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Govt to move SC on service tax on commercial rent
April, 24th 2009

Things do not seem to be looking up for the finance ministry even as it grapples a widening revenue deficit. And this time, the blow has been dealt by the Delhi High Court.

The Court has struck down the levy of service tax by the Centre on rented property for commercial use. The Court holds that renting real estate for commercial use by itself is not a service and so it cannot be taxed.

The verdict will impact similar cases filed in other high courts across the country. In a bid to add revenue the finance ministry had imposed service taxes on rented property in the finance bill of 2007.

''You can have a service tax in relation to services rendered on the rented property. But there will be no service, on the rent component, for merely hiring the piece of land, coz that's a bare shell,'' said Mukesh Butani, partner, BMR Associates.

It is big retail chains like Shoppers stop, Lifestyle Barista and even Bata who have been in the forefront in trying to convince the finance ministry to waive the tax.

The battle will now be fought in the Supreme Court. The finance ministry will not leave any stone unturned to squeeze out the money it wants to collect. But whether it will get any sympathy remains to be seen.

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