Qp THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 18.04.2009 + WP(C) 1659/2008 HOME SOLUTION RETAIL INDIA LTD ... Petitioner - versus - UOI & ORS ... Respondents AND + WP(C) 4130/2008 LIFESTYLE INTERNATIONAL P. LTD & ANR ... Petitioners - versus - UOI & ORS Respondents AND WP(C) 4131/2008 SHOPPER'S STOP LTD Petitioner - versus - UOI & ORS Respondents AND + WP(C) 4749/2008 FUN MULTIPLEX P. LTD ... Petitioner - versus - UOI & ORS ... Respondents AND WPCNos. 1659/2008 & ors Page No.I of39 Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified + WP(C) 5036/2008 WADHAWAN LIFESTYLE RETAIL P. LTD . Petitioner - versus - UOI & ORS Respondents AND + WP(C) 5643/2008 DEVYANI INTERNATIONAL LTD Petitioner - versus - UOI i& ORS Respondents AND + WP(C) 5976/2008 MAHTANI FASfflON PVT LTD Petitioner - versus UOI & ORS Respondents AND + WP(C) 5978/2008 BARISTA COFFEE COMPANY LTD Petitioner - versus - UOI & ORS ... Respondents AND + WP(C) 6033/2008 M/S GKB OPTOLAB (PVT)LTD BARDEZ,GOA ... Petitioner WPCNos. 1659/2008 & ors Page No.2 of39 - versus - UOI & ORS Respondents AND + WP(C) 6734/2008 BIBA APPARELS P. LTD Petitioner - versus - UOI & ORS Respondents AND + WP(C) 6744/2008 ASHOK KUMAR JAIN Petitioner - versus - UOI & ORS Respondents % AND + WP(C) 6993/2008 VARDHAMAN PROPERTIES LTD Petitioner - versus - UOI & ORS Respondents AND + WP(C) 7004/2008 WADHAWAN LIFESTYLE RETAIL P. LTD ... Petitioner - versus - WPCNos. ] 659/2008 & ors Page No.3 of39 \ UOI & ORS Respondents AND WP(C) 7122/2008 ASHOK JAIN AND ANOTHER Petitioners - versus - UOI & ORS Respondents AND + WP(C) 7164/2008 VATIKA LTD AND ANR Petitioners - versus - UOI & ORS Respondents AND + WP(C) 7212/2008 VATIKA HOSPITALITY PVT. LTD AND ANR ... Petitioners - versus - UOI & ORS ... Respondents AND + WP(C) 7654/2008 SAFFRON FOODS (P) LTD ... Petitioner WPCNos. 1659/2008 & ors Page No.4 of39 - versus - UOI & ORS Respondents AND + WP(C) 7664/2008 M/S FOOD PLAZA EXPRESS KITCHEN AND ORS ... Petitioners - versus UOI & ORS ... Respondents AND WP(C) 7722/2008 SSIPL RETAIL LTD AND ANR Petitioners - versus - UOI & ORS Respondents AND + WP(C) 7723/2008 GENESIS COLORS PVT LTD AND ORS Petitioners - versus - UOI & ORS Respondents AND WP(C) 8538/2008 M/S BATA INDIA LTD Petitioner WPCNos. 1659/2008 & ors Page No.5 of39 - versus - UOI & ORS ... Respondents AND + WP(C) 7964/2008 VINNAMR HOSPITALITY P. LTD ... Petitioner - versus - UOI ... Respondent AND + WP(C) 8771/2008 M/S BPTP LTD ... Petitioner - versus - ' \ UOI & ORS ... Respondents Advocates who appeared in this case: For the Petitioner ; Mr S. Ganesh, Sr Advocate with Mr Birendra Sarat, Mr Ameet Naik, Mr Rishi Agarwal and Ms Hemangi Abhyankar for the Petitioner in WP(C) 1659/2008. Mr Jayant Bhushan, Sr Advocate with Mr Shamik Sanjanwala, Mr Tapas Ram Mishraand Mr ShambhaviSinhafor the Petitioner. Dr A, M. Singhvi,Sr Advocatewith Mr MaheshAgarwal,Mr Rishi Agrawala, Mr Bhagvan Swamp Shukla, Mr Rajeev Kumar, Mr Akshay Ringe, Ms Rohma Hameed, Mr Anldt Shah and Mr Jaiveer Shergill for the Petitioner in WP(C) 4131/2008. Mr S. Ganesh, Sr Advocate with Mr S. Sukumaran and Mr B. Karunakaran for the Petitioner in WP(C) 8554/2008. Ms SaanjhN. Purohitfor the Petitionerin WP(C) 9642/2007. Ms Anshul Singh for the Petitioner in WP(C) 5643/2008, 5976/2008, 5978/2008 & 7043/2008. MrN. S.AroraforthePetitionerin WP(C)7043/08,7664/08. Ms AradhanaPatrafor the Petitionerin wiP(C)6734/08. Mr SanjayGoswamiwithMrH. K. Balajeeforthe Petitionerin WP(C)Nos. 6744/08, 6993/08. Mr J. K. Mittal with Mr SunilUpadhyayfor the Petitionerin WP(C) 7964/08. Ms RupalBhatiaforMr AlishanNaqveethe Petitionerin WP(C) 7722/08 &WP(C) 7723/08. WPCNos. 1659/2008& ors Page No.6 of39 # H Mr S. S. Pandit for the Petitioner in WP(C) 7654/08. Mr Raman Kapur for the Petitioner Nos. 1 and 2 in WP(C) 7122/2008. Mr A. R. Madhav Rao with Mr Pawan Shree Agrawal and Mr Tarun Jain for the Petitioner in WP(C)8538/08. Mr R. D. Jolly with Ms Rani Kiyala for the Petitioner in WP(C) 6033/08. For the Respondents; Mr P.P. Malhotra, ASG with Mr S. K. Dubey with Mr Deepak Kumar and Mr K. B. Thakur for the Respondent No.l/QOI in WP(C) 10757/06. Mr Mukesh Anand with Mr Shailesh Tiwari for the Respondent/UOI in WP(C) Nos. 1659/08, 9642/07, 6033/08 & 5643/08. Mr Dalip Mehra for the Respondent/UOI in WP(C) 5643/2008. • Mr Vivek Sibal with Mr Prabal Bagchi for the Respondents 10 & 11 in WP(C) 4130/08. Mr Amrendra Kr. Singh for the Respondent No. 5 in WP(C) 5036/08. Mr S. C. Rana for the Respondent in WP(C)5036/08. Mr S. K. Nanda for Mr Rakesh Tiku for the Respondents 16 and 17 in WP(C) 5978/08. Mr Rohit Kumar for the Respondents, 4 & 11-13 in WP(C) 6033/08. Mr Ajay Kapur with Ms Savita Rajdor for the Respondents 5, 6 & 7 in WP(C)7164/08. Mr Ajay Kumar for the Respondent No. 5 in WP(C)1659/08. Mr Ajay Kumar for the Respondent No. 12 in WP(C) 4130/08. Ms Anjana Gosain for the Respondent/UOI in WP(C) Nos.9642/07, 5036/08, 6734/08 & 8554/08. Mr R. S. Mathur for the Respondents 17 & 18 in WP(C) 6033/08. Mr Prakash Kumar for the Respondent No. 3 in WP(C) 4749/08. —^ MrPradeepAggarwalwithMrDeepDhamijafor the Respondent No. 6 in WP(C) 1659/2008. Ms Sonia Mathur with Mr Sushil Kr Dubey for the Respondent in WP(C) 4130/08, 4131/08, 4749/08, 5976/08, 5978/08, 6744/08, 6993/08, 7004/08, 7122/08, 7164/08, 7212/08, 7654/08, 7664/08, 7722/08,7723/08. Mr Amit Bhagat with Mr Pulkit Gupta for the Respondent No. 16 in WP(C) 5978/08. Mr Ankit Jain for the Respondent No. 4 in WP(C) 5643/08. Mr Rajesh Mahna with Mr Ramanand Roy for the Respondents 14- 16inWP(C) 6033/08. Ms Priyadeep for the RespondentNo. 6 in WP(C) 4131/2008. Mr Sachin Sood for the RespondentNo. 5 in ^(C) 4130/08. Mr Sachin Sood for the Respondent No. 7 in WP(C) 4131/08. Mr Sachin Sood for the RespondentNo. 14 in WP(C) 5978 /08. Mr Tarun Gulati with Mr Tushar Jarwal for the Respondent No. 11 in WP(C) 7043/08. . Mr Tarun Gulati with Mr Tushar Jarwal for the Respondent No. 4 in WP(C). 8554/08. Mr Tarun Gulati with Mr Tushar Jarwal for the Respondent No. 3 in WP(C) 9642/07. Mr Rajiv Tyagi with Ms Chanchal Biswal and Mr Udit Kumar for the Respondent No. 3 in WP(C) 7664/08. Mr S. S. Pandit for the Respondent 27 in WP(C)5036/08. 1VFCNos. 1659/2008 & ors Page No.7 of39 CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAiq)HER 1. Whether Reporters of local papers may be allowed to see the judgment ? YES 2. To be referred to the Reporter or not ? YES 3. Whether the judgment should be reported in Digest ? YES BADAR DURREZ AHMED, J 1. In this batch of writ petitions the legality, validity and vires of notification no. 24/2007 dated 22/05/2007 and circular no. 98/1/2008-ST dated 04/01/2008 issued by the Secretary, Ministry of Finance, Department of Revenue, Government of India, New Delhi is challenged. It is alleged that by virtue of the said notification and circular a completely erroneous interpretation is placed on section 65 (90a) and section 65 (105) (zzzz) of the Finance Act, 1994 as amended by the Finance Act, 2007. It is further alleged that because of this incorrect interpretation, service tax is sought to be levied on the renting of immovable property as opposed to service tax on a service provided "w relation to the renting ofimmovable property". 2. In essence, the petitioners have raised the question as to whether the Finance Act, 1994 (hereinafter referred to as the said Act) envisages the levy of service tax on letting out / renting out of WPCNos. 1659/2008 &ors PageNo.8of39 % immovable property per se ? According to the petitioners, who are either landlords or tenants in respect of leased premises, no such tax is envisaged under the said act. Consequently, the said notification dated 22/05/2007 and the said circular dated 04/01/2008 are sought to be set aside as being ultra vires the said act. 3. Alternatively, the petitioners have taken the plea that in case it is held that such a tax is envisaged then the provisions of section 65(90a), section 65(105)(zzzz) and section 66 insofar as they relate to the levy of service tax on renting of immovable property would amount to a tax on land and would therefore fall outside the legislative competence of Parliament inasmuch as the said subject is covered under Entry 49 of List II of the Constitution of India and would fall within the exclusive domain of the state legislature. As such, the said provisions would have to be declared as un-constitutional. 4. The said notification dated 22/05/2007 is an exemption notification purportedly issued in exercise of the power conferred by sub-section (1) of section 93 of the Finance Act, 1994. By virtue of the said notification, the central government exempted the "taxable service of renting of immovable property", referred to in sub-clause (zzzz) of clause (105) of section 65 of the Finance act, from so much of the service tax levy as was in excess of the service tax calculated on a WPCNos. 1659/2008 &ors PageNo.9of39 •t. value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax levied or collected by local bodies. An example has also been provided in the said notification by way of illustration. The example is asunder:- "Example: Property tax paid for April to September = Rs 12,000/- Rent received for April = Rs 100,000/- Service tax payable for April = Rs 98,000/-(l00,000- 12,000) * applicable rate of service tax" 5. It is the contention of the petitioners that though this notification speaks of an exemption it also refers to the "taxable service as a taxable service of renting of immovable property". This, according to the petitioners, is not so provided under the said act. It is contended that section 65(105)(zzzz) refers to the service provided or to be provided to any person, by any other person, in relation to renting of immovable property for use in the course or furtherance of business or commerce. The reference in the said provision is not to the taxable service of renting of immovable property but to the taxable service "in relation to" the renting of immovable property. It is the petitioners contention that while the act does not treat renting of immovable propertyas a taxableservice,the notificationproceedson the basisthat the taxable service is the renting of immovable property itself It is on WPCNos. 1659/2008 & ors Page No.10 of39 Ok / / this basis that it has been contended that service tax is sought to be recovered from the petitioners on a pure misreading of the statutory provision. 6. Similarly, the impugned circular whilst giving a clarification in respect of commercial and industrial construction service has purported to clarify that the "right to use immovable property is leviable to service tax under the renting of immovable property service". Consequently, by the said clarification, the Union of India is seeking to levy service tax on renting of immovable property instead of on services in relation to renting of immovable property. According to the petitioners, the clarification therefore travels beyond the provisions of the said act by contemplating a service tax on the renting of immovable property itself 7. Before we proceed any further it would be appropriate if the relevant provisions of the said act are pointed out. Chapters V and VA which comprise of sections 64 to 96-1 of the Finance act, 1994 pertain to provisions for service tax. Section 65 ofthe said Act is comprisedof definitions. Section 66 provides for the charge of service tax. It stipulates that there shall be levied a service tax at the rate of 12% on the value of the taxable services referred to in, inter alia, sub-clause (zzzz) of clause (105) of section 65 and collected in such manner as WPCNos. 1659/2008 & ors Page No.11 of39 may be prescribed. Clause (105) of section 65 of the said act defines "taxable service". Sub-clause (zzzz) thereof reads as under:- "Section 65. Definitions.—in this chapter, unless the context otherwise requires,- xxxx xxxx xxxx xxxx xxxx (105) "taxable service" means any service provided or to be provided,- xxxx xxxx xxxx xxxx xxxx (zzzz) to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce. Explanation 1. - For the purposes of this sub-clause, "immovable property" includes— (i) building and part of a building, and the land appurtenant thereto; •S (ii) land incidental to the use of such building or part of a building; (iii) the common or shared areas and facilities relating thereto; and (iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, but does not include-- (a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes; (b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land; (c) land used for educational, sports, circus, entertainment and parking purposes; and WPCNos. 1659/2008 & ors Page No.12 of39 v. (d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities. Explanation 2. - For the purposes of this sub-clause, any immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce;" The expression "renting of immovable property" has been defined in section 65(90a) as under:- "(90a) "renting of immovable property" includes the renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include— (i) renting of immovable property by a religious body or to a religious body; or (ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre. Explanation 1. - For the purposes of this clause, "for use in the course or furtherance of business or commerce" includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings; Explanation2. - For the removalof doubts, it is herebydeclared that for the purposes of this clause "renting of immovable property" includes allowing or permittingthe use of space in an immovableproperty, irrespectiveof the transfer of possessionor control of the said immovable property;" 8. Mr. S Ganesh, the learned senior counsel appearing on behalf of the petitioner in writ petition (civil) no. 1659/2008 {Home WPCNos. 1659/2008 & ors Page No.13 of39 % Solutions Retail India Ltd v. Union of India], submitted that the provisions of the said act do not provide for the levy of service tax on the renting of immovable property as such. It was also contended that the said act does not treat renting out of immovable property as a service. According to him, in terms of section 65(105)(zzzz), service tax is levied only on a service which is provided or to be provided to any person by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce. It was contended that on a plain reading of this provision, the service provided must be something which is distinct and different from the transaction of renting of immovable property as such though the service would have to be in relation to such renting. If the legislature wanted to treat renting of immovable property as a service, then, nothing would have been easier or simpler for the legislature than to use the words "service by way of renting of immovable property" or "the service of renting of immovable property" or "service consisting of renting of removal property". 9. It was further contended that the said provision indicates that the service will be provided "by any other person" and not only by the owner or lessor or person in possession of the immovable property. Furthermore, the service could be rendered to any person provided it was in relation to the renting of the property and not merely to the WPCNos. 1659/2008 & ors Page No.14 of39 person who takes the property on rent. If the renting of property as such constituted a service which could be taxed, then such a service could only be rendered to the person taking the property on rent and not "to any person". According to the learned senior counsel, this clearly indicates that renting of immovable property as such cannot be regarded as a service on which service tax could be levied under the provisions of the said act. 10. Mr. Ganesh also sought to draw a distinction between the provisions of section 65(105)(zzzz) and section 65(88) of the said act. The latter provision has a reference to the service of a real estate agent in relation to the renting of immovable property. It was contended that the language of the two provisions is similar. From this it was sought to be contended that there is a clear indication that the expression "service in relation to the renting of immovable property" means a service which is distinct and different from the renting of property itself although it may be connected with or related to such renting. According to him, these services (which are not covered by other specific clauses of section 65) includeair-conditioningservice,standby power service, sanitation service, water supply service etc. He also made reference to a circular dated 17/09/2004 issued by the Central board of Excise and Customs which has been extracted at page 17 of the petition in WP(C) no. 1659/2008[HomeSolutionsRetail India Ltd WPCNos. 1659/2008 &ors Page No.15 of39 it V. Union of India] and which apparently states that "the activity of renting premises is not rendering of service". 11. It was therefore submitted that the impugned notification dated 22/05/2007 and the impugned circular dated 04/01/2008 which proceed on the assumption that the renting out of immovable property is by itself a service, are contrary to and inconsistent with the charging provision and are therefore ultra vires ihQ Act and hence bad in law. With reference to the decision in the case of Union Of India v. Intercontinental: 2008 (226) ELT 16, the learned counsel submitted that a circular or notification can never rewrite or amend the provisions of the statute. 12. Mr. Ganesh submitted that the judgment of the Supreme Court in the case ofAll India Federation Of Chartered Accountants v. Union Of India: (2007) 7 SCC 527 fiilly supports the case of the petitioner that the service contemplated and covered by section 65(105)(zzzz) is a property-based or property related service, but it must be a service all the same. Reliance was placed on paragraphs 7 and 48 of the said decision. He also referred to the Supreme Court decision in the case of T. N. Kalvana Mandavam Association v. Union of India & Others: (2004) 5 SCC 632 and submitted that the said decision also supports the case of the petitioners. According to him, WPCNos. 1659/2008 & ors Page No.16 of29 •l the said judgment makes it clear that a particular property can be regarded as a Kalayana Mandapam (supra) only if it has all the apparatus, equipment and infrastructure which enables it to be utilised for rendering services for the holding of ceremonial, religious or social functions. It was also submitted by him that the Supreme Court decision in the case of the Dovvack Systems Private Limited v. Union of India: (1998) 2 SCC 299, which had interpreted the words "m relation to^\ also contemplated that it applied to a different subject matter as compared to the thing to which it was related. In this backdrop, the learned counsel submitted that the service in relation to the renting of immovable property necessarily has to be a distinct subject matter as compared to the renting out of the property itself There is no doubt that the words "in relation to" have a wide ambit but that only means that a wide variety of services relating to the renting a property would be covered by the charge of service tax. 13. It was further contended that a bare room in a commercial building could not be considered to be an office unless and until it was fully equipped with equipment and also manned by personnel. It is only then that the renting of such an office or permitting its use would constitute the rendering of a service. Similarly, renting out of a large property does not constitute a service in itself even though the tenant may use it for the purpose of conducting a wedding or other ceremonial WPCNos. 1659/2008 & ors Page No.17 of39 tL function. Referring to the Supreme Court decision in the case of BSNL V. Union ofIndia: (2006) 3 SCC 1, the learned counsel submitted that the very same transaction cannot constitute both a transfer of property and also the rendering of a service. Whether the property is granted by way of a lease or licence it is merely a property transaction and cannot possibly be construed as the rendering of a service. 14. The learned counsel appearing for the petitioner in writ petition (civil) number 8554/2008 {Alpha Future Airport Retail (India) Ltd v. Union of India] submitted that his case had an added dimension. He submitted that Delhi International airport Limited has the right to operate duty-free shops in designated areas in the Delhi International airport. The said Delhi International airport Limited has granted a licence to the petitioner to operate the said duty-free shops. The licence agreement is a single indivisible agreement which grants to the petitioner the licence to operate the said duty-free shops and also permits the petitioner to use the space in the said areas. For this purpose, the petitioner pays a composite licence fee to Delhi International airport Limited which is partly a fixed amount and partly a percentage of the gross sale proceeds of the duty-free shops. It is impossibleto ascertainwhat part of it is attributableto the user of the immovable property as distinct from the grant of the licence to operate a duty-freeshop. It was submittedthat in the very natureof things,the WPCNos. 1659/2008 & ors Page No.18 of39 user of the property and the grant of the licence were inseparable because the duty-free shops could not be operated in any place other than the said designated areas in the Delhi International airport. It was submitted that there is no machinery or provision under the said act to determine the amount which is attributable to the user of the property as distinct from the grant of the licence to operate the duty-free shops. Consequently, the charge of service tax would in any event break down. Thus, it was contended, that when the computation was not possible the charge itself would fail. Reliance was placed on the decision of the Supreme Court in Commissioner of Income-tax, Bansalore v. B.C. Srinivasa Shettv: 128ITR 294 [(1981) 2 SCC 460]. 15. Dr. Abhishek Singhvi, senior advocate, who appeared for the petitioner in writ petition civil number 4131/2008 {Shoppers Stop Limited v. Union of Indid\, submitted that the expression "in relation to" separates objects from each other. According to him the phrase by itself conceives of two separate things. He submitted that service tax is a value-added tax and therefore only the value addition is liable to be taxed by way of a service tax. He referred to the decision of the Supreme Court in the case of All India Federation of Tax Practitioners (supra). In particular,