TMI Blog2005 (3) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... (Civil) Nos. 606 of 2002, Writ Petition (Civil) Nos. 294, Writ Petition (Civil) Nos. 584, Writ Petition (Civil) Nos. 585 of 2003, Writ Petition (Civil) Nos. 26, Writ Petition (Civil) Nos. 328, Writ Petition (Civil) Nos. 329 of 2004, Civil Appeal No. 9247 of 2003 R.F. Nariman, K. Parasaran, Anoop G. Choudhary, A.K. Ganguli, T.L.V. Iyer and R.P. Bhatt Senior Advocates. U.A. Rana, Ashish Dholakia, Arvind Kumar, M.L. Patodi, Sadeep Kharel, V. Balaji, P.N. Ramalingam, Sunil Dogra, Ms. Sayali Phatak, Sudhir Gupta, Syed Shahid Hussain Rizvi, M. Irshad Hanif, Mrs. Divya Roy, Ms. Bina Gupta, Sanjay Grover, Rajesh Kumar, Mrs. June Chaudhri, Rohit Singh, R.P. Gupta, Sushendra Kumar Chauhan, J.P. Srivastava, Bharat Sangal, Ms. Sangeeta Panicker, R.R. Kumar, Rajeev Sharma, Harbans Lal Bajaj, Ms. Anju Bhushan, Ms. Surichii Aggarwal, Praveen Kumar, Arun Nehra, Ms. Shobha, N.K. Bajpai, Sanjiv Sen, Dilip Tandon, Tufail A. Khan, K. Swamy and B. Krishna Prasad Other Advocates. [Judgment per : Ruma Pal, J.]. - These writ petitions have been filed challenging the constitutional validity of Sections 116 and 117 of the Finance Act, 2000 and Section 158 of the Finance Act, 2003 by which the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e persons responsible for collecting service tax. Sub-sections (2) and (5) indicated that it was the provider of the service who was responsible for collecting the tax and obliged to get registered. These Sections viz., 65, 66, 68 and 69 are pivotal to the present issue. They were amended thrice. The remaining sections of the 1994 Act substantially continued as originally enacted with minor changes. Under Section 70 of the Finance Act, 1994, every person responsible for collecting the service tax must furnish or cause to be furnished to the Central Excise Officer in the prescribed form and verified in the prescribed manner, a quarterly return. Sections 71, 72, 73 and 74 deal with the filing of returns, provisions for assessment, reopening of assessments and rectification of mistakes of assessment orders. Section 75 provides for payment of interest at the rate of one-half per cent for every month or part of a month by which the person responsible for collecting the service tax, delays in paying the tax to the credit of the Central Government. Section 76 deals with the imposition of penalty for failure to collect the service tax. Section 77 deals with the penalty for failure to furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean "a person who is required to collect service tax under this chapter or is required to pay any other sum of money under this Chapter and includes every person in respect of whom any proceedings under this Chapter have been taken" and 'assessee' was defined in sub-section (5) of Section 65 as meaning "a person responsible for collecting the service tax and includes his agent". By the 1997 amendment under Section 68-1A the service tax in respect of taxable services from Items (g) to (r) of Section 65 (41) was directed to be collected from "such person and in such manner as may be prescribed" and it was said that all provisions of Chapter V "shall" apply to such person as if he is the person responsible for collecting the service tax in relation to such services. However, sub-sections (2) and (5) of Section 69 continued to refer to the persons responsible for collecting the service as the provider of the taxable service. 7. We are told that the goods transport operators as well as the clearing and forwarding agents went on an all India strike protesting against the imposition of service tax on them. Perhaps this might have precipitated an amendment to the Service Tax Rules, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances "... the definitions contained in Rule 2(d) (xii) and (xvii), which seek to make the customers or the clients as the assessee, are clearly in conflict with Section 65 and 66 of the Act." 12. This Court construed Section 68(1-A) to hold that "Section 68(1-A) cannot be so interpreted as to make a person an assessee even though he may not be responsible for collecting the service tax". What the Court in effect said was that since the charging section (Section 66) provided for the tax to be paid by the provider, Section 68-1 A, which was merely the section which laid the machinery for collecting the tax, would not change the nature of the tax. 13. Finally this Court said that Sections 70 and 71 clearly showed "that the return which has to be filed pertains to the payment 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". 14. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8B) "goods transport operator" means any commercial concern engage in the transportation of goods but does not include a courier agency; : (iii) in clause (48), after sub-clause (m), the following sub-clause had been inserted namely : - "(ma) to a customer, by a goods transport operator in relation to carriage of goods by road in a goods carriage; (b) in section 66, for sub-section (3), the following sub-section had been substituted namely :- "(3) On and from the 16th day of July, 1997, there shall be levied a tax at the rate of five per cent, of the value of taxable services referred to in sub-clauses (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 goods carriage and includes the freight charges but does not include any insurance charges;". 17. Section 117 of the Finance Act, 2000 seeks to retro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1997 and ending with the 16th day of October 1998, the provisions of Chapter V of Finance Act, 1994, as modified by Section 116 of the Finance Act, 2000, shall have effect subject to the following further modifications, namely : - (a) in section 68, in sub-section (1), the following proviso shall be inserted at the end and shall be deemed to have been inserted on and from the 16th day of July, 1997, namely :- Provided that - (i) in relation to services provided by a clearing and forwarding agent, every person who engages a clearing and forwarding agent and by whom remuneration or commission (by whatever name called) is paid for such services to the said agent for the period commencing on and from the 16th day of July, 1997 and ending with the 16th day of October, 1998; or (ii) in relation to services provided by goods transport operator every person who pays or is liable to pay the freight, either himself or through his agent for the transportation of goods by road in good carriage for the period commencing on and from the 16th day of November, 1997 and ending with the 2nd day of June, 1998. shall be deemed always to have been a person liable to pay service tax, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atent conflict between Sections 65, 66, 68(1) and 71 of the Finance Act, 1994 as amended in 1997 on the one hand and Rules 2(1)(d) (xii) and (xvii) of the Service Tax Rules, 1994 on the other. Each of these sections of the Finance Act, 1994 as amended in 1997 proceeded on the basis that the tax was imposable on the person providing the service. All the other sections regarding the liability to furnish returns, assessments, penalties etc. flowed from that. It was because unamended Section 66 spoke of the liability to pay tax in respect of services "which are provided to any person by the person responsible for collecting the service tax" and Section 65(5) defined "assessee" as meaning "a person responsible for collecting the service tax", that this Court held that Clauses (xii) and (xvii) of Rule 2(1) (d) of the Service Tax Rules were illegal. 22. As is apparent from Section 116 of the Finance Act, 2000, all the material portions of the two Sections which were found to be incompatible with the Service Tax Rules were themselves amended so that now in the body of the Act by virtue of the amendment to the word "assessee" in Section 65(5) and the amendment to Section 66(3), the liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 97 of List I and Entry 56 of List II. It has been recognized in Godfrey Phillips (supra) that there is a complete and careful demarcation of taxes in the Constitution and there is no overlapping as far as the fields of taxation are concerned. This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the Court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field. 25. Undisputedly, Chapter V of the Finance Tax Act, 1994 was enacted with reference to the residuary power defined in Entry 97 of List I. But as has been held in International Tourist Corporation v. State of Haryana (1981) 2 SCC 319; "before exclusive legislative competence can be claimed for Parliament by resort to the residuary power, the legislative incompetence of the State legislature must be clearly e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not go into this question except to emphasise that, broadly speaking the subject matter of taxation under Entry 56 of List II are goods and passengers. The phrase "carried by roads or natural water ways" carves out the kind of goods or passengers which or who can be subjected to tax under the Entry. The ambit and purport of the entry has been dealt with in Rai Ramakrishna Ors. v. State of Bihar 1963(1) SCR 897 where it was said in language which we cannot better :- "Entry 56 of the Second List refers to taxes on goods and passengers carried by road or on inland waterways. It is clear that the State Legislatures are authorized to levy taxes on goods and passengers by this entry. It is not on all goods and passengers that taxes can be imposed under this entry; it is on goods and passengers carried by road or on inland waterways that taxes can be imposed. The expression "carried by road or on inland waterways" is an adjectival clause qualifying goods and passengers, that is to say, it is goods and passengers of the said description that have to be taxed under this entry. Nevertheless, it is obvious that the goods as such cannot pay taxes, and so taxes levied on goods have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 64(3) that the Act applies only to taxable services. Taxable services has been defined, as we have already noted, in Section 65(41). Each of the clauses of that sub-section refers to the different kinds of services provided. Most of the taxable services cannot be said to be in any way related to goods or passengers carried by road or waterways. For example, Section 65(41) (g) provides for service rendered to a client by a consulting engineer, Section 65(41)(k) refers to service to a client by a manpower recruitment agency, Section 65(41)(o) refers to service by pandal or shamiana contractors and so on. The rate of service tax has been fixed under Section 66. Section 67 provides for valuation of taxable service for the purposes of charging tax. The provision for valuation of service rendered by collecting and forwarding agents has been dealt with under sub-clause (j) and service provided by goods transport operators has been provided under Clauses (I), (subsequently renumbered as Clause (ma)). These clauses read respectively as under :- "(j) in relation to service provided by a clearing and forwarding agent to a client, shall be the gross amount charged by such agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try apart from Entry 56 of List II. Therefore the negation of the petitioners submission perforce leads to the conclusion that the Act falls within the residuary power of Parliament under Entry 97 of List I. 34. Incidentally a similar challenge to the legislative competence of Parliament to levy service tax was negatived in Tamil Nadu Kalyana Mandapam Assn. v. Union of India 2004 (167) E.L.T. 3 (S.C.) which was a case where the levy of service tax was challenged by owners of Kalayan Mandapam/Mandap Keepers. By virtue of the 1997 amendment service provided to a client by Mandap keepers including the services if any rendered as a caterer was treated as a taxable service. The challenge, inter alia , was that service tax on Mandap keepers was colourable legislation as the said tax was not on service but was in pith and substance only a tax on the sale of goods and/or a tax on land. The writ petition filed before the Madras High Court was rejected and the constitutionality of the levy was upheld. It was then urged before this Court by the appellants that Entries 18, 14 and 54 of List II covered the levy in question and, therefore, resort could not be had to Entry 97 in List I of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax viz., goods and passengers and the owners of the transport carrying the goods or passengers. There is thus nothing inherently illegal or unconstitutional to provide for service tax to be paid by the availer or user. 38. The writ petitioners have relying upon the decision in Dwarka Prasad v. Dwarka Das Saraf 1976 (1) SCC 128, contended that the amendment to Section 68 by the introduction of a proviso in 2003, was invalid. It is submitted that as the body of the section did not cover the subject matter, there was no question of creating an exception in respect thereto by a proviso. According to the writ petitioners, the proviso cannot expand the body by creating a separate charge. It is submitted that by merely amending the definition of the word "assessee" it could not be understood to mean that thereby all customers of the services in question were liable. 39. The submission is misconceived for several reasons. Section 68 is a machinery section in that it provides for the incidence of taxation and is not the charging section which is Section 66. The amendments to Section 66 brought about in 2000 changed the point of collection of tax from the provider of the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tel and Restaurant Association of India etc. v. Union of India Ors., (1989) 3 SCC 634 where it was said : "It is now well settled that though taxing laws are not outside Article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy legislature enjoys a wide latitude in the matter of selection of persons, subject matter, events etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions. A legislature does not, as an old saying goes, have to tax everything in order to be able to tax something, if there is equality and uniformity within each group, the law would not be discriminatory . Decisions of this Court on the matter have permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes." (pg. 659) (Emphasis added) 43. In the case before us the discrimination is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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