INDIA
A bench of the Gujarat high court will decide on the issue of levying service tax on leased and rented properties occupied by retail giants in the state.
A bench of the Gujarat high court will decide on the issue of levying service tax on leased and rented properties occupied by retail giants in the state. Many retail companies have approached the Gujarat high court challenging the provisions of the Finance Act, on the ground that the same are ultravires to the constitution and that the Centre cannot impose such taxes as it falls under the jurisdiction of the state.
All such petitions will come for hearing before a division headed by chief justice of Gujarat high court
on Monday.
The companies have alleged that the letting out of Immovable property is only a property transaction and cannot be considered as a service rendered.
The petition was filed by Cinemax India ltd, Next Retail India ltd, Trent Hypermarket Ltd, V Square Project, Villa Developers, Ariane Furnishing Solutions LLP, Infiniti Retail Ltd, Globus Stores Pvt Ltd against the state government, Centre and the land lords of the properties in 2010.
The Centre had through the Finance Act, 2007 introduced provision of service tax on transaction of renting of the immovable property.
Further the said Act was amended in 2008 and lastly in 2010. The government had under this Act imposed service tax on every transaction of rent agreements.
In the petition filed by Infinity and Globus through advocate AR Gupta, it is alleged that as a result of the provision of the service tax on the agreements, owners pressure the tenants to pay the same. This, despite the fact that under the provisions, owners are supposed to pay the tax.
The companies further argue that this practice had been endorsed by the government in its letter dated February 26, 2010.
Hence, the companies filed a petition whereby they pleaded that such taxes create artificial liabilities for companies who carry their business on rented premises.
In the petition the companies further stated that imposition of service tax on the letting of immovable property goes back to almost three years (2007) and as the amendment is carried out with retrospective effect, the service tax which is required to be paid is 12.5% of the rental amount.
However, the Centre and the state government have refused to buy the said theory and submitted that the Act is not ultravires.
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