Renting of immovable property - Waiver of Penalty

Taxability of Renting of Immovable property service levy came in to effect from 01-06-2007.

And the latest development in the same claims to provide the assesses with a benefit by waiving of penalty and litigation.

As per the legislative changes relating to Service Tax covered by The Finance Bill, 2012 Government of India has provided for waiver of Penalty for renting of immovable property service for those taxpayers who pay the service tax due on the renting of immovable property service (as on the 6th March, 2012), in full along with interest within 6 months. For the said purpose Section 80(2) is being introduced. Those who fail to avail the given benefit will be treated as if this section did not existed.

The above changes are brought in the backdrop of pronouncement of the Delhi High Court on 18.04.2009 regarding constitutionality of service tax on renting of immovable property service in the matter of Home Solutions Retail India Ltd. Vs UOI whereby after due examination of the definition, held that the definition meant to cover only “the service in relation to renting” and not “mere renting of the immovable property”. Further concluded that service tax is a value added tax and mere renting does not bring any value addition and the renting of immovable property for furtherance of business or commerce, per se, is not a taxable service falling within the scope of section 65(105) (zzzz) of Finance Act, 1994.

However the service tax liability on commercial rental is final in the states of Punjab, Haryana, Maharashtra, Gujrat & Oridsha as their High Court have already upheld the constitutionality of service tax on renting of immovable property service.

Because of this ambiguity the Government amended the definition of the taxable service "renting of immovable service" to cover the ‘mere renting’ in the definition on 01.07.2010 with retrospective effect from 01.06.2007. The amended definition is read as “any service provided or to be provided to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or, for furtherance of, business or commerce”

This amendment took Home Solutions Retail India again to the Delhi High Court. This time Delhi High Court upheld the constitutional validity of the same in M/s Home Solution Retail India Ltd & Others vs UOI and Ors and further concluded that renting involves value addition.

Government now has made assessees available with relief, under newly inserted section 80(2), from payment of penalty provided they pay the service tax due in full along with interest within 6 months .i.e. on or before 28.11.2012, and those who fail to avail this benefit will be treated as if this section did not existed.

The penalty can be imposed by the Revenue,byissuing a SCN within 5 years from the relevant year. As in the above mentioned cases of service providers not paying the service tax on commercial rental without taking a stay for such property from a competent court, so they fall within the category of non payment of service tax by reason of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, hence the SCN can be issued to them within 5 years from the relevant date.

It is advicable to pay full sevice tax liability along with interest on the same in order to avoid the penalty imposition and long, expensive and stressful litigations.