Service tax on Renting of immovable property by State Government

By | August 10, 2015

Question: Whether service tax law would apply even in respect of services rendered by a State Government ?

Service Tax

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As per section 65B(37), person  is defined as including  Government – Hence, service tax law would apply even in respect of services rendered by a State Government, unless services fall under negative list of services

HIGH COURT OF KERALA

Secretary to Government Department of Agriculture

v.

Union of India

A.K. JAYASANKARAN NAMBIAR, J.

W. P. (C) NO. 10423 OF 2015(C)

MARCH  31, 2015

FACTS

■         Service Tax Department demanded service tax from petitioner, being State Government Department, for providing ‘renting of immovable property services’.

■         Petitioner filed writ against adjudication order on ground that —

○         activity was a ‘sovereign function’ and did not amount to taxable service

○         as per Entry 35, read with Entry 18, of List II of Schedule VII of Constitution, leasing of immovable property can be taxed only by States and not by Centre

○         State Government is not a ‘person’ ; and

○         since appeal remedy was subject to condition of mandatory pre-deposit as per amended section 35F of Central Excise Act, 1944, hence, writ was maintainable.

■         Service Tax Department argued that there was appeal remedy and in any case, Parliament had power to levy service tax.

HELD

■         Entry 35, read with Entry 18 of List II ibid do not deal specifically with levy of a tax on renting of immovable property services. The legislative sanction for the levy of a service tax on renting of immovable property services is traceable to Entry 97 of List I of the Constitution of India. That being so, and there being no specific entry dealing with the subject of service tax in any of the other lists in the 7th Schedule to the Constitution of India, the competence of the Parliament to legislate in respect of service tax on renting of immovable property services cannot be called in question.

■         As regards the contention of the petitioners that the State, as a body, will not come under the coverage of the Finance Act, 1994, as amended, it is noted that, as per the specific provisions of section 65B(37) of the Finance Act, 1994, as amended, the word ‘person’ is defined as including, inter alia, ‘Government’. Thus, as far as the applicability of the Finance Act, 1994, as amended is concerned, it would apply even in respect of services rendered by a State Government, unless the services fall under the negative list of services under the Statute. Thus, in the instant case, there is no ground to infer that, in passing adjudication order, the service tax department was acting under any jurisdictional error in confirming a demand of service tax on the petitioner in respect of the services rendered by the petitioner. [Para 3]

■         The petitioner argued that, by virtue of the provisions of section 66B, the services rendered by the petitioner would fall under the negative list of services under the Finance Act, 1994 as amended. It is noted that, this aspect was not urged by the petitioner before the Service Tax Department. At any rate, it is open to the petitioner to raise the said point in an appeal which the petitioner is entitled to file against adjudication order before the CESTAT. Thus, the petitioner was relegated to the alternate remedy of filing an appeal before the CESTAT, in terms of the provisions of Finance Act, 1994, as amended. [Para 4]

■         As regards mandatory pre-deposit requirement, in cases where the commencement of the lis is prior to the coming into force of the amendment dated 6-8-2014, the appeal to be filed by the assessee would be governed by the provisions of the Finance Act, 1994, as is stood prior to its amendment by the amendment dated 6-8-2014. Hence, petitioner was granted an opportunity to prefer an appeal against adjudication order, before the CESTAT, together with an application for waiver of pre-deposit and stay. [Para 5]

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