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Renting and service tax

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PUBLISHED IN THE HINDU BUSINESS LINE

The plenary power of Parliament to legislate in determining relevance of service tax is subject to the Constitution.

 In Budget 2010, the Government used its Brahmastra and amended the Finance Act, 1994, levying service tax on renting of property. To ensure that the weapon was truly effective, the levy was made retrospective, with effect from June 1, 2007.

This measure was to counter the opinion — given twice — of the Delhi High Court, in Home Solution Retail, that the pure act of renting wouldn’t amount to a taxable service, since there is no value-addition involved.

It also sent signals to the Supreme Court, before whom a petition on that issue was pending, that the power of the Government to levy a tax under the Constitution is extremely wide. A bevy of petitions before the Mumbai High Court were disposed off recently, disagreeing with the opinion of the Delhi High Court.

MUMBAI HIGH COURT DECISION

In Retailers Association of India Vs Union of India and Ors, the Mumbai High Court reconsidered the constitutional validity of a service tax on rentals.

It noticed that the Supreme Court had an occasion to consider similar petitions in four landmark cases against the Union of India — Tamil Nadu Kalyana Mandapam, Gujarat Ambuja Cement, All India Federation of Tax Practitioners and Association of Leasing and Financial Services Companies. Considering a plethora of other Apex Court decisions, the Mumbai High Court held that the legislative basis that has been adopted by the Parliament in subjecting taxable services involved in the renting of property to the charge of service tax cannot be questioned.

The assumption by a legislative body, that an element of service is involved in the renting of immovable property is certainly not an assumption which can be regarded by the Court as being so manifestly perverse as to lead to an inference that the Parliament had treated as a service, an item which in no rational sense could be regarded as involving service.

But more significantly, even if the Court were to proceed on the basis, suggested by the petitioners, that no element of service is involved, that would not make the legislation beyond the legislative competence of Parliament.

As long as the legislation doesn’t trench upon a field which has been reserved to the State legislatures, the only conclusion that can be drawn is that the law must be treated as valid and within the purview of the field set apart for Parliament.

The petitioners were also irked by the retrospective application of the law. The Mumbai High Court was of the opinion that Parliament has the plenary power to enact legislation on the fields, which are set out in List I and List III of the Seventh Schedule.

RETROSPECTIVE APPLICATION

The plenary power of Parliament to legislate can extend to enacting legislation both with prospective and with retrospective effect. That, however, is subject to the mandate of Article 14 of the Constitution, which states that the State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.

The Mumbai High Court agreed with the decision of the Supreme Court held in Bakhtawar Trust Vs M. D. Narayan, wherein it was held that it is open to the legislature to alter the law retrospectively, provided the alteration is made in such a manner that it would be no more possible for the Court to arrive at the same verdict.

BEFORE THE SUPREME COURT

The decision of the Mumbai High Court follows the pattern of a host of High Courts, agreeing to disagree with the logic of the Delhi High Court in Home Solution Retail — the Punjab and Haryana High Court in Shubh Timb Steels, Orissa High Court in Utkal Builders and the Ahmedabad High Court in Cinemax India.

These decisions, along with the fact that renting of immovable property is not in the initial list of negative services, would be food for thought for the Supreme Court.

While all the developments post-Home India point to validating the levy, the Supreme Court could think of constitutional precedents and judicial cases to rule that the tax is applicable only from 2010 onwards, and not 2007.

 

(The author is a Bangalore-based chartered accountant.)

ORIGIN: http://www.thehindubusinessline.com/features/mentor/article2506762.ece?homepage=true

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Significant victory

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Manmohan Singh, current prime minister of India.

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Parliament’s unanimous adoption of a resolution agreeing “in principle” with Team Anna’s position on the three sticking points that prolonged the standoff on the Lokpal legislation is a triumph for the anti-corruption mood in the country — and for the Gandhian technique of non-violent mass agitation on issues of vital concern to the people. Anna Hazare and his team deserve full credit for recognising and riding this popular mood, which showed plenty of signs of becoming a wave; for giving concrete shape to the inchoate aspirations of the movement against corruption through the provisions of the Jan Lokpal Bill; and for working out a strategy and tactics that refused to compromise on the core issues but knew when to raise the stakes and when to settle. As for the political players, the major opposition parties did well to recognise the soundness of the core demands of Team Anna and keep up the pressure on the government. Prime Minister Manmohan Singh and the politically savvy elements in the United Progressive Alliance regime can also take some credit for the way they finally acted to resolve this crisis.

What is clear to everyone — except the unreconstructed elements within the political system who have long been opposed to a strong, independent, and effective statutory authority to go after corruption at all levels — is that the Lokpal Bill that was introduced in Parliament by the government and is now before a Standing Committee lies thoroughly discredited. The government must not be guided by those in its ranks who advocate some kind of rearguard action in committee or on the floor of the House to go back on commitments made. The fact is that in sum, that is, in the parliamentary resolution and during the preceding rounds of discussion with Team Anna, the government conceded the following key demands. In addition to Ministers, Members of Parliament (subject to Article 105 of the Constitution), and Group ‘A’ officers, the Prime Minister at one end and the lower bureaucracy at the other will be brought under the jurisdiction of the Lokpal. Secondly, under the same statute, strong and effective Lokayuktas on the same model as the Lokpal will be established in all States. Team Anna contends that no constitutional problem is involved here since the Lokpal legislation deals with substantive and procedural criminal law, which is covered by Entries 1 and 2 of the Concurrent List in the Constitution. The bottom-line is that it makes no sense to have a strong and effective Lokpal to investigate and prosecute central public servants for corruption while having defunct or no Lokayuktas in States. Thirdly, the Lokpal legislation will provide for a grievance redressal system, requiring all public authorities to prepare a citizen’s charter and make commitments to be met within a specified time frame. Constitutionally speaking, these arrangements are covered by Entry 8 of the Concurrent List dealing with actionable wrongs. Whether the Lokpal or another authority established under the same law will oversee this grievance redressal system remains an open question. For its part, Team Anna has agreed that judges need not come under the Lokpal provided a credible and independent Judicial Conduct Commission, free from conflict of interest and empowered to investigate and prosecute charges of corruption against judges, is established by law. Unfortunately, the contentious issue of a selection committee for the Lokpal could not be resolved. But considering that virtually everyone outside the UPA seems opposed to the official Lokpal Bill’s provision that the government will nominate five of the nine members of the selection committee, this can probably be regarded as a dead letter.

There are some excellent provisions in the Jan Lokpal Bill that have gone mostly unnoticed. For instance, Section 6(o) provides that the Lokpal can recommend the cancellation or modification of a lease, licence, permission, contract or agreement obtained from a public authority by corrupt means; if the public authority rejects the recommendation, the Lokpal can “approach [the] appropriate High Court for seeking appropriate directions to be given to the public authority.” It can also press for the blacklisting of those involved in acts of corruption. Then there is Section 31(1), which stipulates that “no government official shall be eligible to take up jobs, assignments, consultancies, etc. with any person, company, or organisation that he had dealt with in his official capacity.” Section 31(2) provides that “all contracts, public-private partnerships, transfer by way of sale, lease, and any form of largesse by any public authority shall be done with complete transparency and by calling for public tender/auction/bids unless it is an emergency measure or where it is not possible to do so for reasons to be recorded in writing.” And Section 31(3) requires that “all contracts, agreements or MOUs known by any name related to transfer of natural resources, including land and mines to any private entity by any method like public-private partnerships, sale, lease or any form of largesse by any public authority shall be put on the website within a week of being signed.”

In appraising what has happened over the past fortnight, a red herring needs to be got out of the way — the idea of the ‘supremacy of Parliament‘ versus everyone who comes up against it. Parliamentarians who assert this need to learn their Constitution. In India, unlike Britain, Parliament is not supreme; the Constitution is. Nor is law-making “the sole prerogative” of Parliament. The significant victory of the anti-corruption campaigners gives political India a rare opportunity to translate fine anti-corruption sentiments into a potent law that can be a game-changer. The challenge before the people of India is to ensure, by keeping up the pressure, that in the tricky business of law making in committee and on the floor of the Houses of Parliament a potentially powerful instrument is not blunted.

COURTESY: THE HINDU

Ambedkar lesson for JNU & DU in court

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The country would not have had a B.R. Ambedkar and its “brilliant Constitution” if he was denied college admission over low marks, the Supreme Court said today, criticising JNU and Delhi University for failing to fill OBC quotas.

“The minimum pass mark those days was 35 per cent. Dr Ambedkar had got 37 per cent marks. If you had denied him admission at the threshold, would you have had a Dr Ambedkar and a brilliant Constitution?” a two-judge bench said while hearing a plea against the OBC reservation policies of the two universities.

OBC reservations at Jawaharlal Nehru University (JNU) have never in the past three years touched the 27 per cent mandated under a 1993 central act.

In 2008-09, it reserved only 12 per cent seats, excluding the creamy layer that was expected to compete in the general category. While only 9.93 per cent got in through the quota, another 10.33 per cent came in on merit. JNU then showed its total OBC reservation for the year as 20.26 per cent.

Delhi University (DU) has been giving a 10 per cent relaxation in marks to OBC candidates over the general category percentage but with cut-offs touching almost 100 per cent, OBC students are expected to get a minimum of 90 per cent to get into some of its elite colleges.

To justify this, DU has fallen back on a 2008 Supreme Court judgment that said the difference between the general cut-off and backward cut-off should not be more than 10 per cent. The aim was to balance the needs of the weaker sections with considerations of merit.

As a result of the cut-off mechanism, effective OBC reservation in DU has been in single digits, virtually nullifying the central act.

Both universities have been diverting the vacant OBC seats to the general category, something the top court had said earlier they could do.

But at today’s hearing, Justice R.V. Raveendran, sitting alongside Justice A.K. Patnaik, suggested the merit argument was being stretched too far. “Let us not harp only on merit. Equality is only equality between equals, not unequals. Some push is necessary for some, whether some like it or dislike it,” said Raveendran, who was part of a five-judge bench that had in 2008 upheld the 27 per cent quota.

To say general candidates have 90 per cent and no OBC students with less than 80 per cent will get in is “very “unreasonable”, Raveendran said.

“Institutions are required to help them (weaker sections). Money gives you access to better coaching, better standard of living. So more marks does not mean more clever. You (the varsities) must take material that is not the best and make them the best. You cannot insist that you will take the best,” he said, appearing to suggest high scores could come from having had facilities weaker sections often don’t have.

The strong pro-quota observations by the judge and his presence on the bench that had upheld the OBC quota law prompted a response from a group of anti-reservation students. P.P. Rao, the group’s lawyer, insisted the judges send back the matter to Chief Justice S.H. Kapadia to be placed before another bench.

Rao kept emphasising the minority judgment of Justice Dalveer Bhandari in the five-judge bench judgment which had warned against a too large gap between cutoffs for general students and those from weaker sections. He implied that another judge (Justice Raveendran) could not interpret Bhandari’s words. Justice Raveendran then recused himself from the matter, ensuring the debate remained inconclusive.