More has received a stay order from the Andhra Pradesh High Court and Shoppers Stop has received the same from the Bombay High Court. Retailers plan to intensify their legal battle against the tax in coming months
We had earlier reported that retailers were approaching various High Courts to get a stay order on service tax on commercial properties (see: http://www.moneylife.in/article/8/5839.html). Recently, More, the retail chain of the Aditya Birla Group, got a stay order from the Andhra Pradesh (AP) High Court on the service tax on commercial rentals in June 2010. The service tax was imposed in this year’s Budget by finance minister Pranab Mukherjee.
Several other retailers like the Future Group, Shoppers Stop and Trent (the retail arm of the Tata Group) have approached the AP High Court for a stay order on service tax.
“We have approached the AP High Court and have got a stay order on service tax on commercial rentals. AP generates almost one-thirds of our supermarket revenues. Therefore, we had to approach this court. Several other retailers have approached the same court,” said Thomas Varghese, chief executive officer, More Retail.
In April 2010, Home Solutions Retail India Ltd approached the Delhi High Court and got a stay order on service tax. Shoppers Stop is also approaching various courts to get a stay order.
“We have filed a petition before the AP High Court two days back; we are yet to receive a decision. We got a stay order from the Bombay High Court on Tuesday. In the next 10 days, we are going to approach the High Courts in Karnataka, Tamil Nadu and West Bengal,” said Govind Shrikhande, president and chief executive officer, Shoppers Stop Ltd.
“In the current scenario, the industry is not ready to take this kind of enhancement in taxes. (The service tax of) 10% is a big number, because in the first place, we are struggling to meet revenue targets versus our expenses,” said DV Ram Kumar, vice president-Food and Agri, Spencer’s Retail Ltd.
The Retailers Association of India (RAI) is helping various retail players to file litigations. “RAI is helping its members to take the cases to court. The service tax impacts retail more than anyone else. Currently retailers pay 10%-12% of the turnover as rentals and the service tax is affecting them by 10.2%. On total turnover, the retailers might pay 1%-1.2% as service tax. Most retailers make a profit between 2%-4%. The government will take away half of the profit,” said Kumar Rajagopalan, chief executive officer, RAI.
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