Constitutional Validity Of GST On Lease/Rent Payments: SLP In Supreme Court To Be Heard After The Disposal Of The Matter Already Pending Before The Constitution Bench Of 9 Judges

The Supreme Court has referred the issue of constitutional validity of GST on lease/rent payments to be decided after the disposal of the matter already pending before the Constitution Bench of 9 Judges.

The bench of Justice M.R. Shah and Justice Sanjay Karol have clarified that there is no stay against the recovery and it will be open for the Revenue to recover the tax in accordance with law.

The Petitioner, Myrayash Hotels Pvt. Ltd. had filed a Writ Petition before the Bombay High Court, challenging the Constitutional validity of Para 2 and Para 5(a) of the Schedule II to the Central Goods and Services Tax Act, 2017 and the Goa Goods and Services Tax Act, 2017.

The Petitioner contended that under Article 246A of the Constitution of India, GST can be levied only on “goods and services”. In case of a lease/rent agreement there is no “service” provided by the lessor/landlord to the lessee/tenant. Thus, there can be no levy of GST on the same. Only the State Legislatures have the power to tax transactions relating to immovable property under Entry 49 List II of the Seventh Schedule of the Constitution of India. Thus, GST cannot be levied under Article 246A on such a lease/rent transaction.

The petitioner submitted that when a lease is given by the lessor/landlord to the lessee/tenant by way of a lease all rights and enjoyment over that immoveable property is denounced from the lessor/landlord to the lessee/tenant for the lease/rent period.

The Bombay High Court held that Parliament has wide powers under residuary power of legislation and since Service Tax was enacted under the residuary power of legislation, one cannot challenge the assumption of Parliament that there is a service element is the lease of land, as long as the tax does not come within List II of the Seventh Schedule.

Challenging the order passed by the Bombay High Court as well as also challenging the constitutional validity of the levy of GST on lease/rent payments, Petitioner had filed an SLP before the Supreme Court of India.

Senior Advocate Kavin Gulati appearing for the Petitioner submitted that the levy of GST on such lease/rent agreements was completely unconstitutional and that the Petitioner ought not to be made liable for payment of GST on such lease rentals/premiums/payments paid in respect of the lease.

The scope of Entry 49 List II of the Seventh Schedule of the Constitution of India is already pending before 9 Hon’ble Judges of the Supreme Court of India. In the context of service tax, the issue whether the service tax can be imposed on leasing/renting transactions, Bombay and Delhi High Courts had held that the Union Government had the legislative competence, and the issue was not falling within the domain of the State Government under Entry 49 List II of the Seventh Schedule of the Constitution of India, which deals with the taxes on land. The Supreme Court had entertained appeals against these decisions of the High Courts and by an order dated 05.04.2018 directed that since the scope of Entry 49 List II of the Seventh Schedule of the Constitution of India is pending before 9 Judges, these matters relating to service tax were to be listed after the decision by 9 Judges. This order was passed in Civil Appeal No. 4487 of 2010. The matters relating to the power of the Union Government to levy GST on leasing transactions where a similar argument was raised has been admitted by the Supreme Court and matters have been tagged to Civil Appeal No. 4487 of 2010.

Civil Appeal No. 4487 of 2010 (“Union of India v. UTV News Ltd.”) and other connected matters pending before the Hon’ble Supreme Court of India deal with the issue “whether "service tax" under Section 65(105)(zzzz) of the Finance Act, 1994 on renting of immovable property or any other service in relation to such renting, for use in the course of or, for furtherance of, business or commerce is within the legislative competence of the Union Parliament. While referring to the issues pending before Nine Hon’ble Judges Bench of the Hon’ble Supreme Court of India on a reference made in an order in “Mineral Area Development Authority and Others v. Steel Authority of India and Others” (2011) 4 SCC 450 which specifically dealt with the question Nos. 5 and 6 therein:

“… 5. Whether the majority decision in State of W.B. v. Kesoram Industries Ltd. [(2004) 10 SCC 201] could be read as departing from the law laid down in the seven-Judge Bench decision in India Cement Ltd. v. State of T.N. (1990) 1SCC 12?

6. Whether "taxes on lands and buildings" in List II Entry 49 of the Seventh Schedule to the Constitution contemplate a tax levied directly on the land as unit having definite relationship with the land? …”.

The Hon’ble Supreme Court of India in its order dated 05.04.2018 passed in Civil Appeal No. 4487 of 2010 accordingly held that:

“… In view of the above, we are of the opinion that these matters should await the decision of the nine judges Bench whereafter the hearing of these matters will be taken up once again in the course of which it will be open for the parties to urge such additional points as may be considered relevant. The matter is accordingly deferred until disposal of the issues pending before the nine judges Bench in Mineral Area Development Authority and others (supra).”

The Special Leave Petition (C) No. 6080 of 2022 filed by Myrayash Hotels Pvt. Ltd. has now been tagged with the Civil Appeal No. 4487 of 2010.

The Supreme Court of India while granting leave to Appeal filed by the Petitioner, decided to admit the Appeal and directed the Appeal to be listed after the Constitution Bench of 9 Judges of the Supreme Court of India in “Mineral Area Development Authority and Others v. Steel Authority of India and Others” (2011) 4 SCC 450 and tagged/connected the matter with Civil Appeal No. 4487 of 2010.

Correction – Livelaw regrets to inform you that inadvertently, instead of stating that the case is to be heard after 9 judges Constitution Bench, it has been published as ‘referred to 9 judges Constitution Bench’. We apologise for the inadvertent error and we will be more cautious.

Case Title: Myrayash Hotels Pvt. Ltd. Versus Union Of India & Ors.

Case No.: Special Leave to Appeal (C) No(s). 6080/2022

Date: 18-04-2023

Counsels For Petitioner: Kavin Gulati, Avi Tandon, Ishaan Patkar, Arnav Narain.

Counsels For Respondent: N. Venkataraman, Arijit Prasad, Rukhmani Bobde, V.C. Bharathi, Raghav Sharma, Vijaynand Tripathi, Vivasvan Gautam, Mukesh Kumar Maroria

Click Here To Read The Order