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HC quashes retailers plea, says Centre can levy sales tax
August, 05th 2011

The Bombay High Court on Thursday dismissed petitions filed by Retailers Association of India and others challenging a notification of the Central government levying service tax on leasing of commercial premises. However, the operation of the order has been stayed for four weeks to enable the petitioners to move the Supreme Court.

A petition filed by the Retailers Association of India (RAI) and many others including DB Realty, Phoenix Mills Limited, FabIndia, Cinemax and Inox Cinema has challenged a notification of the Central government enforcing a section of the Finance Act, 2010, that levies a service tax on consideration paid towards leasing, letting, licensing and renting of immovable properties for commercial purposes.

Holding that levying service tax was no infringement on fundamental rights, the Division Bench of Justice DY Chandrachud and Anoop Mohta held that the Center did have the power to levy such a tax and it did not encroach upon the powers of the state government, as contended by the petitioners.

Representing RAI, Senior Counsel Aspi Chinoy with lawyers Ameet Naik and Vatsal Shah argued that on February 2, 2010, the Finance Minister had presented the Finance Bill and Sections 75 (5) (h) and Section 76 of the Bill had included the renting of immovable property as a service thereby levying the disputed tax. The Centre, according to the association, charged 12 per cent service tax on the rent earned from leasing commercial premises.

According to an affidavit submitted to the court by Additional Solicitor General DJ Khambata and lawyer Afroz Shah, between 2007 and 2010, the Centre had collected service tax of Rs 5469 crore. The affidavit of S Jayaprahasam, Deputy Commissioner of Service Tax, had said, We did not reintroduce service tax. It was always provided for.

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