TMI Blog2020 (9) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... definitive event to be taxed. In the absence of concurrent jurisdiction, the vivisection of such enumerations in Article 366 (29A) of the Constitution of India alone can confer the authority under List I of the Seventh Schedule in the Constitution of India. Agreements/contracts of lease are, acknowledgedly, taxable as deemed sale ; it is not the case of Revenue that any portion of the consideration for lease is not deemed sale . As the entire rental is subject to tax as deemed sale , there is no scope for any portion thereof to be leviable to tax by the Union and, thereby, under Finance Act, 1994. The scope for subjecting lease rental to tax, as proposed in the show cause notice, cannot sustain in the absence of a valid machinery provision recognized in the taxing statute - Appeal allowed - decided in favor of appellant. - Service Tax Appeal No: 87156 of 2015, 87352 of 2015 - Final Order No: A/85601-85602/2020 - Dated:- 13-3-2020 - Mr C J Mathew, Member (Technical) And Dr Suvendu Kumar Pati, Member (Judicial) For the Assessee-Company : Shri DB Shroff, Senior Advocate with Shri Prasad Paranjape, Advocate with Ms Dhara Mehta, Advocate For the Revenue : Ms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy of service tax on rent-a-cab was subject to detailed examination by the Hon ble High Court of Gujarat in Commissioner of Service Tax v. Vijay Travels [2014 (36) STR 513 (Guj)] and we do not need to look elsewhere for a more authoritative exposition. By incorporation of section 65(105)(o) in Finance Act, 1994 with effect from 16th July 1997, the service provided or to be provided to any person by a rent-a-cab scheme operator in relation to the renting of a cab was taxable and the two key expressions deployed therein, viz., rent-a-cab scheme operator was defined as (91) means any person engaged in the business of renting of cabs and cab as (20) means- (i) a motorcab, or (ii) a maxicab, or (iii) any motor vehicle constructed or adapted to carry more than 12 passengers, excluding the driver, for hire or reward in section 65 of Finance Act, 1994. The definition has evolved over the time that the activity was brought within the tax net. Initially, it was intended to subject the business of renting motor cabs to persons desiring to drive such cabs for their own use, and including a driver should the hirer so desire, as per licensi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y M/s Arval India Pvt Ltd with customers. Relying upon the five test ascertainment laid down by the Hon ble Supreme Court in Bharat Sanchar Nigam Ltd v. Union of India [(2006) 3 SCC 1 (SC)], in the context of Article 366 (29A) of the Constitution of India, it is contended by Learned Senior Counsel for the assessee that the activity, having been subjected to tax as sale, is not liable to be subjected to tax again as service. Harping on their alienation, for all practical purposes, from the leased vehicle, it is contended that, by no stretch, can this transaction be rent-a-cab but is transfer of the right to use which is the essence of deemed sale excluded from the purview of tax by the Central Government. It was pointed out that the decision in re Vijay Travels arose on a dispute pertaining to provision of vehicles-their own and those of others- under contract to the Gujarat Secondary Education Board by the respondent therein in which it was claimed that hiring could not be brought under the ambit of the tax on renting . 7. On the other hand, Learned Authorized Representative canvassed the proposition that different aspects of a transaction could be the object of differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be at the cost of propriety in levying the tax. 8. With the pronouncement of the decision of the Hon ble Supreme Court in State of Madras v. Gannon Dunkerley Co (Madras) Ltd [1959 SCR 379], and the consequential developments, the incorporation of Article 366(29A) was a constitutional necessity to enable certain transactions, hitherto untaxed, to be liable under the existing levy on sale of goods assigned to state governments in List II of the Seventh Schedule in the Constitution of India. That did not, for a long time to come, pose any problem of conflict of jurisdiction, even though disputes did arise on the extent of consideration that was to be taxed, as the empowerment of levy assigned to the Union was on an entirely different taxable event. The introduction of tax on services did, upon expansion of the entries, provide room for such conflict. More so, after works contract was included in section 65(105)(zzzza) of Finance Act, 1994 by consolidation of certain, hitherto separately described, activities within the scope of the new and separate levy. The Hon ble Supreme Court, in Commissioner of Central Excise Customs, Kerala v. Larsen Toubro Ltd [2015 (39) STR 913 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Seventh Schedule in the Constitution of India, conceded its lack of jurisdiction to tax any part of such value. In that specific context, it was held that erroneous payment under a state levy would not absolve liability to service tax. Such are not the facts in the present dispute. 11. In re Larsen Toubro Ltd, though the dispute pertains to works contracts , certain principles arising from constitutional limitations have been enunciated. It has been held that 15. A reading of this judgment, on which counsel for the assessees heavily relied, would go to show that the separation of the value of goods contained in the execution of a works contract will have to be determined by working from the value of the entire works contract and deducting therefrom charges towards labour and services. Such deductions are stated by the Constitution Bench to be eight in number. What is important in particular is the deductions which are to be made under sub-paras (f), (g) and (h). Under each of these paras, a bifurcation has to be made by the charging Section itself so that the cost of establishment of the contractor is bifurcated into what is relatable to supply of labour and service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es into a prohibited exclusive field, it is liable to be struck down. In the present case, the dichotomy is between sales tax leviable by the States and service tax leviable by the Centre. When it comes to composite indivisible works contracts, such contracts can be taxed by Parliament as well as State legislatures. Parliament can only tax the service element contained in these contracts, and the States can only tax the transfer of property in goods element contained in these contracts. Thus, it becomes very important to segregate the two elements completely for if some element of transfer of property in goods remains when a service tax is levied, the said levy would be found to be constitutionally infirm. This position is well reflected in Bharat Sanchar Nigam Limited v. Union of India, (2006) 3 SCC 1 = 2006 (2) STR 161 (S.C.), as follows:- No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax services by including the cost of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment. (at page 427) before going on to hold that 35. The aforesaid finding is in fact contrary to a long line of decisions which have held that where there is no machinery for assessment, the law being vague, it would [not] be open to the assessing authority to arbitrarily assess to tax the subject. Various judgments of this Court have been referred to in the following passages from Heinz India (P) Ltd. v. State of U.P., (2012) 5 SCC 443. This Court said :- This Court has in a long line of decisions rendered from time to time, emphasised the importance of machinery provisions for assessment of taxes and fees recoverable under a taxing statute. In one of the earlier decisions on the subject a Constitution Bench of this Court in K.T. Moopil Nair v. State of Kerala [AIR 1961 SC 552] ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961. Reiterating the view taken in K.T. Moopil Nair [AIR 1961 SC 552] this Court held that a statute is not beyond the pale of limitations prescribed by Articles 14 and 19 of the Constitution and that the test of reasonableness prescribed by Article 304(b) is justiciable. However, in cases where the statute was completely discriminatory or provides no procedural machinery for assessment and levy of tax or where it was confiscatory, the Court would be justified in striking it down as unconstitutional. In such cases the character of the material provisions of the impugned statute may be such as may justify the Court taking the view that in substance the taxing statute is a cloak adopted by the legislature for achieving its confiscatory purpose. In Jagannath Baksh Singh v. State of U.P. [AIR 1962 SC 1563] this Court was examining the constitutional validity of the U.P. Large Land Holdings Tax Act (31 of 1957). Dealing with the argument that the Act did not make a specific provision about the machinery for assessment or recovery of tax, this Court held: (AIR pp. 1570-71, para 17) 17. if a taxing statute makes no specific provision about the machinery to recover tax and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al v. State of U.P. [(1974) 2 SCC 306] and D.G. Gose and Co. (Agents) (P) Ltd. v. State of Kerala [(1980) 2 SCC 410] where this Court held that sufficient guidance was available from the Preamble and other provisions of the Act. The members of the committee owe a duty to be conversant with the same and discharge their functions in accordance with the provisions of the Act and the Rules and that in cases where the machinery for determining annual value has been provided in the Act and the rules of the local authority, there is no reason or necessity of providing the same or similar provisions in the other Act or Rules. There is no gainsaying that a total absence of machinery provisions for assessment/recovery of the tax levied under an enactment, which has the effect of making the entire process of assessment and recovery of tax and adjudication of disputes relating thereto administrative in character, is open to challenge before a writ court in appropriate proceedings. Whether or not the enactment levying the tax makes a machinery provision either by itself or in terms of the Rules that may be framed under it is, however, a matter that would have to be examined in each case. ..... 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