TMI Blog2005 (1) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... T 352] case, striking down Rule 2(1)(d)(xvii) relating to payment of service tax by users of clearing and forwarding agents service and users of goods transport service. By Finance Act, 2000, the Parliament amended the provisions for the limited period of 16-7-1997 to 16-10-1998 to enable collection of tax from the service users also and enacted validating provisions. Therefore, the petitioner filed the Writ Petition, questioning the levy of service tax on goods being transported by the petitioners, on the grounds of legislative incompetence and discrimination. 3. The petitioners in this Writ Petition contend that they are a Public Limited Company engaged in manufacture of sugar and ferroalloys and has its factories at Samalkot and Paloncha. During the course of its business, the petitioners engage trucks for inward and outward movement of goods. The freight charges paid by the petitioner for transporting goods involves use of trucks and for the purposes of use of trucks, the fuel is also arranged by transporters. The act of transport does not merely involve personal services of transporters but also vehicles and fuel. Chapter V of the Finance Act, 1994 provide for levy of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the petitioners, mainly revolve round the legislative competence of the Parliament to legislate on matters, which according to the petitioners, exclusively fall within the domain of State Legislature. Before going to this argument, it is necessary to reproduce the amendments that were affected to the Finance Act in 2003. Section 68 in 2003 Act reads as under : Section 68 : Payment of service tax - 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 a goods 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 to be a person liable to pay service tax, for such services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. - For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force. 6. The argument is that the Finance Act, 1994 as amended by Finance Act, 1997, Finance Act, 2000 and Finance Act, 2003, are ultra vires on the ground that taxes on goods and passengers carried by road or inland waterways is within the exclusive domain of the State legislature. Entry 56 in List-II of Schedule-VII of the Constitution reads as, Taxes on goods and passengers carried by road or on inland waterways and Entry 89 in List-I of Schedule-VII reads as, Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights . The contention is that by Entry 56 in List-II, imposition of taxes on goods and passengers carried by road or by inland water ways, are in the exclusive domain of the State legislature, whereas in terms of Entry 89 in List-I, taxes on goods or passengers carried by railways, sea or air, is in the exclusive domain of the Parliament. Since the tax imposed by the impugned Acts is tax on passengers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e service who 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. 14.We have no hesitation in holding that the provisions of Rule 2(d)(xii) and (xvii), insofar as they make 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 the Act itself. The said sub-rules are accordingly quashed. So, this was not a judgment in which the Supreme Court had gone to consider whether levying of Service Tax of the nature which has been levied, was within the competence of the Parliament or not. However, to remove the defect as pointed out by the Supreme Court, the Act itself was amended and validation provisions were also enacted. (2) Khyerbari Tea Co. Ltd. Another v. State of Assam Others - AIR 1964 SC 925. An Act [Assam Taxation (On Goods Carried by Road or on Inland Waterways) Act (10 of 1961)], enacted by Assam State legislature, was subject-matter of controversy in this judgment. It is a judgment of a Constitutional Bench of the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. The power to levy a tax which has been conferred on the State Legislature by Entry 56 cannot, therefore, be said to be controlled by the Tea Act in question. It would be noticed that List I does not contain any Entry by which the Central Legislature can pass an Act levying a tax on goods carried which can be said to control Entry 56 in List II. That being so, we must hold that there is no substance in the argument that the State Legislature has no power to levy a tax on tea which is carried over apart of the area of the State of Assam. 9. The argument of the learned Counsel for the petitioners is that the Constitutional Bench of the Supreme Court had held that List-I does not contain any Entry by which the Central legislature can pass an Act levying tax on goods covered in terms of Entry 56 in List-II. Since the impugned provisions levied tax on goods carried in terms of Entry 56 of List-II, the impugned legislations were invalid. It is contended by learned Counsel for petitioners that the matter stands concluded by this Constitutional Bench Judgment of the Supreme Court. There is no dispute that in this case, the tax was levied on movement of goods and therefore, the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or goods transported by a motor vehicle from any place outside the State to any place in the State, or from any place within the State to any place outside the State, the tax shall be payable in respect of the distance covered within the State at the rate laid down in sub section (1) and shall be calculated on such amount as distance covered in the State bears to the total distance of the journey : Provided that where passengers are carried or goods transported by a motor vehicle from any place within the State to any other place within the State through the intervening territory of another State, the tax shall be levied on the full amount of the fare or freight payable for the entire journey and the owner shall issue a single ticket or receipt, as the case may be accordingly. Therefore the petitioners contended in that case that what they were receiving by way of freights or fares, was their income and the tax levied was on their income. The Supreme Court considered this argument in Para 9 of the judgment as under : 9. The first - and the main contention is that the Act in the guise of taxing passengers and goods, taxes really the income of the petitioners, or at any ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto consideration for levy of rate of tax, the tax was still on passengers and goods, though the amount of tax may be determined by the amount of fare or freight. Therefore, in the present case also, even if the impugned legislation terms the tax as the tax on services, it remains tax on movement of goods, for which legislation can only be made by the State legislature. (4) A.S. Karthikeyan Others v. State of Kerala Another - AIR 1974 SC 436. 12. In this case also, the Supreme Court was considering a similar question, which was considered in the case of M/s. Sainik Motors (3rd supra). In Para 3 of the judgment, the Supreme Court stated the questions, which were to be answered and they read as under : 3. The questions which fall for consideration in these matters are these. First, does Act 18 of 1971 levy a tax on the income of operators? Second, is the retrospective validation of levy and collection of taxes by Act 18 of 1971 legal? Third, is it competent to the legislature to amend S. 43 of the Motor Vehicles Act, 1939 called the 1939 Act by Act 34 of 1971 to include retrospectively tax within fare. Sub-section (1) of Section 3 of the Act wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 130) (supra) and this case to be a tax on passengers and goods. This Court in Sainik Motors, Jodhpur v. State of Rajasthan (1962) 1 SCR 517 = (AIR 1961 SC 1480) construed the Rajasthan Passengers and Goods Taxation Act, 1959 and held that the incidence of the tax was upon passengers and goods and not upon the income of the operators of stage carriages though the measure of the tax is furnished by the amount of fare and freight charged . The power to enact such legislative measure is derived from Entry 56 of the State List. The Entry provides taxes on goods and passengers carried by road or on inland waterways . In Sainik Motors case (supra) Section 3 provided there shall be levied, charged and paid to the State Government a tax on all fares and freights in respect of passengers carried and goods transported by motor vehicles at such rates which are thereafter set out . Section 4 in Sainik Motors case (supra) provided that the tax should be collected by the owner of the motor vehicles and paid to the State Government in the prescribed manner . Though there is no comparable provision in the present case to Section 4 in Sainik Motors case (supra) as to method of collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact collected the tax due from passengers under Act 25 of 1963 along with the fare. Section 43(1A) of the Motor Vehicles Act, 1939 was, therefore, introduced with retrospective effect to clarify the factual basis. There was neither imposition of any new tax by Act 34 of 1971 nor was there any alteration of the character of the tax which had already been imposed. In the present case, the principal Act 25 of 1963 levied the tax. Acts 18 and 34 of 1971 were for the purpose of dispelling the doubts expressed in Thomman case, ILR (1968) 2 Ker 153 = (AIR 1969 Ker 130) (supra). 13. In the light of these judgments, there cannot be any dispute that the State has the power to impose tax in terms of Entry 56 of List-II of Schedule-VII on movement of goods and passengers through roadways and inland waterways. And in all these cases which have been referred to hereinabove, the Supreme Court came to the conclusion that in pith and substance, the tax was on movement of goods and passengers and was not tax on income. The learned Counsel for petitioners contend that the impugned legislations also basically levy tax on movement of goods therefore, applying the tests laid down by the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court held, - We are, therefore, of the view that in pith and substance the levy is on the person who is entertained. Whatever be the nomenclature of levy, in substance, the levy under heading admission of vehicle is a levy on entertainment and not on admission of vehicle inside the drive-in-theatre. As long as in pith and substance the levy satisfies the character of levy, i.e. entertainment , it is wholly immaterial in what name and form it is imposed. The word entertainment is wide enough to comprehend in it, the luxury or comfort with which a person entertains himself. Once it is found there is a nexus between the legislative competence and subject of taxation, the levy is justified and valid. We, therefore, find that the State Legislature was competent to enact sub-clause (v) of clause (i) of Section 2 of the Act. We accordingly hold that the impugned levy is valid. 15. The learned Counsel for respondents also relied on a judgment reported in Federation of Hotel Restaurant v. Union of India Others - AIR 1990 SC 1637. This is a judgment of Constitutional Bench of Five Judges. Challenge in this case was to the Expenditure Tax Act, 1987, which envis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttiar's case (AIR 1947 FC 47 at p. 51): * Or 1947 FCR 28 = AIR 1947 PC 60....Ed. It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind observance to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the legislature enacting them may appear to have legislated in a forbidden sphere. Hence the rule which has been evolved by the Judicial Committee, whereby the impugned statute is examined to ascertain its 'pith and substance', or its 'true nature and character', for the purpose of determining whether it is legislation with respect to matters in this list or in that. This necessitates as an essential of federal Government the role of an impartial body, independent of general and regional Governments , to decide upon the meaning of decision of powers. The Court is this body. In Para 14, it held : 14. In Lefroy's 'Canada's Federal System' the learned author referring to the aspects of legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other learned Judges, held : In the light of the above entries and decisions, I think 49. that the learned Attorney General is right in urging that, merely because the 1987 Act as well as the State Acts levy taxes which have ultimate impact on persons who enjoy certain luxuries, the pith and substance of both cannot be considered to be the same. The object of a tax on luxury is to impose a tax on the enjoyment of certain types of benefits, facilities and advantages on which the legislature wishes to impose a curb. The idea is to encourage society to cater better to the needs of those who cannot afford them. For instance, a luxury tax may, to cite a catchy example, encourage construction of Janata hotels rather than five star hotels. Such a tax may be on the person offering the luxury or the person enjoying it. It may be levied on the basis of the amount received for providing, or the amount paid for or expended for enjoying, the luxury. Conceivably, it could be on different bases altogether. The object of an expenditure tax - and, that, conceptually, there can be an expenditure tax is borne out by Azam Jah's case (AIR 1972 SC 2319) (supra) is to discourage expenditure w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Acts are necessary to be mentioned. 18. Sections 65(16), 65(17), 65(41)(m) and 66(3) of Finance Act, 1998 reads as under : Section 65(16) : goods carriage has the meaning assigned to it in Clause (14) of Section 2 of the Motor Vehicles Act, 1988 (59 of 1988) . Section 65(17) : goods transport operator means any commercial concern engaged in the transportation of goods but does not include a courier agency. Section 65(41)(m) : Taxable service means any service provided (a) xx xx xx (b) xx xx (c) xx xx xx (m) to a customer, by a goods transport operator in relation to carriage of goods by road in a goods carriage. Section 66(3) : With effect from the date notified under Section 84 of the Finance Act, 1997 (26 of 1997), there shall be levied a service tax at the rate of five per cent of the value of the taxable services referred to in sub-clauses (g), (h), (i), (j), (k), (l), (m), (n) and (o) of Clause (41) of Section 65 which are provided to any person by the person responsible for collecting service tax. Sections 65(7), 65(18A) and 65(18B) of Finance Act, 2000 reads as under : Section 65(7) : assessee means a person liable for coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire purchase activities. Section 65, clause (41) sub-clause (p) of the Finance Act, 1994, defines the taxable services (which is the subject matter of levy of service tax) as any service provided to a customer by a mandap-keeper in relation to use of a mandap in any manner including the facilities provided to a customer in relation to such use also the services, if any, rendered as a caterer. The nature and character of this service tax is evident from the fact that the transaction between a mandap keeper and his customer is definitely not in the nature of a sale of 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 assigne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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