Plea In Supreme Court Challenges The Constitutional Validity Of Levy Of GST On Lease/ Rent Payments

Justice M.R. Shah and Justice B.V. Nagarathna, while hearing the matter, observed,

"Let one advance copy be served on Shri N. Venkataraman, learned ASG, who may take the instructions in the matter and file the counter affidavit."

In the present matter, the petitioner has filed an SLP against the order passed by the Bombay High Court on 22.01.2020 in W.P. 715 of 2019, whereby relying on its earlier judgments in the case of leviability of "service tax" under Chapter V of the Finance Act, 1994 on lease/rent payments, the High Court had dismissed the writ petition filed by the petitioner.

Notably, petitioner had filed a writ petition before the Bombay High Court, inter alia, challenging the constitutional validity of Para 2 of Schedule II to the Central Goods and Services Tax Act, 2017 and the Goa Goods and Services Tax Act, 2017 on the following grounds:

a. 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 to the lessee. Thus, there can be no levy of GST on the same.

b. Only the State Legislatures has the power to tax transactions relating to immovable property under Entry 49 List II of the Seventh Schedule of the Constitution. Thus, GST cannot be levied under Article 246A on such a transaction.

c. When a lease is given by the lessor to the lessee by way of a lease all rights and enjoyment over the property is denounced from the lessor to the lessee.

The plea states,

"By deeming a lease of land to be "supply of service" and then taxing it, essentially the GST Act tax the land itself. There is no reason why income or yield of land should be allowed to be taxed under Entry 49 List II, but the use of land which produces that yield or income should fall outside Entry 49 List II. When GST is levied on lease of land, it is ultimately levied on the lease income which is yield of land itself. The lease income and the lease user are inextricably linked. One cannot say that the lease is separate from the lease income which is generated."

Further, the plea alleges that the judgment of Bombay High Court in Retailers Association v. Union of India [2011 SCC Online Bom 1041] is bad in law and therefore, the impugned judgment which is based entirely on that judgment is also liable to be quashed and set aside.

As per the plea, in Retailers Association, 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.

In this regard, the plea alleged that there was no need for the High Court in Retailers Association to have further observed that there is no manifest absurdity in Parliament assuming that there is an element of service in a lease of land. The plea added that the High Court has held that a lease of land can in fact contain a service element, without actually going into the ordinary and natural meaning of the word 'service'.

Further, It was noted in the plea that a 3-judge bench of Apex Court in Goodricke Group Ltd. .v. State of W.B. [1995 (1) SCC 707] held that a tax on produce or income or yield of land was also a 'tax on land' as contemplated by Entry 49 List II. The judgment of 7-judge bench of Apex Court in India Cement v. State of T.N. [(1990) 1 SCC 12] was clarified in this judgment as not precluding a tax on income or yield of land from falling within the remit of Entry 49 List II.

The matter is next listed on 04.05.2022.

Counsels for the Petitioner(s): Kavin Gulati, Sr. Adv. Mr. Avi Tandon, Adv. Mr. Ishaan Patkar, Adv. Mr. Arnav Narain, AOR

Case Title: Myrayash Hotels Pvt. Ltd. v. Union of India & Ors.

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