Retailers, real estate cos challenge levy of service tax

Retailers, real estate developers and multiplex owners, among others, have moved the Bombay High Court challenging the levy of service tax on rental income from commercial properties.

Pantaloon Retail, Trent Ltd, Aditya Birla Retail Ltd, Archies, CISCO systems India, Citibank NA, DLF Universal, IBM India, ITC Ltd, McDonalds India, Reliance Petromarketing, Reliance Webstore, Bombay Dyeing, Titan Industries, Unilever India Exports, Adlabs Films and Bijli Group are among those who have sought relief.

Tarun Gulati, advocate close to the matter, said that a bench, headed by Justice FI Rebello, had admitted the petition filed by the Retailers Association Of India (RAI), the Confederation of Real Estate Developers' Association of India (CREDAI) and the Multiplex Association of India (MAI).

While issuing notice to the government, the court also observed that any payment of service tax will be subject to the final outcome of the petition. The matter is listed for final hearing on September 17.

While making the Ministral Board of Excise and Customs and the Director General of Service Tax as respondents, the petitioners challenged the constitutional validity of the provision to levy service tax on renting of immovable property from June 1.

According to the associations, its 156 member companies engaged in the organised retail trade were directly affected by the new levy of service tax on rent payable toward leasing out premises for commercial purposes.

Pointing out that lease or licence (including renting or letting) was not a service and the impugned provisions were liable to be quashed, the petitioners said: "The levy of service tax is only on the services provided by a service provider, no service tax can be levied on the letting out of the immovable property."

While stating that mere inclusion of transfer of property as a taxable service under the statute would not make it a service, the petition filed through Mudhur R Baya pointed out that the impugned taxing entry had the effect of imposing unreasonable restriction on the fundamental rights to carry on trade and business and was violative of Articles 19(1)(g) and 265 of the Constitution of India.

Counsel Vikram Nankani, while stating that "letting and renting are synonymous to leasing", argued that the renting of immovable property was an integral part of the business and such transactions were being subject to the levy of stamp duty by various states under the Transfer of Property Act, 1882.

"The organised retail sector is best represented by the large format stores such as Big Bazaar, Hypercity, etc, and various shopping malls which offer the consumer the benefits of greater choice, lower prices, convenience of meeting all requirements at one physical location and a distinct buying experience.

"The growth of the organised retail industry has been considered by the economists as one of the surest indicators of the sustainable growth of an economy," RAI said, adding retail trade is currently at $12 billion and would touch $23 billion by 2010.

It may be noted that the government in 2004 and 2006 had introduced service tax on airport services and business support services, which included providing infrastructural amenities, respectively.