By TIOL News Service

ERNAKULAM, APR 13, 2015: THE Petitioner is a Department of Kerala State Government. They challenged the order passed by the Commissioner confirming service tax liability on renting of immovable service in a Writ Petition filed before the High Court.

It is the contention of the Petitioner that, being a department of the State Government, cannot be subjected to the levy of service tax in as much as the services rendered by it are in the course of discharging sovereign functions and hence, the concept of a taxable service, for the levy of service tax, does not arise in the transactions between the petitioner and its clients. It is contended that leasing of property is a subject contemplated within Entry 35, read with Entry 18 of List II of the Constitution and hence only the State Legislature can levy a tax on services rendered in connection with leasing of immovable property. It is further contended that, inasmuch as the activity of leasing out property and receiving rent, in the instant case, is an administrative function envisaged under List II of the 7th Schedule read with Article 246, the levy of service tax as contemplated under the Finance Act,1994, as amended, cannot be made applicable to the services rendered by the State Government. It is further pointed out that, the levy of service tax is on services rendered by one person to another and, in the instant case, the State Government cannot be treated as "a person" for the purposes of the Act.

After hearing both sides, the High Court held:

Although, it is the contention of the petitioner that, by virtue of Entry 35 read with Entry 18 List II of the Constitution of India, leasing of property is a subject under the State List, and therefore, only the State legislature would have the power to legislate in respect of the said subject, the said entries do not deal specifically with levy of a tax on renting of immovable property services. It is not in dispute that the legislative sanction for the levy of a service tax on renting of immovable property services is traceable to Entry 97 of List I of the Constitution of India. That being so, and there being no specific entry dealing with the subject of service tax in any of the other lists in the 7th Schedule to the Constitution of India, the competence of the Parliament to legislate in respect of service tax on renting of immovable property services cannot be called in question.

As regards the contention of the petitioners that the State, as a body, will not come under the coverage of the Finance Act, 1994, as amended, as per the specific provisions of Section 65(B)(37) of the Finance Act,1994, as amended, the word "person" is defined as including, inter alia, "Government". Thus, as far as the applicability of the Finance Act, 1994, as amended is concerned, it would apply even in respect of services rendered by a State Government, unless the services fall under the negative list of services under the Statute. Thus, in the instant case, there is no ground to infer that, in passing the impugned order, the respondents were acting under any jurisdictional error in confirming a demand of service tax on the petitioner in respect of the services rendered by the petitioner. It is open for the Petitioner to claim before the CESTAT if they are covered under the negative list.

Accordingly, the High Court disposed of the Petition by directing the Petitioner to file appeal before the Tribunal within one month along with application of waiver of pre-deposit as the lis related to the period prior to the amendment of Section 35F.

(See 2015-TIOL-895-HC-KERALA-ST)