Mumbai: The country's top retailers are planning to challenge the government's decision to charge service tax on commercial rentals in a court of law.

Several leading retailers like Kishore Biyani of Pantaloon Retail (Future Group), BS Nagesh of Shoppers' Stop, Noel Tata of Trent and Vinay Nadkarni of Globus among others had a meeting in Mumbai to initiate their future course of action. The group of retailers has also employed legal firms to advise them on the issue.

The retailers will initially make a representation to the government under the aegis of the Retailers Association of India (RAI). If things still do not work out, they might consider legal options, top officials said.

The Union Budget imposed a 12 pc service tax on commercial rentals. The education cess on services has also gone up from 2 pc to 3 pc taking the total service tax to be paid by the developer or the property owner to 12.4 pc of the rental income.

Technically, service tax on rentals will have to be borne by landlords who lease out space to retailers. Currently, over 90 pc of the modern formats are leased by retailers. However, several lease agreements hold a clause which states that any additional tax or levy will have to be borne by the lessee.