event" and Parliament is endowed with the necessary legislative competence to enact the impugned enactment as well as the amendment. The learned Counsel for the revenue further submits that, it is within the competence of Parliament to give retrospective effect to any fiscal statute and no objection to the retrospectively of any fiscal statute ought to be entertained. Especially, since the impugned amendment was clearly clarificatory in nature and, therefore, would take effect from the date of the original enactment itself.

6. In the light of the aforesaid submissions and in view of the adjudication made by different High Courts on related subject, we are of the considered view that the scope and ambit of the present challenge is extremely narrow.

These points become necessary to be dealt with in connection with the relevant statutory provisions which are noted hereunder in a tabular form:

7. On a compassion (sic) (comparison) of the relevant statutes as noted hereinabove, it is clear that, Section 65(90-a) of the Finance Act, "renting of immovable property" has not undergone any amendment by the Finance Act of 2010. It is only Section 66(105) "taxable service" which has undergone amendment to include as "taxable service" any service provided to any other person by renting of immovable property or any movable property or any other service relating to such renting for use in course or furtherance of business or commerce.

8. On reading of the judgment of the Delhi High Court in the case of Home Solution Retail India Ltd. (supra), it is clear there from that the Hon''ble Delhi High Court has not taken into consideration the scope and ambit of Section 65(90-a) of the Finance Act relating to "renting of immovable property".

We are of the considered view that since "renting of immovable property" itself is clearly covered by Section 65(90-a) of the Act which include "renting, lending, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce. Therefore, it appears that though Section 65(90-a) has been mentioned to in the aforesaid judgment, yet its impact and the scope and ambit of the said provision has not been discussed and the entire focus of the Hon''ble Delhi High Court seems to have been made to the amendment of Section 66(105)(zzzz) by the Finance Act. It is a well settled principles of law that, if a judgment proceeds without taking note of or ignoring relevant provision of law, the said judgment cannot be held to have correctly decided the case.

9. Apart from the above, the Hon''ble Supreme Court in the case of Tamil Nadu Kalyana Mandapmam am Assn. Vs. Union of India (UOI) and Others, has clearly held that, the services rendered by ''Mandap'' can be to termed as "property based services". This judgment has been affirmed by a latter judgment of the Hon''ble Supreme Court presided over by Justice S.H. Kapadia (as His Lordship the then was) in the case of All India Federation of Tax Practitioners and Others Vs. Union of India (UOI) and Others, .

10. In the present case, we are clearly of the view that the nature of the transaction made by the Petitioner with its tenant clearly amounts to renting of an immovable property for the purpose of business or commerce and is, therefore, clearly covered by Section 65(90-a) of the Finance Act, 1994 and "service tax" is clearly livable thereon. Although challenge in the present case has been made to the Amendment Act of 2010 to Section 66(105)(zzzz), we find no justification to entertain the present writ application since we are also of the view that the amendment is clearly clarificatory in nature and Parliament certainly possesses the necessary legislative competence to declare the said amendment to be retrospective in operation and, therefore, we do not find any error or lack of competence in such legislation.

11. In view of the facts as noted hereinabove, we find no merits in the present challenge and accordingly, the writ petition is dismissed.

12. We may further note that the Petitioner had approached this Court at the stage where a show-cause notice had been issued to him and therefore, while dismissing the writ application, we direct that the Petitioner may respond the show-cause notice within a period of four weeks from today and the revenue authorities may proceed in the matter in accordance with law.

V. Gopala Gowda, C.J.

13. I agree.