Conceptual clear thinking is at stake. Also at stake is substantial revenue. A very recent judgement of the Delhi High Court holding that renting of immovable property is not service is now of great importance since it will set precedence for other services to get similar judgment that they are not service.
Section 65(105)(zzzz) of Finance Act 1994 reads “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 High Court has held that service tax is value-added tax and since there is no value-added in renting of property it is not service. And it is not service independently also the terms of Section 65(105)(zzzz)”.
There are four good reasons why appeal should be filed against this judgement.
(a) Renting of immovable property is a service. And service tax is a tax on rent. It is not a property tax. It is a tax on the service given by the property for the time being when it remains in the possession of the person who has taken it on rent. It is just like the service of pandal, or shamiana or modem or telephone in telecommunication service or similar material objects whose services are taken on payment for the time being. The distinction that has been made with the judgment in the Kalyan Mandapam case is really not valid. For this reason also it should be brought once again before the Supreme Court. This aspect needs to be settled as it will affect all cases of material-based service.
(b) There is no need of value-addition at all since all that is necessary is the turn over from the service. Since it is not a value added tax, the question of value addition does not arise.
(c ) It is not correct to say that the Supreme Court has called service tax a value-added tax in the case of All India Federation of Tax Practitioners vs. UOI. Actually the Supreme Court has said that while discussing the background. It is not a judgement itself. The judgement is that profession tax is not a service tax. The Constitution calls excise a tax on manufacture and service tax a tax on service. VAT is just a mechanism or design for imposing an indirect tax in a particular manner.
Excise or Service tax can be value-added tax or turnover tax depending on whether the credit for the input duty is allowed or not. I may also point out that before 1986 there was excise duty which was not VAT. Even now all items which pay excise don’t follow the VAT design. And State Excise is not VAT at all.
(d) The High Court contends that the expression 'service in relation to renting of property' does not in terms include 'service in renting of property'. This proposition, however, is a matter of interpretation. Renting of property also can be taken as in relation to property. This is a very crucial point because if (zzzz) does not in terms include renting of property, then it just cannot be a service. The High Court has not laid much emphasis on this point but has mainly depended on the proposition about value addition.
It is very important to settle the issues involved here in the interest of conceptual clarity. Therefore, it would be immediately necessary that the CBEC examines the issues taking into consideration the points mentioned by me above for the purpose of filing an appeal in the Supreme Court within the period of limitation.