INDIA BUSINESS WORLD - 1^st AUGUST 31^st 2008

SUPREME COURT’S BLANKET STAY ON RETAILERS SERVICE TAX CASES IN HIGH COURTS

THE Supreme Court has stayed the proceedings challenging the legality of imposition of 12.36% service tax on renting out premises. Various multiplexes, members of the Retailers Association of India, Confederation of Real Estates Developers Association of India and others had moved various high courts against levy of such tax.

A 3-judge bench headed by Justice BN Agrawal on the plea of the Centre also sought explanation from the Retailers Association of India, Confederation of Real Estates Developers Association of India, Multiplex Association of India and others why petitions pending in high courts on the issue should not be transferred to the apex court.

The court also issued notices to Amritsarbased RS Builders, Chennai-based RR Industries, World Build Mart, General Styar Kitchen, Kasturi Estates, Mumbai-based Synergy Realters&Services, Bentley Properties, Chandigarhbased Talwandi Estates, Ernakulum-based Joy Alukkas Traders (India). The Centre through its counsel said that there is a likelihood of conflicting decisions by the high courts on the matter.

Advocate Mahesh Agrawal, on behalf of Retailers Association of India, however, said that the Mumbai-based body has no difficulty in transferring the petitions to the apex court in order to have an authoritative ruling on it. Mr Agrawal said that the petitions challenging the constitutional validity of section 65 of the Finance Act 2007, levying service tax on leasing, letting, renting or other similar arrangements in respect of immovable property, were pending in high courts of Bombay, Madras, Calcutta and Punjab & Haryana.

The Bombay HC had restrained the government from taking coercive steps for recovery of service tax. It had also asked the members of the multiplexes in Maharashtra, the members of the Retaliers Association and Real Estates Developers of India not to transfer their interest in the property without giving notice to the government. The issue raises an important question of law. Whether Parliament can levy the service tax on the leasing, letting, renting or other similar arrangement in respect of the immovable property for commercial purposes? Various developers, Retailers Association and members of the multiplexes said that the issue falls within the ambit of list II of the Seventh Schedule of the constitution, which is a state subject.