The Supreme Court has referred the issue of the constitutional validity of GST on lease/rent payments to the constitution bench of 9 judges.

The bench of Justice M.R. Shah and Justice 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 contended 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, there can be no levy of 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.

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 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 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 before the Constitution Bench of 9 of the Supreme Court of India and tagged/connected the matter with Civil Appeal No. 4487 of 2010.

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

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