Dear Friends
Does the Order dated 18-Apr-2009 of the Delhi High Court relieving taxpayers from liability to pay a ‘Central Service Tax’ upon rentals of immovable property ‘per se’ impact taxpayers outside Delhi? 1. The Order and Judgment dated 18-Apr-2009 of the High Court of Delhi with regard to the levy of the Central Service Tax on the ‘Rentals’ derived from letting out of immovable property is discussed here. 2. The Finance Act, 1994 provides for the levy of a ‘Service Tax’ by the Central Government on ‘enumerated services’. One such entry, ‘Section 65(105)(zzz)’ has invited much controversy amongst retailers, tenants and building owners and has been the subject of numerous Writ Petitions filed before various High Courts. 3. What exactly does Section 65 (105) (zzz) authorise? Well, the Government of India claims that this Section authorises the levy of a ‘Service Tax’ upon letting out of immovable property ‘per se’. Tax payers contend that such an interpretation defeats several constitutional provisions. 4. At some point last year, the Government of India (GOI) did move the Hon’ble Supreme Court under Article 139A for the transfer of Writ petitions filed before various High Courts on the said ground. As to what method of ‘transfer’ was sought, I do not have information and after a week of enquiry with the Officers of the GOI, I can safely assert here that neither are top ranking officers within the GOI that much aware of what eventually happened to those ‘transfer’ petitions. The argument of the GOI before the Supreme Court was that there was a possibility of ‘conflicting judgments’ and that such a transfer was necessary to avert such a conflict of judgments. There are three methods of ‘transfer’ envisaged under Article 139A and one such method involves the transfer of cases pending in one High Court to another High Court. That the Order of the Delhi High Court on 18-Apr-2009 fails to mention the names of some of the parties who had filed elsewhere (such as Retailers Association of India, Confederation of Real Estate Developers' Associations of India and Multiplex Association of India in Bombay High Court), I would think that the Delhi High Court was not entrusted with the adjudication of all Writ Petitions filed elsewhere in the country on the issue. However, the name of one petitioner, Ms. GKB Optolab Pvt. Ltd, Bardez, Goa, leaves me in doubt as to whether all the 23 petitions adjudicated by the Common Order dated 18-Apr-2009 were originally filed in the Delhi High Court. 5. Now, why does it matter if the petitions were originally filed in the Delhi High Court of if they were transferred from other High Courts pursuant to a specific Order of the Supreme Court under Article 139A? The answer to the above question will let us determine the true extent of ‘reach’ of the Order dated 18-Apr-2009 passed by the Delhi High Court. 6. What is at stake here, anyway? Rs.8000 Crores, at a minimum, is the sum of ‘service tax’ that the GOI expects to collect annually across the country, from the levy of service tax on rentals of immovable property. How much of this sum is disrupted by the Order of the Delhi High Court is determined with reference to the ‘reach’ of the said Order of Court. 7. To begin with, let’s see what the press had to say. The financial and the general press in India said things like: ‘businesses and retailers across India have reasons to cheer’, ‘retailers across India will no longer have to pay service tax on rentals of immovable property’. ‘the Government of India is now poorer by Rs.8000 Crores annually as the same is the budgeted receipt under that head for the country as a whole’. One newspaper quoted a lawyer who had to say ‘the striking down of a central law as unconstitutional by one High Court will have the effect of nullifying the same in other states’. Really? 8. I have faced a deluge of calls by people wanting to know if the Order of the Delhi High Court protects tax payers outside of Delhi. Let’s explore here. 9. Various press accounts tell us that the GOI sought transfer of petitions from six High Courts. Now, we have twenty one High Courts in our country. And the jurisdiction and powers of a High Court are constitutionally bestowed and are not subject to the pleasure of another High Court or even of the Hon’ble Supreme Court. So, should we assume that the 23 petitions adjudicated by the 18-Apr-09 Order of Delhi High Court involves petitions transferred from five other High Courts, then, the order of the Delhi High Court, is in effect, the Order of six High Courts. So, in those six states, this Order will take effect as if the adjudication was of the High Court of the relevant State. The five High Courts, as reported in the press, are the Bombay, Madras, Calcutta, Punjab & Haryana and Kerala High Courts. 10. In the balance States in respect of which Writ Petitions filed before the jurisdictional High Court (or in the alternative, where no challenge was made at all before the jurisdictional High Court) were not transferred to the Delhi High Court, the Order of the Delhi High Court assumes no real significance except as an inspiration for a taxpayer in that State to move his High Court for an appropriate remedy and relief. 11. Should we assume that the 18-Apr-2009 Order of the Delhi High Court did not involve any petition filed before another High Court, the impact of the said Order does not travel beyond the Union territory of Delhi. Taxpayers outside of Delhi receive no relief from the said Order. 12. At this point, it is pertinent to ask if a tax payer who ascertains that he is not protected by the Order of the Delhi High Court could move the Supreme Court seeking a relief in like manner allowed by the Delhi High Court Order? 13. My answer would be a ‘NO’. The claim made by the petitioners before the Delhi High Court did not involve the violation of any ‘Fundamental Right’ and therefore, a taxpayer cannot approach the Supreme Court as a Court of first instance to advance his ‘constitutional claim’ unless he also proves that such a ‘constitutional claim’ is covered by Part III of the Constitution and is so, actionable under Article 32. 14. So, if the Delhi High Court Order did not involve petitions from other States and should the GOI appeal to the Supreme Court on Special Leave, what are the possibilities? 15. Assuming that the Supreme Court has indeed transferred to itself, petitions filed in various States except Delhi, at an appropriate stage during the hearing of the SLP against Delhi High Court Order, the Court could combine the SLP with the Writ Petitions pending before it and so, determine the issues before it conclusively and finally. 16. At this point, the question arises if the Supreme Court could not have heard all the matters itself instead of letting one High Court decide for itself or for itself and a couple of other High Courts? 17. The answer, again, is a ‘No’. Specifically, the Constitution authorises the Supreme Court, under Article 139A, to transfer to itself, proceedings pending in High Courts if only such proceedings involve the ‘same or substantially the same’ issues as are pending before the Supreme Court itself. Because it is foreseeable that a tax payer could not have moved the Supreme Court as a court of first instance, there was a bar upon the Supreme Court to dispose of the transferred writ petitions without ascertaining the commonality of issues as prescribed under Article 139A. 18. One aspect that emerges from this discussion is that the GOI should electronically keep updated information, preferably on its departmental website, on litigation in any Court across the country that involves the challenge to the constitutionality of any Central Statute. 19. So, to conclude, I must say that the Order dated 18-Apr-2009 of the Delhi High Court has no further impact beyond Delhi and impacts only those States from which ‘transferred petitions’ were adjudicated in the said Order. So, the national and business media got it wholly wrong in saying otherwise. Nothing of the sort they have claimed has happened yet. 20. What about a taxpayer not protected by the said Order of the Delhi High Court? Ideally, he will consult his attorney. Ordinarily, he would move his High Court for a similar relief and ask for interim reliefs including a direction to the Revenue to receive ‘taxes in protest’ (only where the Revenue is not enjoined from acting upon the impugned provisions by the High Court) pending adjudication of the issues before the Court. Regards K.V.Dhananjay Find attached the judgment of the Delhi High Court
