TMI Blog2017 (9) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not empower the central government to make rules levying or making amenable the provision of certain services to service tax. Section 94 (2) (hhh) also permits making rules regarding the 'date for determination of rate of service tax' and 'place of provision of taxable service'. It does not provide for making rules on determination of taxability of a service. 'Subjecting certain types of services to tax is an essential legislative function. In this case, since the FA envisages Chapter V applying only to taxable services, bringing non-taxable services within the ambit of service tax, is impermissible. Since tour operator services are intermediary services and under Rule 9 of the PPSR 2012 the place of provision of service is the location of the service provider, the package tours service provided by an Indian tour operator to a foreign tourist will, notwithstanding that some part of it is provided outside India, be treated as service provided in India. As a result no Indian tour operator can expect the service rendered by him to a foreign tourist to be considered as an 'export of service' under Rule 6A as he will never be able to meet the requirement of Rule 6A (1) (d) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate of service or the place of provision of taxable service - Section 66 C of the FA enables the central government only to make rules to determine the place of provision of taxable service but not nontaxable service. Petition allowed - decided in favor of petitioner. - W.P.(C) No. 5267 of 2013 - - - Dated:- 31-8-2017 - S. MURALIDHAR PRATHIBA M. SINGH JJ. Petitioners Through: Mr. J.K. Mittal Mr. Rajveer Singh, Advocates. Respondents Through: Mr. Anuj Aggarwal and Mr. Gaurav Singhal, Advocates for Respondent Nos.1 2. Mr. Amit Bansal and Mr. Amit Kulshrestha, Advocates for Respondent No.3. JUDGMENT Dr. S. Muralidhar, J.: Introduction 1. This writ petition by the Indian Association of Tour Operators, seeks a declaration that Rule 6A of the Service Tax Rules, 1994 ( ST Rules ), concerning Export of services is ultra vires the Finance Act 1994 ( FA ). The validity of Section 94 2 (f) of the FA is also challenged on the ground that it gives unguided and uncontrolled power to the central government to frame rules regarding provisions for determining export of taxable services . 2. The members of the Petitioner, who are Indian to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 64 (3) provided that it would apply to taxable services provided on or after the commencement of this Chapter . 6. Section 65 (105) of the FA defined 'taxable service' to mean any service provided or to be provided to a whole range of persons as mentioned in clauses (a) to (zzzzw). Clause (n) of Section 65 (105) of the FA, which is relevant for the present petition, stated that the provision of service to any person by a tour operator in relation to a tour would be a taxable service. Section 66 of the FA provided for the 'charge of service tax. Again, relevant for the present petition is the fact that Section 66 provided inter alia that service tax at the rate of 12% of the value of the taxable service referred to in Section 65 (105) (n) of the FA shall be levied and collected in such manner as may be prescribed. 7. Section 93 (1) of the FA empowered the central government to exempt generally, or subject to such conditions as may be specified, a taxable service of any specified description from the whole or part of the service tax leviable thereon. Section 93 (2) permitted the central government to grant exemption from payment of service tax by a spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusive economic zone of India, for the purposes of prospecting or extraction or production of mineral, oil and natural gas supply thereof. 14. Rule 4 of the ESR 2005 stated: Any service, which is taxable under clause (105) of Section 65 of the Act, may be exported without payment of service tax. 15. The resultant position, prior to 1st July 2012, as far as export of tour operator services was that even if a part thereof was performed outside India and the remaining in India, it would still be treated as having been performed outside India and thereby be construed as an export of service. Such export of tour operator service was not exigible to service tax. This position continued till 1st July 2012. Position after 1st July 2012 16. Significant changes were introduced in Chapter V of the FA with effect from 1st July 2012 by the Finance Act, 2012. Section 65 was omitted and substituted by Section 65 B titled Interpretations . Section 65 B (51) of the FA defined the expression taxable service to mean any service on which service tax is leviable under Section 66B. Section 66B is the charging provision. 17. Section 66 B of the FA, inserted by the FA 2012 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er V applies, in terms of Section 64 (3) of the FA only to taxable services provided on or after the commencement of this Chapter. Rule making powers 20. The rule-making power of the central government is contained in Section 94 of the FA. Section 94 (1) talks of the general power of making rules to carry out the provisions of Chapter V of the FA. Section 94 (2) is a specific power and is without prejudice to the generality of the power under Section 94 (2) (f) permits the central government to make rules for determining export of taxable services. In other words, while such rules can describe what would constitute export of taxable services they cannot possibly determine the taxability of such export of services. 21. Another provision of the FA which grants the central government a rule making power for a specific purpose is Section 66 C of the FA which too was inserted by the FA 2012. It empowers the central government to make rules for determining the place of provision of service. It states that the central government may having regard to the nature and description of various services, by rules made in this regard, determine the place where such services are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions and limitations, as may be specified, by the Central Government, by Notification. 24. The above insertion of Rule 6A was made by the Service Tax (Second Amendment) Rules 2012 by Notification No. 36/2012-ST dated 20th June 2012. A significant change is that Rule 6A brings within its ambit export of even non-taxable services whereas Section 94 (2) (f) permits making rules only in respect of taxable service . As already noted, prior to 1st July 2012 export of service was not a taxable service . 25. Rule 6A (1) of the ST Rules creates two problems for the Indian tour operator organising tours for foreign clients. While clauses (a) (b) and (c) are satisfied inasmuch as the tour operator is located in India, the recipient is located outside India, and the service is not included in the negative list under Section 66 D of the FA, clause (d) may not be satisfied where the service provided is a composite one viz., the place of provision of a part of the service is inside India and the remaining part outside India. Thus clause (d) is satisfied, if at all, only in part. The second issue that arises is that such service provided outside India cannot be made amenable to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Indian tour operator it is an 'export of service', under Rule 9 of the PPSR 2012 the place of provision even for such service would be the location of the service provider which would make it a service provided in India, when in fact it is not. Thus services provided to a foreign tourist both inside India and outside India are brought within the net of service tax by virtue of the combined operation of Rule 6A (1) and (2) ST Rules and Rule 9 of the PPSR 2012. Foreign Trade Policy 28. At this stage, it is necessary to examine Foreign Trade Policy (FTP) for years 2009-14 regarding export and import of goods and services. Para 3.11 talks of Services Exports . As per para 3.11.1 (a) thereof, all tradable services covered under the General Agreement on Trade in Services (GATS) are listed in Appendix 10 of Hand Book Procedure v1. If consideration is received in free foreign exchange, these tradable services would be considered as service exports. Clause (b) states that all provisions of this Policy shall apply mutatis mutandis to export of services as they apply to goods. GATS includes tour operator services which is covered under the sector Tourism and Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of package tour services to foreign tourists outside India, for instance in the neighbouring countries, were also sought to be taxed in India. Mr. Mittal referred to the decision of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Cox Kings India Limited v. Commissioner 2014 (35) STR 817 (Tri-Del) where it was held that service tax cannot be levied with regard to outbound tours arranged for Indians by the Indian tour operators since it was a service provided outside the taxable territory of India. It was held that the FA did not have extra-territorial operation. 33. The central thrust of the submissions of Mr. Mittal is that Rule 6A suffers from the vice of excessive delegation. This is because as non-taxable services such as services provided outside the taxable territory to foreign tourists, are sought to be brought within the ambit of service tax. Rule 6A is assailed as being ultra vires the FA. Reference was made to the decisions of the Supreme Court in Union of India v. S. Srinivasan (2012) 7 SCC 683 and General Officer Commanding-in-Chief v. Subhash Chandra Yadav (1988) 2 SCC 35. Mr. Mittal pointed out that Section 94 (2) (f) of the FA e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted levy of service tax since the service to the foreign tourist was provided in India by the tour operator located in India. Mr Bansal pointed out that if service tax was paid on such services then under Rule 6A (2) the corresponding input tax credit would also be available. According to Mr. Bansal, Rule 6A did not alter the taxability or non-taxability of a service provided by a tour operator. 37. Mr. Bansal submitted that under Section 93A of the FA, rebate was granted in cases where any goods or services are exported. Section 93B of the FA stated that all rules made under Section 94 and applicable to the taxable services shall also be applicable to any other service insofar as they are relevant to the determination of any tax liability, refund, credit of service tax or duties paid on inputs and input services or for carrying out the provisions of Chapter V of the Finance Act. 38. Mr. Bansal submitted that the principle of purposive construction of statutes should be applied. He referred to the decision in K.P. Varghese v. ITO, Ernakulam AIR 1981 SC 1922. He submitted that Rule 6A of the ST Rules was not beyond rule making power of the central government and wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislation in true sense and are treated as subordinate legislation and can be challenged in judicial review like delegated legislation. Compliance with the laying requirement or even approval by a resolution of Parliament does not confer any immunity to the delegated legislation but it may be a circumstance to be taken into account along with other factors to uphold its validity although as earlier seen a laying clause may prevent the enabling Act being declared invalid for excessive delegation. 40. In General Officer Commanding-in-Chief v. Dr. Subhash Chandra Yadav (supra), the Supreme Court explained the position thus: It is well settled that rules framed under the provisions of a statute form part of the statute. In other words, rules have statutory force. But before a rule can have the effect of a statutory provision, two conditions must be fulfilled, namely, (1) it must conform to the provisions of the statute under which it is framed; and (2) it must also come within the scope and purview of the rule making power of the authority framing the rule. If either of these two conditions is not fulfilled, the rule so framed would be void. 41. In Union of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 94 (2), it basically lists out the topics on which rules can be made. It talks of laying down the procedure for carrying out various tasks set out in the FA or to provide the form in which returns are to be filed, appeals preferred. Specific to the case on hand, Section 94 (2) (f) empowers central government to make rules for 'determining' when export of 'taxable services' can be said to take place. It does not empower the central government to determine whether there can be an export of non-taxable services viz., services provided outside the taxable territory. Secondly, it does not empower the central government to make rules levying or making amenable the provision of certain services to service tax. Section 94 (2) (hhh) also permits making rules regarding the 'date for determination of rate of service tax' and 'place of provision of taxable service'. It does not provide for making rules on determination of taxability of a service. 'Subjecting certain types of services to tax is an essential legislative function. In this case, since the FA envisages Chapter V applying only to taxable services, bringing non-taxable services within the ambit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he whole of Chapter V applies only to taxable services, and Section 66 C of the FA falls in that very chapter, the rules made by the central government under Section 66 C has to necessarily be only in relation to taxable services viz., services provided in the taxable territory of India. The legal fiction of treating service rendered outside India to be a service rendered in India cannot be introduced by way of rules. That too would partake the character of an essential legislative function, which cannot be delegated to the central government. In fact such service cannot be brought to tax without amending Section 64 (3) of the FA. 49. Parliament has for the first time under the Constitution (One Hundred and First Amendment) Act, 2016 effective 8th September 2016 amended Article 286 (1) to provide that there will be tax on the export of services out of the territory of India. Article 286 (2) of the Constitution of India has been amended simultaneously to provide that Parliament may by law formulate the principles to determine when an export of services takes place in any of the ways mentioned in Article 286 (1). This is another indication that these tasks cannot be delegated to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r taxing export of services has to be found in the statute itself (and not in the rules) the statute must also provide the machinery by which it can be determined with some certainty how much of the composite service can be said to be rendered in the taxable territory and of what value for the purposes of levy and collection of tax. If there is no such machinery provided, that would an additional ground of invalidation of the levy itself. In Govind Saran Ganga Saran v. Commissioner of Sales Tax AIR 1985 SC 1041 the Supreme Court explained in para 6, as under: 6. The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness ill the legis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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