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TMI Blog2001 (4) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ; was brought under the taxnet for the first time. The said Act was amended from time to time to include the various services which were brought under the taxnet. Under the scheme of the Act, the impost of the tax was against the persons who provided the services and they had to collect and pay the same. Thus, this tax could be legitimately passed on to the customers and more particularly to the persons to whom the services were being offered. The "services" offered by "man dap-keepers" were included for the first time by Chapter VI of the Finance Act, 1997. Some of the relevant provisions in that Chapter are as follows: "65. (19) 'mandap' means any immovable property as defined in section 3 of the Transfer of Property Act, 1882 (4 of 1882), and includes any furniture, fixtures, light fittings and floor coverings therein let out for consideration for organising any official, social or business function. 65. (20) 'mandap keeper' means a person who allows temporary occupation of a mandap for consideration for organising any official, social or business function. 65. (41) 'taxable service' means any service provided, (p) to a client ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices" provided by the mandap keepers, two representations came to be made by the letters dated March 29, 1997, and June 9, 1997, respectively. In the first representation, it was pointed out that the tax would be 'onerous" and the customers would not be ready to pay the tax. By the second representation, it was pointed out that the tax could not be remitted immediately after every marriage or function when the mandap was rented out and, therefore, reasonable time should be granted from the date of rendering the services to make the payment of tax. Shortly stated, the case of the petitioners before us is that this tax and the provisions therefor in sections 65, 66 and 67 of the Finance Act are firstly beyond the "legislative competence" of the Union of India as, in fact, in pith and substance, this tax amounts to a "tax on land and buildings", which is covered by entry 49 of the State List (List 11) of the Seventh Schedule to the Constitution of India. Learned counsel argued that presumably this legislation is under the 'residuary entry", i.e., entry 97 of the Union List (List I), and, therefore, it could have been so legislated only if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uggest that since the definition of "mandap" means an immovable property described under section 3 of the Transfer of Property Act, the tax for the "user of such a land' would be a tax on land itself and would also be covered by entry 18 of the State List (List 11), which reads as follows: '18. Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization." Learned counsel suggest that this would be a "tax on land" and, therefore, would be integrally connected with the "tax on collection of rents" and for this reason also, the provisions are beyond the 'legislative competence" of the Union because of the positive language of article 248(1) pertaining to the 'residuary powers" enjoyed by Parliament. In so far as the other challenge is concerned, learned counsel argue that the definition of "mandap" suggests that an immovable property should have been let out for consideration for organising any official, social or business function. Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " and "arbitrariness", learned counsel contended that the terms themselves are more than clear and needed no guidance. According to learned counsel, these terms were to be understood in their common parlance and so understood, there could be no occasion for any confusion. In short, the contention of learned counsel was that there was no "vice" attached to the challenged provisions either regarding the "lack of legislative competence" or regarding "arbitrariness" and "unreasonableness". Learned counsel appearing on behalf of the petitioners to begin with tried to argue that in pith and substance this tax was a 'tax on land and building". Learned counsel argue that the tax depends on the very existence of the land and/or building and is, therefore, integrally connected with that subject. It was argued that even if a playground is rented out for any social, official or business function even then, the service tax liability would arise. From this learned counsel argue that the impost of the tax is entirely depended upon the existence of the immovable property which may include the land and/or building and it is only for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onship of "landlord and tenant". It was tried to be suggested that the words "let out" used in section 65(22) signify the 'rent" of the land. It is then pointed out that the language of section 67(m) suggests that the valuation of 'services" provided by the "mandap keeper" would be the "gross amount" charged by such keeper from the client for the use of the "mandap" and also the other facilities and also included the charges for 'catering services". From this, learned counsel argue that it was obvious that what was being charged was the rent earned by the landlord over the piece of land which was let out for the user of the client by way of holding a social, official or business function. The argument is clearly an incorrect. Here the basic fallacy in the argument is that the nature of the tax is being judged from the "measure of the tax". Merely because the tax is charged on the amount charged by the "mandap keeper" on account of his having let out the premises, it would not mean that the tax is wholly and integrally connected with such charges and, therefore, amounts to a tax regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax and even applying the theory of pith and substance it cannot be said that it would amount to a tax on land and/or building. There could be no dispute that the tax is integrally connected with the land and/or building but, it does not mean that it is a tax on land and/or building. In our opinion, the tax on land and/or building is charged because such land and/or building exist irrespective of the fact whether they are used or not. Their very existence is taxable whereas, it is the "user of the immovable property in a particular manner which amounts to a service given which has been made taxable under the present provisions". These two are entirely different aspects. Therefore, when we apply the theory of pith and substance to the present tax, it does not in any way come near the barred borderline of entry 18 or entry 49 of List II let apart its entry into that barred territory. It will be seen that impost of the tax under entry 49 of List II would essentially be vis-a-vis the land and/or building as the case may be whereby such tax under entry 49 would be essentially connected with the proprietary or ownership rights in the said land and/or building. The following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to it." To similar effect were the observations by the apex court in the decision reported in Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1970] 75 ITR 603, which also came to be approved. The real import of entry 49 of List II is aptly decided in H. S. Dhillon's case [1972] 83 ITR 582 (SC), where the earlier decisions in respect of that entry have been considered and approved as shown by us above. Once we see the real import of entry 49 of List IL it is clear that the present challenged legislation cannot and does not come within the scope of that entry. The present legislation is clearly in respect of the 'services" which area was totally untapped till the advent of the 'service tax". We have already referred to the background of the "service tax". In this behalf, it will be better to see that the concept of "service tax" is a totally novel concept, which was introduced for the first time in the year 1994. Learned counsel for the respondent heavily relied on the speech of the then Finance Minister on the floor of the House while introducing the service tax for the first time. In paragraph 87 of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. In fact there are at least three decisions of this court, one in Loka Shikshana Trust v. CIT [1975] 101 ITR 234, the other in Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 and the third in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1, where the speech made by the Finance Minister while introducing the exclusionary clause in section 2, clause (15), of the Act was relied upon by the court for the purpose of ascertaining what was the reason for introducing that clause.' Be that as it may, it is clear that this is a tax on service and is entirely independent of and different from the existing taxes covered by the taxes provided in List II. That itself would suggest that this cannot come within the arena of entry 49 of List II also. In the decision reported in India Cement Ltd. v. State of Tamil Nadu [1991] 188 ITR 690; AIR 1990 SC 85, when the apex court was considering the legality and constitutional validity of the cess on royalty on mineral rights again the scope of entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;, which is defined in section 65(10) of the Finance Act, which reads as under: "'caterer' means any person who supplies, either directly or indirectly, any food, edible preparations, alcoholic or non-alcoholic beverages or crockery and similar articles or accoutrements for any purpose or occasion;" According to learned counsel from the conjoint reading of section 65(10) and section 65(m) of the Finance Act, it is clear that when the "mandap keeper" while providing the services of user of the "mandap" also supplies directly or indirectly food or beverages, then, such services would be included in the "taxable service". According to learned counsel, the inclusion of the service rendered as a caterer" is clearly beyond the "legislative competence" of Parliament as that subject is covered in entry 54 of List II, which we have quoted already. In support of the argument, learned counsel heavily relies on the provisions of article 366(29A)(f) of the Constitution, which we have already quoted in the earlier part of this judgment. The contention is that if the service of catering by a mandap keeper is included in the 'ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther held that it would not make any difference whether the visitor to the restaurant was charged for the meal as a whole or according to each dish separately. From this, learned counsel argues that the Government wanted this supply of food by the hotel to the residents as also to the non-resident guests under the taxnet for the sales tax and it is in that light that clause (f) should be read. He points out that the "service" by a "mandap keeper" providing the food along with the service of "user of mandap" is of entirely a different nature and, therefore, cannot be viewed to be covered under article 366(29A)(f). Learned counsel again relied upon Federation of Hotel and Restaurant's case [1989] 178 ITR 97 (SC); AIR 1990 SC 1637. Learned counsel points out that in this case also, the question of "legislative competence" of Parliament in enacting the "Expenditure-tax Act" was involved and the term "chargeable expenditure" in that Act included the expenditure incurred in or payments made to a hotel in connection with the provisions of (a) ... (not relevant) ... and (b) food or drink by the hotel whether at the hotel or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered therein or not provided that the point with reference to which an argument was subsequently advanced was actually decided." Again in the decision in R. M. Lakhani v. Municipal Committee, Malkapur, [1970] 2 SCC 267, in paragraph 4, the Supreme Court has specifically cautioned against such a course being adopted by the High Court. We would, therefore, not venture to comment upon the judgments of the apex court in the manner the petitioners would want us to do. The contention by learned counsel for the petitioners is, therefore, clearly incorrect. It is quite apparent as to why no reference was made to article 366(29A)(f) as the argument in that case was that the aspect of expenditure was a distinct and a separate aspect from the aspect of taxability on account of the sale of goods or on account of its being the luxuries. Article 366(29A)(f) as the argument in that case was that the aspect of expenditure was a "distinct and separate" aspect from the aspect of taxability on account of the sale of goods or on account of its being luxuries. We can safely take same logic and point out that in the present matters also, the aspect of service is totally "independen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service". Clause (1) of section 67 contains the words "and also the charges for catering, if any" as the concluding words of the provision. Learned counsel says that this itself suggests that in "pith and substance", what is being taken as the basis of the tax is the "gross amount' charged by the "mandap keeper", which includes the charges for the use of the mandap, other facilities and also the charges for catering and, therefore, it is clear that in effect, the "mandap keeper" is being taxed for the food that he has supplied by way of a service and, therefore, such service of food, drink, etc., must be understood as a "sale of goods" as per sub-clause (f) of article 366(29A). The basic fallacy in this logic is that the nature of the tax is being tried to be decided on the basis of 'measure thereof". There can be no dispute that section 67(1) is nothing but the 'measure of the tax", which cannot be considered while considering the true nature of the tax. Even at the cost of repetition, we may point out that in Federation of Hotel and Restaurant's case [1989] 178 ITR 97 (SC), in para. 17 of the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two different activities could properly be regarded as two different matters for taxation and the relevant legislation was held to be one concerned with 'sale' and not with 'manufacture'. In other words, there could be two enactments 'each, in one aspect, conferring the power to impose a tax upon goods.' The legislation was held not to be vitiated merely because there was an element of overlapping in that both excise duty and sales tax became leviable on the same assessee in respect of the same goods and by reference to the same sale price when the first sale after manufacture occurs, one by reference to the 'manufacture' aspect and the other by reference to the 'sales' aspect. This bifurcation of the two different aspects pertaining to goods was justified by the language of the legislative entries themselves which referred separately to the different sets of activities and put them down in different legislative lists. Again, on the same principle, the manufacture of electricity may attract excise duty at the point of its captive consumption (under entry 84 of List 1) and also a tax on the consumption or sale of electricity (referable to entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot;mandap keeper" as a 'caterer" would, in our opinion, be a 'distinct and separate" aspect. We, therefore, need not interpret the term "service" in article 366(29A)(f). Our attention was also invited to the decision in K. Damodarasamy Naidu and Bros. v. State of Tamil Nadu [2000] 117 STC 1; [2001] 1 SCC 521, wherein, the provisions of article 366(29A)(f) came to be considered. It was pointed out that in the Tamil Nadu General Sales Tax Act, a provision was introduced by way of an amendment in 1984 wherein the term "sale" specifically included the exact phraseology of sub-clause (f) of article 366(29A). So also, the definition of 'dealer" was expanded under the Act. It was pointed out by learned counsel that, therefore, the supply by the "mandap keeper" of the food, drink, etc., would certainly invite the "sales tax". We have absolutely no difficulty of that but, we have already pointed out that the present tax is not on the "sales" but it is on the "service" and that aspect is well explained in Federation of Hotel and Restaurant's case [1989] 178 ITR 97 (SC). In this case also in parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was introduced. In this view, we must hold that even the third argument of Mr: Mohan Parasaran has to be rejected. Lastly, Mr. Mohan Parasaran urged that the impugned provisions and more particularly section 65(23) is vague and there is no way of knowing for any mandap keeper as to whether a function for which he allows the user of the mandap is social, official or business. He points out that there are no guidelines provided in the whole machinery of the Act to suggest what is precisely meant by an "official function", "social function" or "business function". Learned counsel further argued that even as regards the "gross charges", which are referred to in the "valuation of taxable service", there are no guidelines as to what part of such "gross charge" is to be taxed and what part is not to be taxed. Learned counsel heavily relied on the decision in K. Damodarasamy Naidu and Bros. v. State of Tamil Nadu [2000] 117 STC 1; [2001] 1 SCC 521 and points out that there the Supreme Court has taken particular steps in that case. As against this, learned senior counsel for the Department points out that it is not necessary tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , official or business functions. It is further argued though haltingly that only these three kinds of functions are made taxable while the others are not, which are, for example, religious functions, political functions, family functions, etc. We only say, relying on the observations made in Federation of Hotel and Restaurant's case [1989] 178 ITR 97 (SC), in paragraph 20, 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 the 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. In the decision in mafatlal Industries' case [1998] 111 STC 467; [1997] 5 SCC 536, also the apex court has approved the "theory of discretion" in the Legislature. There, the observations in the decision of R. K. Garg v. Union of India [1982] 133 ITR 239 (SC); [1981] 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in Benilal v. State of Maharashtra [1995] Suppl 1 SCC 235. A complaint was made against the C. P. and Berar Regulation of Letting of Accommodation Act, 1964, as also the C. P. and Berar Letting of House and Rent Control Order, 1949, especially clause 13(3)(ii). It was complained that the words "habitually in arrears" are vague and are indefinite. The presumption was that those words should have been defined but that was not done and its construction is varied on subjective decision of the court and can vary from court to court. Therefore, the words "habitually in arrears" being vague and indefinite, and exercise of the power having been entrusted to an officer not judicially trained to construe the provisions of the Act, it would lead to unbridled exercise of power without guidelines, offending article 14 of the Constitution. The Supreme Court held: "It is well settled that the legislative scheme may employ words of generality conveying its policy and intention to achieve the object set out therein. Every word need not be defined. It may be a matter of judicial construction of such words or phrases. Mere fact that a particular word or phrase has n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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