Service Tax on Renting - The Ping Pong - Case Referred to Larger Bench of High Court
PLEASE see – 01.02.2011 and – 07.02.2011 for Round No. 1 to 10 of the case.
Round 11: Advocate Rakesh Chitkara sent us this commentary on what happened in the Delhi High Court on 15th February, 2011.
Division Bench consisting of Chief Justice Dipak Misra & Justice Sanjiv Khanna in Delhi High Court finally took the decision to constitute a larger bench in view of the complexities involved and importance of the litigation involving Service Tax on renting of industrial and commercial property.
The Bench consisting of the CJ had in December queried on the issue of handicap of “binding precedent” set by another Division Bench of the same co-ordinate court of same strength.
ASG informed the High Court that the SLP filed in the main Home Solution- 2009 case had been admitted by the Hon'ble Supreme Court, which had also stayed the interim orders passed by High Court granting stay pursuant to budgetary changes that validated the quashed provisions and that Supreme Court had also requested the High Court to decide the matter expeditiously.
Mr. Ganesh, Sr. Counsel essentially raised four principal grounds challenging the validity of provisions of Sec. 65 (106) (zzzz) and other related Section.
I. Letting of immovable property is mere transaction and not a service as held by the Hon'ble High Court in the case of Home Solution Pvt. Ltd ., and thus, per se renting is not a service in view of paragraph 35 of the earlier judgment of Home Solution ;
II. Levy of Service Tax u/s 65 (105) (zzzz) is directly and squarely covered by Entry 49 of List-II and is not under 92C and that the levy of service tax under Entry 97 of List-I itself is not brought under operation. Therefore, the same is not covered by the said list;
III. Levy of Service Tax on property is under legislative competence of the State and not the Centre; and
IV. Imposition of tax on renting within the Constitutional scheme cannot be levied by both Centre as well as State.
Mr. Ganesh also argued that this Hon'ble High Court in order passed on 14.12.10 had referred to the paragraph No. 35 of the earlier 2009 order that the renting per se is not a service which is taxable. Hence the said judgment in entirety will have the binding effect on the present Division Bench.
It was then the turn of the ASG Mr. A. Chandiok. Ably assisted by Sr. Govt. Counsel Mr. Mukesh Anand, he marshaled his arguments thus:
++ Parliament by the present legislation has not per se taxed renting of immovable property and language contained in Sec. 65 (105) (zzzz) as amended in 2010 would show that the word “in relation to” has been amended and its activity as well as the temporary renting to use of the immovable property by renting is taxable within the meaning of Sec. 65 (105) (zzzz) and hence does not suffer from legislature incompetence;
++ SLP filed against the 2009 judgment of Home Solution has been admitted by the Hon'ble Supreme Court. Hence, the observations made in the earlier judgment cannot have a binding effect over this Hon'ble High Court in subsequent writ petition;
++ In the earlier writ petition only circular was under challenge and not the section and therefore, the said judgment is not binding upon the Hon'ble High Court; and
++ Only the Centre is competent to levy the tax and not the State in terms of List –I and hence, the State Legislature is not competent in that sense as has been referred to by the petitioner.
CJ thereupon queried whether the precedent value of the 2009 judgement stood wiped out just because the Supreme Court had granted leave to the UOI, having come in appeal against the High Court's orders?
Affirmative, asserted ASG.
Mr. Ganesh tried arguing “humbly and respectfully” that this Division Bench was competent to adjudicate and there was no need for a larger bench.
There seemed a lingering doubt whether the fresh final order is legally defensible, if differed, by another division bench of the same co-ordinate court on the touchstone of judicial discipline. The Bench seemed to have made up its mind after detailed presentations. So it directed constitution of a larger bench to re-assemble next Tuesday, the 22 nd instant.
We will keep you updated.