TMI Blog2004 (8) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... g agents and are not making any payment to them. In the year 1994, the Central Government imposed levy of service tax on various services by Finance Act of 1994. Provisions were made for levy, collection and other related matters of service tax. It is put forth, like any other indirect tax, person responsible for collecting the service tax, i.e., the person rendering the service, was allowed to pass the burden of this tax to its customers. In the year 1997, the services on goods transport operators were also brought under the purview of service tax legislation and the Union Government decided to levy and recover service tax at the rate of five per cent of the value of taxable service from goods transport operators. As a result of the said decision, there was a nation-wide strike and eventually an assurance was given that the recovery of service tax would not be made from the transporters and the transporters would not be made to follow the procedure of obtaining a registration, maintaining registers and filing returns for such service tax. According to the writ petitioners, as a result of the aforesaid development and the assurance given to the transporters by the Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e validation Act did not shift the burden to the petitioners and the demand of tax was unjustified. The claim put forth was that the preliminary objection should be decided first before proceeding on merits. After lapse of about a year, the respondent No. 2 issued notices dated December 18, 2002 demanding service tax for the period November 16, 1997 to June 1, 1998 on payment to goods transporters asking for certain information. The Commissioner of Central Excise, Madhurai had issued a notice No. 83/99 dated September 10, 1999 giving guidelines for convenience of general trade in respect of the tax relating to clearing and forwarding agents and the goods transport operators pursuant to the decision of the apex court in the aforesaid case of Laghu Udyog Bharati [1999] 115 STC 616 (SC); [2005] 1 VST 24 (SC); [1999] 112 ELT 365 (SC). The said guidelines noted that the liability imposed on these two services by Finance Act, 1997 has been set at naught by the Supreme Court. It is also held that levy of tax and the amount of tax be refunded. However, it was directed that the refund will be subject to the provisions of section 11B of the Central Excise Act, 1944 which regulates all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Udyog Bharati [1999] 115 STC 616 (SC) ; [2005] 1 VST 24 (SC); [1999] 112 ELT 365 (SC) has not been altered by virtue of amendment and validating Act, i.e., sections 116 and 117 of the Finance Act, 2000 and, therefore, the defect which was found by the apex court remains as it is. And the Legislature has no authority to overrule a decision by mere declaration. As the defect has not been removed and the base has not been taken away, the judgment of the apex court is applicable. It is also highlighted that the Legislature has sought to charge and collect service tax from the customers of the goods transport operators whereas for all other services except the service of clearing and forwarding agent, the person rendering service is the person chargeable to tax and responsible for collecting service tax. For services of goods transport operators, the persons rendering service are the persons chargeable to tax and responsible for collecting service tax and hence, the validating Act which seeks to render the person availing the services and paying freight as person chargeable to service tax, on face of it offends article 14 of the Constitution of India. It is also put forth that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or adjudication. It is also put forth that the Parliament has the jurisdiction to rectify the defects and validate the provisions, which has been done. It has also been asseverated that the decision in the case of Laghu Udyog Bharati [1999] 115 STC 616 (SC); [2005] 1 VST 24 (SC); [1999] 112 ELT 365 (SC) no longer puts a bar and the tax is leviable on the users of the service in respect of service as per rule 2(d)(xvii) of the Service Tax Rules, 1994. A reference has been made to Laghu Udyog Bharati [1999] 115 STC 616 (SC); [2005] 1 VST 24 (SC); [1999] 112 ELT 365 (SC) judgment to highlight that in the said decision, it has been held that rule 2(d)(xii) and (xvii) is to seek to make customer or the clients as the assessee on a particular date. The legislation can change the character of the tax or duty from impermissible to permissible tax but the tax or levy should answer such character and the Legislature is competent to recover the invalid tax validating such a tax or removing the invalid base for recovery from the State ineffectual. It is also highlighted that it is competent for the Legislature to enact the law with retrospective effect and authorise its agencies to levy and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for consideration is whether by such amendment, the base of the judgment of Laghu Udyog Bharati [1999] 115 STC 616 (SC); [2005] 1 VST 24 (SC); [1999] 112 ELT 365 (SC) has been taken away. In this context we may refer with profit to the ratio laid down in the case of Laghu Udyog Bharati [1999] 115 STC 616 (SC); [2005] 1 VST 24 (SC); [1999] 112 ELT 365 (SC). In the aforesaid case the apex court referred to sections 65, 66, 67 and 68 and in paragraphs 9See para 11 at page 623 of [1991] 115 STC and 10See para 13 at page 624 of [1999] 115 STC held as under: 9. Section 68(1A) cannot, to our mind, regard a customer or a client of the clearing and forwarding agent or of the goods transport operator being treated as an assessee who will become liable to file a return and be subjected to the levy of service tax and if he does not file the return, would render himself to penalty and other proceedings. In this connection we may refer to sections 70 and 71 which read as under: '70. Person responsible for collecting service tax to furnish prescribed return. (1) Every person responsible for collecting the service tax shall furnish or cause to be furnished to the Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese sections clearly show that the return which has to be filed pertains to the payments which are received by the person rendering the service in respect of the value of the taxable services. Surely, this is a type of information which cannot under any circumstances, be supplied by the customer. Moreover the operative part of sub-section (1) of section 70 clearly stipulates that it is a person responsible for collecting the service tax who is to furnish the return. By rules which are framed, the person who is receiving the services cannot be made responsible for filing the return and paying the tax. Such a position is certainly not contemplated by the Act. 10.. Section 94 gives the Central Government power to make the Rules. These Rules are to be made for carrying out the provisions of the Chapter. The Chapter relates to taxing the services which are provided. The tax is on the value of the services and it is only the person who is providing the service can be regarded as an assessee. The rules, therefore, cannot be so framed which do not carry out the purpose of the chapter and cannot be in conflict with the same. Eventually in paragraphs 13See para 16 at page 625 of [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses (g), (h), (i), (j), (k), (l), (m), (ma), (n), and (o) of clause (48) of section 65 and collected in such manner as may be prescribed. (c) in section 67, after clause (k), the following clause had been inserted, namely: (Ka) in relation to service provided by goods transport operator to a customer, shall be the gross amount charged by such operator for services in relation to carrying goods by road in a goods carriage and includes the freight charges but does not include any insurance charges: 117.. Validation of certain action taken under Service Tax Rules. Notwithstanding anything contained in any judgment, decree or order of any court, Tribunal or other authority, sub-clause (xii) and (xvii) of clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994, as they stood immediately before the commencement of the Service Tax (Amendment) Rules, 1998, shall be deemed to be valid and to have always been valid as if the said sub-clauses had been in force at all material times and accordingly, (i) any action taken or anything done or purported to have been taken or done at any time during the period commencing on and from the July 16, 1997 and ending with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which is impermissible. In this regard we may refer with profit to the decision rendered in the case of Utkal Contractors and Joinery (P) Ltd. v. State of Orissa AIR 1987 SC 2310. Similar view has been expressed in the decision rendered in the case of Bhubaneshwar Singh v. Union of India [1994] 6 SCC 77 wherein their Lordships ruled that the Legislature can make judgment and order of competent court ineffective if it removes the statutory vices which had led to those judgments or the base of invalidity of the provisions. In this regard, it is appropriate to refer to the Constitution Bench judgment rendered in the case of State of T.N. v. Arooran Sugar Ltd. [1997] 1 SCC 326. In the aforesaid case the apex court referred to the decision rendered in the case of West Ramnad Electric Distribution Co. Ltd. v. State of Madras AIR 1962 SC 1753, Udai Ram Sharma v. Union of India AIR 1968 SC 1138, Hindustan Gum Chemicals Ltd. v. State of Haryana [1985] 4 SCC 124 and eventually expressed the view as under: It is open to the Legislature to remove the defect pointed out by the court or to amend the definition or any other provision of the Act in question retrospectively. In this process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinction from restaurants, hotels, etc., which provide limited access to property for specific purpose. 48.. It may be noted that in recent times the service sector has grown phenomenally all over the world and, therefore, it was recommended by the Dr. Raja Chelliah Committee in the early 90's that it should be taxed. Pursuant thereto, service tax was first levied in 1994 by way of the Finance Act. The power to levy such tax can be traced to serial No. 97 of List I of the Seventh Schedule and this court in Laghu Udyog Bharati's case [1999] 115 STC 616; [1999] 112 ELT 365, found no lack of legislative competence as far as the levy of service tax was concerned. We have referred to the aforesaid judgment to indicate that the services made were put under a wider tax-net. In the case of Laghu Udyog Bharati [1999] 115 STC 616; [1999] 112 ELT 365 the apex court has expressed the view that rule 2(d)(xii) to (xvii) insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires. It was also expressed that these rules are to be made for carryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evident from the fact that the transaction between a mandap keeper and his customer is definitely not in the nature of a sale or hire purchase of goods. It is essentially that of providing a service. In fact, as pointed out earlier, the manner of service provided assumes predominance over the providing of food in such situations which is a definite indicator of the supremacy of the service aspect. The Legislature in its wisdom noticed the said supremacy and identified the same as a potential region to collect indirect taxes. Moreover, it has been a well-established judicial principle that so long as the legislation is in substance, on a matter assigned to a Legislature enacting that statute, it must be held valid in its entirety even though it may trench upon matters beyond its competence. Incidental encroachment does not invalidate such a statute on the grounds that it is beyond the competence of the Legislature (Prafulla Kumar Mukherjee v. Bank of Commerce AIR 1947 PC 60). Article 246(1) of the Constitution specifies that the Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution. As per art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the class of hotels wherein room charges were more than Rs. 400 per day per individual or more. Its constitutional validity was challenged on the ground that, in pith and substance, it was a tax on 'luxuries' falling within entry 62 of List II of the Seventh Schedule, or a tax on the consideration paid for the purchase of goods constituting an impost of the nature envisaged in entry 54 of List II, and, therefore, outside the legislative competence of Parliament. The Constitutional Bench of the Supreme Court rejected the challenge, elaborating the theory of 'aspects legislation'. The Supreme Court observed (vide paragraphs 30-(1)32, 37, 38): '30. In Lefroy's Canada's Federal System , the learned author referring to the aspects of legislation under sections 91 and 92 of the Canadian Constitution, i.e., British North America Act, 1867, observes that one of the most interesting and important principles which have been evolved by judicial decisions in connection with the distribution of legislative power is that subjects which in one aspect and for one purpose fall within the power of a particular Legislature may in another aspect and for another purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I. Consequently, it is perfectly permissible for Parliament to legislate for a tax thereupon. The contention of Mr. Paikeday, must therefore, fail. Their Lordships thereafter held that tax and charged amount is not hit by article 14 of the Constitution. The Bench expressed the view as under (page 709 of 258 ITR): The judgment of the Gujarat High Court in the case of Consultancy Engineers in Special Civil Applications Nos. 469 and 7220 of 1999 (Chartered Accountants' Association and Gujarat Institute of Civil Engineers and Architects v. Union of India [2001] 252 ITR 53, dated December 27, 2000) was cited before us. This judgment also upholds the validity of the tax and takes the view that we are inclined to take. We are in respectful agreement with the views expressed therein. The judgment of the Madras High Court in Writ Petition No. 8539 of 2000 Indian Institute of Architects v. Union of India [2002] 258 ITR 209 (Mad) and connected matters (judgment dated October 12, 2001, per V.S. Sirpurkar and A. Kulasekaran JJ.) was also cited before us. We respect fully agree with the view taken by the Madras High Court, for upholding the constitutional validity of service tax, so ..... X X X X Extracts X X X X X X X X Extracts X X X X
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