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 from 1st 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 per Circular No. 98/1/2008-S.T., dated January 4, 2008, cenvat credit is being denied by the Department, in respect of input services such as commercial or industrial construction services, architect’s 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, 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 in Parliament 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 Court by its judgment in Home Solution’s 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 the provision. The Bombay High Court in Retailers Association of India Vs. Union of India STO 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 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 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 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 the department 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.