TIOL-DDT 1095 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1095</font><br>
23.04.2009<br>
Thursday</strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Renting
of Immovable Property – Service Tax – The Elusive Delhi High Court order – English
wins!</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NORMALLY</strong> we would not like to comment/analyse a judgement unless we have an authentic copy of it. Since the Delhi High Court delivered its classic judgement on service tax on renting of immovable property, on Saturday 18 April 2009, our mail boxes are bombarded and our phones are constantly ringing – when are you carrying the judgement?, what are the implications?, Is it applicable to the whole country or only Delhi?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A hapless assessee told me, “all this hype is meaningless; the government will appeal to the Supreme Court or amend the law retrospectively; can I continue to pay the tax, in spite of the Delhi High Court judgement, or am I bound by it?”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Coming back to the judgement, till this morning, we could not get a copy and there are so many frustrated sites out there waiting for us to carry it so that they can also pick it from us and flash it. We are really very sorry, we have disappointed them.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But we give below a brief on the case gathered from sources and we may hasten to add this may not be authentic. Later in the day we will try to get the judgement and our analysis. Till then this is what we have gathered.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The petitioners have not won by challenging the legislative competence of Parliament to levy tax on renting of immovable property.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They challenged an exemption notification – Notification No. 24/2007 dated 22/05/2007 which exempts <font color="#FF6600">the <strong>taxable service of renting of immovable property </strong>, referred to in sub-clause (zzzz) of clause (105) of section 65 of the Finance Act, from so much of the service tax leviable thereon as is 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 and collected by local bodies:</font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And they have challenged Board Circular No. 98/1/2008-ST dated 04/01/2008 which casually mentioned that <font color="#FF6600">Right to use immovable property is leviable to service tax under renting of immovable property service.</font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Delhi High Court has quashed both the notification and the Circular. So what happens? The service is still taxable under the Act and the exemption of Municipal taxes would not be available?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">No. The High Court has categorically held that <font color="#FF6600">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 Act. Of course, if there is some other service, such as air conditioning service provided along with the renting of immovable property, then it would fall within Section 65(105)(zzzz).</font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And the Delhi High Court has 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 11 of the Constitution of India. Such an examination has become unnecessary because of the view it has taken on the main plea taken by the petitioners – that even as per the Act, <strong>renting </strong> is not taxable.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tax is <font color="#663399">in relation</font> to renting not <font color="#663399">renting</font> itself: </strong>The High Court's reasoning was that the tax is not on renting <strong>per se </strong> but on services<font color="#663399"> <strong>in relation to</strong></font><strong> </strong> renting. So it was this <strong>‘in relation to' </strong>which caved in the case or the government.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Everybody knows that what the government wanted to tax and what it made parliament to legislate was a tax on renting of immovable property. But what the government got the parliament to legislate was a tax <strong>‘in relation' </strong> to renting and not <strong>renting </strong> itself. This English is what came handy to the legal brains to wriggle out of the tax on renting. The draftsmen's casual use of the phrase ‘in relation to' has cost them dear. In fact this phrase ‘in relation to' has been the subject matter of over 7000 reported cases.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Lord Denning, in his classic style had remarked, “A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases."</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now whether the issue at hand involves altering the material of the fabric or ironing out the crease is an altogether different topic.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Back to the future? Now what happens? These are the possible situations.</strong></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Government appeals to the Supreme Court – Uncertainty for the assessee; client will not pay Service tax in view of the High Court order, but the assessee is liable in case the Supreme Court overrules the High Court order.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. The Supreme Court upholds the High Court order, but government amends the law retrospectively (they had done it several times and Supreme Court has upheld their right to do so) – the assessee is burdened again.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Government keeps quiet – the Delhi High Court order may not be applicable outside Delhi – another High Court may take a different view. The power of the High Court under Article 226 <em>is throughout the territories in relation to which it exercises jurisdiction </em>. So the Delhi order may not be applicable in Tamil Nadu. – More confusion and uncertainty for the assessee.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. If another High Court, say Madras High Court holds a contrary view and if there is an assessee who has branches in Chennai and Delhi, he would have to pay tax in Chennai and need not pay in Delhi. What happens if he has a centralised billing centre either in Chennai or Delhi?</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It doesn't always pay to win judicial battles; the best option is what my assessee friend asked me – continue to pay the tax – you are safe.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We reiterate that our comments on the judgement are based on information furnished by our sources and we still do not have an authentic copy of the Delhi High Court order.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jalandhar Commissionerate is now Chandigarh II</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBEC has issued several notifications in Customs, Central Excise and Service Tax to change “Jalandhar” Commissionerate to “Chandigarh-II” Commissionerate and Chandigarh Commissionerate to “Chandigarh -I” Commissionerate.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Whenever I type <font color="#663399">Commissionerate</font> in my computer, Microsoft Word automatically changes it to ‘commissioner ate'. The other day, an assessee was sitting with me when I typed this word and when my system changed it to ‘commissioner ate', he asked me, “how does your computer know this?”</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600">–Tomorrow's cases</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font><font color="#663399">Central Excise</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">LCD panels having multi-use in Televisions and computer monitors are correctly classifiable under Chapter heading 9013 8010 and not 8529 9090 - CESTAT</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> company is before the Tribunal contending that the goods in question were LCD panels having multi use in televisions and computer monitors etc. and these are specifically covered under <em>Chapter Heading 9013.8010 which is specific heading relating to Liquid Crystal Device (LCD). </em> It was also submitted that the entry referred to by the revenue i.e. Chapter Heading 8529 9090 relates to parts of television and parts cannot be considered as a specific heading.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">Income Tax</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">When an order passed by AO on an issue which is still in dispute or unanswered to the point, then it cannot be said that his order was erroneous for initiating action under Section 263</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ANY</strong> authority under the Direct Tax Law who is entrusted with the task of implementing or enforcing the law is entitled to interpret the relevant portion involved. Further there is administrative and judicial hierarchy under the tax laws. Therefore any interpretation placed upon a provision by a higher authority will be binding on the lower authorities and his freedom to interpret is thus restricted. Thus an interpretation placed by a higher authority becomes a precedent for the lower authorities until it is reversed or modified by a still higher authority. The precedent is thus binding on the lower authorities.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">Customs</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">Import of telecom hardware and related software in CDs and inclusion of value of software for discharge of duty – Bharti Airtel and Ericsson get a reprieve – Pre-deposit of Rs 440 Crore waived and stay granted: CESTAT</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> primary allegation is that the software which was imported separately in CDs/ODs/Floppies are in the nature of firmware, which are pre-loaded at the suppliers factory and the split in the value of software and hardware at the time of import was only to evade duty on the value of software.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">See our columns tomorrow for the judgements</font></strong></font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until tomorrow with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Day.</font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font> <font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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