apex court directs tenants to deposit service tax on renting

8/3/2019 Apex Court Directs Tenants to Deposit Service Tax on Renting

1/3

APEX COURT DIRECTS TENANTS TO DEPOSIT SERVICE TAX ON

RENTING

Posted onOctober 19, 2011byTeam STO

Recently on 14.10.2011, the Hon Supreme Court modified its earlier stay

order of 28.9.2011 in the Special Leave Petition filed by petitioners Retailers

Association of India Vs. UOI against the Bombay High Court order that had

upheld renting as a service with retrospective effect. The Apex court held that

Petitioners are now required to pay 50% of arrears in 3 bi-monthly

installments within 6 months, furnish surety of balance 50% and file an

undertaking before the Supreme Court to this effect. Interestingly, No stay had

been granted on imposition of service tax under sub-clause (zzzz) of clause

(105) of Section 65 read with Section 66 of the Finance Act, 1994 (as

amended), insofar as the future liability towards service tax with effect from1st October, 2011 is concerned. This has raised many eyebrows whereby one

of the moot questions being asked is that how will the petitioners who are

basically the tenants pay service tax as they are not assesses. As per One

school of thought , a question is being asked that as tenants are not the

assesses, how will they deposit? It is pertinent to note that the Landlords of

commercial properties are treated as Assesses and are the service providers

in terms of the Finance Act. The experts are perplexed as to whether this

deposit accrue to the credit of the landlord to whom they owe the service tax

money or to the Government? Obviously, the court would direct deposit in

favour of the Government. If the amendments are upheld by the Apex Court,

to whom will the Revenue give credit of deposited amount? Accordingly if the

amendments are upheld it ought to accrue to the landlords as payment of tax

on their behalf.

As per another school of thought as most landlords have been discharging

their service tax liability right from day one, it appears that many are

discharging their service tax liability through cenvat credit. As perCircular No.

98/1/2008-S.T., dated January 4, 2008, cenvat credit is being denied by theDepartment, in respect of input services such as commercial or industrial

construction services, architects services, etc. This issue itself is not free from

litigations. As regards the refund of the said service tax paid , some experts

also feel that in the event that the Apex Court strikes down the levy and the

Government does not go for another round of retrospective legislation,
http://www.servicetaxonline.com/blog/?p=573http://www.servicetaxonline.com/blog/?p=573http://www.servicetaxonline.com/blog/?p=573http://www.servicetaxonline.com/blog/?author=1http://www.servicetaxonline.com/blog/?author=1http://www.servicetaxonline.com/blog/?author=1http://www.servicetaxonline.com/circular.php?circularid=268http://www.servicetaxonline.com/circular.php?circularid=268http://www.servicetaxonline.com/circular.php?circularid=268http://www.servicetaxonline.com/circular.php?circularid=268http://www.servicetaxonline.com/circular.php?circularid=268http://www.servicetaxonline.com/circular.php?circularid=268http://www.servicetaxonline.com/blog/?author=1http://www.servicetaxonline.com/blog/?p=573


2/3

Section 11B would not get attracted in this case and the assesses who have

paid service tax would be eligible for the refund of service tax. Provided that

they reverse the cenvat credit on input services. This could lead to further

confusion as the situation becomes more complex.

When the notes on clauses when the Finance Bill of 2007 was introduced inParliament it was indicative of the intent of Parliament to bring the renting of

immovable property within the fold of taxable services when used in course or

furtherance of business or commerce. As a matter of fact, Parliament had

used language of width and amplitude in the original provision which adverted

to a service provided or to be provided in relation to renting of immovable

property. The expression in relation to renting of immovable property was

broad enough to include both the renting of immovable property as well as

services in relation to the renting of immovable property. The Delhi High Courtby its judgment in Home Solutions case (STO 2009 Del 825) struck down

both a notification and a circular issued by the Union Ministry of Finance. In

this view of the matter, Parliament stepped in to substitute sub clause (zzzz)

in its present form instead and in place of the earlier provision so as to provide

for the renting of immovable property or any other service in relation to such

renting. The provision was given retrospective effect so as to cure the

deficiency which was found upon interpretation by the Delhi High Court. The

notes on clauses accompanying the introduction of the Finance Bill of 2010

would indicate that the amendment has been brought about to validate theprovision. The Bombay High Court in Retailers Association of India Vs. Union

of IndiaSTO 2011 Mum 375, has upheld the levy of Service Tax on renting of

immovable property, including the retrospective amendment.

Thereafter the battle moved before Honorable Supreme Court and Supreme

Court vide its decision (STO 2011 SC 589) dated 28.09.2011ordered that in

the meantime, no coercive steps shall be taken against the said petitioners for

recovery of arrears of service tax due on or before 30th September, 2011.

Supreme Court further clarified that there is no stay of imposition of servicetax under sub-clause (zzzz) of clause (105) of Section 65 read with Section 66

of the Finance Act, 1994 (as amended), insofar as the future liability towards

service tax with effect from 1st October, 2011 is concerned. With this recent

stand taken by the Apex court directing the petitioners to deposit 50% of

arrears in 3 bi-monthly installments within 6 months, furnish surety of balance
http://www.servicetaxonline.com/case_laws.php?caseid=8388http://www.servicetaxonline.com/case_laws.php?caseid=8388http://www.servicetaxonline.com/case_laws.php?caseid=8388http://www.servicetaxonline.com/case_laws.php?caseid=12177http://www.servicetaxonline.com/case_laws.php?caseid=12177http://www.servicetaxonline.com/case_laws.php?caseid=12177http://www.servicetaxonline.com/case_laws.php?caseid=12442http://www.servicetaxonline.com/case_laws.php?caseid=12442http://www.servicetaxonline.com/case_laws.php?caseid=12442http://www.servicetaxonline.com/case_laws.php?caseid=12442http://www.servicetaxonline.com/case_laws.php?caseid=12177http://www.servicetaxonline.com/case_laws.php?caseid=8388


3/3

50% and file an undertaking before the Supreme Court to this effect , there is

little hope left that the petitioners might get any relief in future.

The best course of action which the petitioner / tenant can take is to have a

mutual MOU with the landlords w.r.t the rents vis a vis the immovable

commercial properties for which the said rent is being demanded by thedepartment or likely to be demanded. As the stakes as high, the service tax so

deposited has to be on account of the landlords who are the service providers

and thus liable to pay so that in case of any favorable order , proper refunds

can be taken. As far as one year time bar is concerned for deposits as per

Apex court orders , it will be treated as deposits and not tax. Thus in case the

petitioners get a order in their favour such refunds will not be hit by Time bar.

apex court directs tenants to deposit service tax on renting

Documents