Bringing some cheer to modern retailers in an otherwise troubled market, the Bombay High Court granted interim relief from payment of service tax on the rents of immovable property. Retailers will not have to pay service tax till the final order in this regard is issued by the Supreme Court (SC).

The petitioners will have to file a written undertaking stating that in the event the challenges against such tax was disallowed, they will pay the amount due in accordance with the statutory provisions, the court observed. The Retailers Association of India (RAI) had filed a writ petition challenging levy of service tax on property as unconstitutional. The matter came up for hearing in the Bombay High Court on July 30, 2008.

The provision to levy 12% service tax on commercial rentals came into force on June 1, 2007 as part of the 2007-08 Union Budget. Future Group CEO Kishore Biyani said, “There is some clarity on the matter now. It is a relief for the retailers as this dispute had been there for some time now.” RAI CEO Gibson Vedhamani said, “We had earlier approached the Finance Ministry, Government of India to withdraw the particular tax. This is welcome relief to all our retailers.”

Industry watchers say the relief may be temporary since a stay order by the Bombay High Court essentially means that till the date of issue of order by the SC, retailers need not pay sales tax. “If the SC order favours the government, retailers would be required to cough up a significant sum as sales tax between the time of the stay order and judgement.”

Real estate developers too are upbeat over the move. “Easing the sales tax burden on retailers will help us negotiate the rentals better. Given the current market scenario, it is certainly a great relief,” said Sandeep Runwal, director, Runwal Group.