Shoppers Stop, which has filed several such cases in the cities it has its stores in, says if it ends up losing, it will have to pay around Rs14 crore for the fiscal ended March 2008. The company operates two dozen department stores and the lease agreements for all the outlets, according to chief financial officer C.B. Navalkar, were signed prior to the imposition of the service tax on rents.
The developers' argument, however, is the onus to pay the tax is on the tenants because it is a service tax and retailers are the service providers.

"Whenever a service tax is levied, whoever is receiving the service is liable to pay the tax and the person who is giving the service is supposed to collect it and deposit the tax with the government," said G.P. Savlani, resident director, CREDAI. "This is the legal position."

Ajit Krishnan, a partner for tax practice with Ernst and Young, echoes Savlani's arguments. "As a service provider, there is nothing in the law that says the customer should pay, but it is generally understood that a service provider does not have to pay the service tax until the customer pays," says Krishnan.

A Mumbai-based analyst tracking the retail sector said that in all probability the retailers will end up paying the tax. "The law is law," said Anirudha Dutta, analyst working with Mumbai-based brokerage firm CLSA. According to him, the court injunctions being obtained by the retailers currently will provide a temporary reprieve but, eventually, they will have to shell out the tax to the government. Dutta said retailers will have to take a "substantial hit" whenever they pay the tax as rentals accounts for 6-7% of the retailers' total cost. "It will definitely be a big hit for them as they already operate on wafer-thin margins," he said.
Retailers are holding out hope. "We have a fair chance of winning," said Navalkar of Shoppers Stop.