Service Tax: Renting of Immovable Property Service: Constitutional Validity: Imposition of service tax under Section 65(105)(zzzz) read with Section 66 is not a tax on land and building which is under Entry 49 of List II. What is being taxed is an activity, and the activity denotes the letting or leasing with a purpose, and the purpose is fundamentally for commercial or business purpose and its furtherance. The concept has to be read in conjunction. Service tax is associated with value addition as evolved by the judgments of the Apex Court, the submission that the base of the said decisions cannot be taken away by a statutory amendment need not be adverted to. Once there is a value addition and the element of service is involved, in conceptual essentiality, service tax gets attracted and the impost gets out of the purview of Entry 49 of List II of the Seventh Schedule of the Constitution and falls under the residuary entry, that is, Entry 97 of List I. The provisions, namely, Section 65(105)(zzzz) and Section 66 of the Finance Act, 1994 and as amended by the Finance Act, 2010, are intra vires the Constitution of India. (para 69,75)

Service Tax: Renting of Immovable Property Service: Decision of Division Bench overruled: The first Home Solution case does not lay down the law correctly inasmuch as in the said decision, it has been categorically laid down that even if a building/land is let out for commercial or business purposes, there is no value addition. Being of this view, the said decision is overruled. (para 70)

Service Tax: Renting of Immovable Property Service : Renting involves value addition: The decision rendered in the first Home Solution case does not lay down the correct law as we have held that there is value addition when the premises is let out for use in the course of or furtherance of business or commerce and it is, accordingly overruled. (para 75)

Service Tax: Renting of Immovable Property Service: Retrospective Effect: It is worth noting that the Parliament, keeping in view the first Home Solution case, substituted sub-clause (zzzz) in the present incarnation and gave retrospective effect to cure the deficiency. It is well settled in law that it is open to the legislature to pass a legislation retrospectively and remove the base on which a judgment is delivered. Having overruled the first Home Solution case, the provisions would operate from 2007 and the amendment brought by the Parliament is by way of ex abundanti cautela. The challenge to the amendment giving it retrospective effect is unsustainable and, accordingly, the same stands repelled and the retrospective amendment is declared as constitutionally valid. (para 71,74,75)

Service Tax: Renting of Immovable Property Service: Penalty for non-payment: On the question of penalty due to non-payment of tax, it is open to the government to examine whether any waiver or exemption can be granted. It may be noted that the appeal against Home Solutions-I is pending before the Supreme Court but the operation of the said judgment has not been stayed. (para 73)

Activation charges: The charges paid by the subscribers for procuring a SIM Card are generally processing charges for activating the cellular phone and consequently the same would necessarily be included in the value of the SIM Card.

Taxable value: The position in law is therefore clear that the amount received by the cellular telephone company from its subscribers towards SIM Card will form part of the taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided. They are considered part and parcel of the services provided and the dominant position of the transaction is to provide services and not to sell the material i.e. SIM Cards which on its own but without the service would hardly have any value at all.

Valuation: It is established from the records and facts of this case that the value of SIM cards forms part of the activation charges as no activation is possible without a valid functioning of SIM card and the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers

Sales Tax vs Service Tax : We cannot accept a position in law that even if tax is wrongly remitted that would absolve the parties from paying the service tax if the same is otherwise found payable and a liability accrues on the assessee

Service Tax: Renting of Immovable Property Services: Presence of element of Service: The assumption by a legislative body that an element of service is involved in the renting of immovable property is certainly not an assumption which can be regarded by the Court as being so manifestly absurd or perverse as to lead to an inference that Parliament had treated as a service, an item which in no rational sense could be regarded as involving service. (para 33)

Service Tax: Renting of Immovable Property Services: Legislative Competence: The legislative basis that has been adopted by Parliament in subjecting taxable services involved in the renting of property to the charge of service tax cannot be questioned.. But more significantly, even if the Court were to proceed on the basis, suggested by the Petitioners that no element of service is involved, that would not make the legislation beyond the legislative competence of Parliament. So long as the legislation does not trench upon a field which has been reserved to the State legislatures, the only conclusion that can be drawn is that the law must be treated as valid and within the purview of the field set apart for Parliament. (para 33)

Service Tax: Renting of Immovable Property Services: Retrospective Effect: 34. The plenary power of Parliament to legislate can extend to enacting legislation both with prospective and with retrospective effect. 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” for use in the course or furtherance of business or commerce. 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 object of the amendment, brought about with retrospective effect, is to expressly bring the legislative provision in conformity with the original parliamentary intent. The purpose and object of validating legislation is to ensure a fundamental change of circumstances upon which the earlier judgment was founded. This may be done by reenacting retrospectively a valid and legal taxing provision and then by a fiction making the tax already collected stand under the reenacted law. (para 34,35,37)