| Delhi High Court in the case of Home Solution Retail | | | | these are situations contemplated by, and provided for |
| India Ltd v UOI [2009-TIOL-196-HC-DEL-ST] examined | | | | by, the Act and the Rules. |
| the legality, validity and vires of notification No. 24/2007 | | | | |
| dated 22/05/2007 and circular No. 98/1/2008-ST dated | | | | In Para 99 of the judgment, 5 judges forming majority |
| 04/01/2008 as the said notification and circular allegedly | | | | judgment held that: |
| placed a completely erroneous interpretation on | | | | |
| section 65 (90a) and section 65 (105) (zzzz) of the | | | | Illegal Levy: |
| Finance Act, 1994 as amended by the Finance Act, | | | | (i) Where a refund of tax |
| 2007. | | | | duty is claimed on the ground that it has been collected |
| | | | | from the petitioner/plaintiff by mis-interpreting or |
| Section 65 (105) (zzzz) of the Finance Act levies | | | | mis-applying the provisions of the Central Excises Act |
| service tax on the services provided or to be provided | | | | or by mis-interpreting or mis-applying any of the rules, |
| to any person, by any other person, in relation to | | | | regulations or notifications issued under the said |
| renting of immovable property for use in the course or | | | | enactments, such a claim has necessarily to be |
| furtherance of business or commerce. Notification No. | | | | preferred under and in accordance with the provisions |
| 24/2007 exempts property tax levied by the local | | | | of the respective enactment before the authorities |
| bodies from the gross value of rent for the purpose of | | | | specified thereunder and within the period of limitation |
| service tax. The circular clarifies that the "right to use | | | | prescribed therein. No suit is maintainable in that behalf. |
| immovable property is leviable to service tax under the | | | | While the jurisdiction of the High Courts under Article |
| renting of immovable property service". | | | | 226 and of the apex court under Article 32 cannot be |
| | | | | circumscribed by the provisions of the said |
| It was contended before the court that while the | | | | enactments, they will certainly have due regard to the |
| Finance Act does not treat renting of immovable | | | | legislative intent evidenced by the provisions of the |
| property as a taxable service, the notification/circular | | | | said Acts and would exercise their jurisdiction |
| proceeds on the basis that the taxable service is the | | | | consistent with the provisions of the Act. |
| renting of immovable property itself, and because of | | | | |
| this incorrect interpretation, service tax is sought to be | | | | Unconstitutional Levy: |
| levied on the renting of immovable property as | | | | (ii) Where, however, a refund |
| opposed to service tax on a service provided "in | | | | is claimed on the ground that the provision of the Act |
| relation to the renting of immovable property". In | | | | under which it was levied is or has been held to be |
| defense, the Revenue contended that that the | | | | unconstitutional, such a claim, being a claim outside the |
| expression "in relation to renting of immovable | | | | purview of the enactment, can be made either by |
| property" also covered the act of renting of | | | | way of a suit or by way of a writ petition. |
| immovable property. | | | | |
| | | | | In the instant case, the High Court has not examined |
| The Court held that section 65(105)(zzzz) does not | | | | the legislative competence of the Parliament in the |
| entail that the renting out of immovable property for | | | | context of Entry 49 of List II of the Constitution of India |
| use in the course or furtherance of business of | | | | as stated in para 37 of the judgment. In para 36 of the |
| commerce would by itself constitute a taxable service | | | | judgment, the court has categorically stated that the |
| and be exigible to service tax under the Finance Act. | | | | interpretation placed by the impugned notification and |
| Consequently, court held that the interpretation placed | | | | circular on the said provision is not correct. In view of |
| by the notification and circular on the said provision is | | | | the above findings and observations of the High Court, |
| not correct and therefore ultra vires the Finance Act | | | | service tax on rent can be considered as illegal levy |
| to the extent that they authorize the levy of service | | | | and not unconstitutional levy. |
| tax on renting of immovable property per se. | | | | |
| Accordingly, notification/circular were set aside. | | | | In view of the above, the refund of service tax on rent |
| | | | | will be governed by the provisions of the Finance Act. |
| In view of the court order, renting out of immovable | | | | In terms of section 83 of the Finance Act, provisions of |
| property for use in the course or furtherance of | | | | section 11B of the Central Excise Act pertaining to |
| business of commerce will not by itself constitute a | | | | refund of duty are also applicable for refund of service |
| taxable service. However, any service in connection of | | | | tax. Section 11B of the Central Excise Act provides |
| renting will be a taxable service. Therefore, service tax | | | | that any person claiming refund of any duty of excise |
| collected by the Revenue since 1 June 2007 on renting | | | | may make an application for refund of such duty to |
| of immovable property is illegal and without authority of | | | | the Department before the expiry of one year from |
| law. Article 265 of the Constitution of India declares | | | | the relevant date, provided that the incidence of such |
| that “no tax shall be levied or collected except by | | | | duty had not been passed on by him to any other |
| authority of law”. Hence taxes collected contrary to | | | | person. Usually, it is the manufacturer who pays excise |
| law have to be refunded. The question arises whether | | | | duty to the exchequer. However, in terms of Section |
| the public has automatic, absolute and unconditional | | | | 11B(2)(e), relevant date in the case of a person other |
| right to refund of service tax paid on the rent and | | | | than the manufacturer is the date of purchase of the |
| whether claim for refund to be perused under the civil | | | | goods by such person. |
| suites or under the provisions of the Finance Act. | | | | |
| | | | | A perusal of above provisions make it clear that buyer |
| In the case of Mafatlal Industries Ltd v UOI [1997 (89) | | | | of the goods is required to file a refund claim |
| E.L.T. 247 (S.C.)], a nine judge bench of the Hon’ble | | | | wherever the manufactured goods has been sold by |
| Supreme Court observed that: | | | | the manufacturer and burden of excise duty has also |
| | | | | been passed to such buyers. Accordingly, in case of |
| “16. **********where a taxing enactment | | | | refund of service tax also, where the service provider |
| contains provisions providing for and governing the | | | | has passed the burden of service tax to the service |
| refund of taxes collected without the authority of law, | | | | recipient, the service recipient has to file a refund claim. |
| the validity of such provisions, if and when questioned, | | | | A person who has paid such tax will be entitled to file |
| has to be examined with reference to other provisions | | | | a claim for refund under Section 11B of the Central |
| of the Constitution. Article 265 does not itself lay down | | | | Excise Act and such refund will be allowed only if the |
| any criteria for testing the validity of a statute. When it | | | | claimant had not passed on the incidence of such tax |
| speaks of “law”, it no doubt refers to a valid law | | | | to a third party. In the Mafatlal case, the Court in Para |
| but the validity of a law has to be determined with | | | | 99(iii) also held that: |
| reference to other provisions in the Constitution. | | | | |
| | | | | Unjust Enrichment: |
| 17. We must, however, pause here and | | | | (iii) A claim for refund, whether |
| explain the various situations in which claims for refund | | | | made under the provisions of the Act as contemplated |
| may arise. They may arise in more than one situation. | | | | in (i) above or in a suit or writ petition in the situations |
| One is where a provision of the Act under which tax | | | | contemplated in (ii) above, can succeed only if the |
| is levied is struck down as unconstitutional for | | | | petitioner/plaintiff alleges and establishes that he has |
| transgressing the constitutional limitations. This class of | | | | not passed on the burden of duty to another person |
| cases, we may call, for the sake of convenience, as | | | | other persons. Where the burden of the duty has |
| cases of “unconstitutional levy”. In this class of | | | | been passed on, the person who has ultimately borne |
| cases, the claim for refund arises outside the | | | | the burden can legitimately claim refund. But where |
| provisions of the Act, for this is not a situation | | | | such person does not come forward or where it is not |
| contemplated by the Act. | | | | possible to refund the amount to him for one or the |
| | | | | other reason, it is just and appropriate that that amount |
| 18. Second situation is where the tax is | | | | is retained by the State, i.e., by the people. |
| collected by the authorities under the Act by | | | | |
| mis-construction or wrong interpretation of the | | | | In view of the above, it appears that Refund can be |
| provisions of the Act, Rules and Notifications or by an | | | | claimed only for the period of one year and provisions |
| erroneous determination of the relevant facts, i.e., an | | | | of section 11B of the Central Excise Act will be |
| erroneous finding of fact. This class of cases may be | | | | applicable. The option of filing a suit or writ petition or |
| called, for the sake of convenience, as “illegal | | | | extension of time upto 3 years is not available in the |
| levy”. In this class of cases, the claim for refund | | | | present case. |
| arises under the provisions of the Act. In other words, | | | | |