Supreme Court: SLP on Constitutional Validity of GST On Lease/Rent Payments to be heard after Disposal of the Matter Pending 9 judges Constitution Bench

Supreme Court: SLP on Constitutional Validity of GST On Lease/Rent Payments to be heard after Disposal of the Matter Pending 9 judges Constitution Bench

The Supreme Court has clarified that the Special Leave Petition filed in the matter of Myrayash Hotels Pvt. Ltd. Vs. Union of India & Ors, with respect to the constitutional validity of GST on lease/rent payments is to be heard after the disposal of the matter already pending before the Constitution Bench of 9 judges.

However, the division judges bench comprising of Justices M.R. Shah and Sanjay Karol has clarified that there is no stay against the recovery and it will be open for the Revenue to recover the tax in accordance with the 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 argued that under Article 246A of the Constitution of India, GST can be levied only on “goods and services”. In the case of a lease/rent agreement, there is no “service” provided by the lessor/landlord to the lessee/tenant. Thus, it stated that it cannot levy GST on the same. Only the State Legislatures have the power to tax transactions relating to the 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.

According to the petitioner, 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.

Further, the Bombay High Court had held that Parliament has wide powers under the 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.

Previously, with respect to 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.

Subsequently, the Supreme Court had entertained appeals against these decisions of the High Courts and by an order dated 5 April, 2018 and had 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.

The appeal in the matter of Union of India v. UTV News Ltd. (Civil Appeal No. 4487 of 2010) and other connected matters pending before the Supreme Court of India are concerned 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.

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 vs. Steel Authority of India and others.