7.2.4b Service Tax on Rentals One specific fiscal issues of relevance to retail trade brought to the notice of the High Level Group was the levy of Service Tax on rentals of immoveable property, which came into force on 1 June, 2007. It is applied on rental payments made for immoveable property in the course of business/commerce. With service tax plus educational cess at 12.36%, it means that every tenant has to pay a service tax equivalent to six weeks rental. The point made by the retailing industry is that while manufacturing and other service industries can claim input tax credit of the service tax on rent against the CENVAT/ Service Tax paid by them. The retail industry cannot claim input credit of the service tax on rent as it does not pay service tax but pays State VAT against which input tax credit is not possible.
The Hon’ble Madras High Court has granted an interim injunction restraining the Union Finance Ministry from collecting service tax on rent of commercial buildings following a petition filed by General Star Kitchen Pvt Ltd, which operates a restaurant in Chennai Citi Centre. As the matter is sub judice, the Group refrained from making any recommendations on the issue.
