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TMI Blog2019 (9) TMI 1315X X X X Extracts X X X X X X X X Extracts X X X X ..... "(A) That Your Lordships may be pleased to issue a writ of Mandamus or any other appropriate writ, order or direction thereby striking down Rule 2(1)(d) (EEC) of the Service Tax Rules and Notification Nos.15/2017-ST and 16/2017-ST as ultra vires Sections 66B, 67 and 94 of the Finance Act, 1994, and ultra vires Articles 14 and 265 of the Constitution of India; (B) That Your Lordships may be pleased to issue a Writ of Mandamus or any other appropriate writ, order or direction striking down Rule (7CA) of the Rule 6 of the Service Tax Rules, 1994 and Explanation-V of Notification No.30/2012-ST dated 20.6.2012 as ultra vires Sections 66B, 67 and 94 of the Finance Act, 1994 and ultra vires Articles 14 and 265 of the Constitution of India; (C) That Your Lordships may be pleased to issue a writ of Mandamus or any other appropriate writ, order or direction thereby quashing and setting aside Circular No.206/4/2017-ST dated 13.4.2017 and Show Cause Notice No.VI(a)/8-38/CEA/CIR-VI/Gr.29/2017-18 dated 28.6.20189; (D) Pending hearing and final disposal of the present petition, Your Lordships may be pleased to stay the adjudication proceedings of Show Cause Notice No.VI(a)/8-38/CEA/CIR- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India upto the Custom station of clearance in India even in case of cost, insurance and freight (CIF) contracts, even though the local importer in such CIF transactions is neither the service provider nor the service recipient for imported goods. The service provider is the vessel owner/operator whereas the service receiver is the overseas seller/supplier of the goods, and the entire service of transporting goods from a foreign location to an Indian Port is provided and consumed outside India. Under the provisions of the Finance Act, 1994, service tax can be charged and collected either from the service provider or from the service receiver, but not from a third party; and therefore the Notifications and the Rules made thereunder laying down that the importer was the person liable to pay service tax for ocean freight are ultra vires the charging section as well as the machinery section of the said Finance Act, and also beyond the rule making power of the Central Government. A fictional value at the rate of 1.4% of sum of cost, insurance and freight (CIF) of imported goods is laid down as the value of such service for assessing service tax thereon, because the importer in India woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , namely, CIF contract and FOB contract. FOB (i.e. Free on Board) is a contract of sale between the foreign supplier and the local importer, where the importer would engage the vessel/ship owner or operator for importing goods into India. In FOB contract, the service of transportation of goods by ship or vessel is received by the importer in India, whereas such service is rendered by the owner/operator of the foreign going vessel. In case of CIF contract, the overseas supplier would engage the vessel owner/operator for transportation of goods to India. The appointment of the vessel/ship and also payment of transportation charges i.e. ocean freight of such vessel owner/operator are made by the overseas supplier in CIF contract. The service of transportation of goods by vessel is thus received by the overseas supplier from the foreign going vessel owner/operator in CIF contract. 5.1 Thus, the basic difference between FOB and CIF contract is that the service of transportation of goods by vessel/ship is received by the importer in FOB contract, whereas such service is received by the overseas supplier in case of CIF contract. The transportation charges for transporting goods b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017-ST dated 12.1.2017, the Central Government has inserted Clause (EEC) under Rule 2(1)(d) thereby laying down that the person in India who complied with Section 29, 30 or 38 read with Section 148 of the Customs Act, 1962 with respect to goods transported by a vessel from a place outside India upto the Custom Station of clearance in India was the person liable to pay service tax on such services. For ready reference, extracts of Service Tax Rule (including Rule 2 and 6) with the relevant amendments including Clause (EEC) are enclosed and marked as Annexure-"C". 8.1 Section 29 of the Customs Act refers to the obligations of the person-in charge of a vessel or an aircraft entering India from any place outside India. Section 30 of the Customs Act also refers to the obligations of such person for submitting Import General Manifest and the like documents. Section 38 refers to the powers of the proper Customs officer for requiring person-incharge of any conveyance carrying imported goods for production of any document or answer any questions. By virtue of Clause (EEC) under Rule 2(1)(d) of the Service Tax Rules, the persons in charge of the vessel was deemed to be the person liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms Act shall be the person liable to pay service tax in respect of services provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India upto the Custom station of clearance in India. By virtue of Explanation-V so inserted, it would mean that the importer of goods would be liable for paying service tax on ocean freight in case where the service of transportation of goods in a vessel was provided by the vessel owner/operator to the overseas supplier-seller in CIF transactions. By Notification No.16/2017-ST, Clause (EEC) of Rule 2(1) (d) of the Service Tax Rules has been substituted, and there also the importer as defined under Section 2(26) of the Customs Act is made liable to pay service tax on ocean freight in cases like CIF transactions. A new Sub Rule i.e. Sub Rule (7CA) has also been inserted in Rule 6 of the Service Tax Rules by this Notification, thereby providing that the value of the ocean freight may be calculated at the rate of 1.4% of the sum total of CIF for paying service tax thereon. Thus, the effect of the amendments vide the other Notification No.16/2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an option to pay service tax @1.4% of CIF value of the goods in case the person liable to pay service tax did not propose to discharge service tax on the actual value of ocean freight. 14. As aforesaid, the Petitioner's contracts are on CIF basis, and therefore the Petitioner had not been liable to pay service tax on ocean freight, because the importer who had not received the service of transportation of goods in a vessel from the owner/operator of such ocean going vessel was not the person liable to pay service tax in this case till 23.4.2017. But since the importer of the goods is made liable to pay service tax by virtue of Notification Nos.15/2017 and 16/2017, both dated 13.4.2017, from 23.4.2017, the Central Excise and Service Tax authorities initiated enquiry against the Petitioner as a result of audit verification of the Petitioner's records. The Audit officers noticed the imports made by the Petitioner and also the Bills of Entry filed for the goods imported on CIF basis. Upon noticing that service tax on ocean freight was not paid by the Petitioner as an importer even for the imports made on and after 23.4.2017, the Assistant Commissioner, GST Audit has issued a Show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be levied and collected by the Union of India on the activities which occur outside the territory of India, and no recovery of a tax in the nature of "service tax" can be made from a person who is neither service provider nor service recipient. There is no machinery provision also for determining value of the service in the nature of transportation of goods by vessel from a place outside India to a Custom Station in India, and therefore also the provisions made by the Central Government for seeking to charge service tax from an importer like the Petitioner on a fixed rate of 1.4% of the CIF value of the imported goods are ultra vires Articles 14 and 265 of the Constitution of India. The Petitioners are therefore constrained to approach this Hon'ble Court challenging such provisions for being declared unconstitutional and ultra vires on following main amongst other grounds that may be urged at the time of hearing of the present petition; grounds being set out hereunder without prejudice to one another:" 5. Thus, the subject matter of challenge is the validity of the following; "(i) Rule 2(1)(d)(EEC) of the Service Tax Rules, which provides that the person liable to pay service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 4; 7.1 The power of the Parliament to levy service tax under Entry No.97 of List 1 is not in dispute. 7.2 Under Section 64 of the Finance Act, 1994 read with Section 66B of the Finance Act, 1994, Service Tax is applicable on taxable services provided in India, except the State of Jammu and Kashmir. Section 66C empowers the Central Government to make rules for determination of place of provision of service and Place of Provision of Services Rules, 2012 have been made accordingly. 7.3 Further, Section 66C(2) specifically provides that any rule made under sub-section (1) of Section 66C shall not be invalid merely on the ground that either the service provider or the service receiver or both are located at a place being outside the taxable territory. 7.4 Section 66C and the Place of Provision of Service Rules, 2012 are within the powers vested with the Parliament under the Constitution and also are in consonance with the law interpreted by the Supreme Court as well. 7.5 In terms of the applicable Rule 10 of the Place of Provision of Services Rules, 2012, the place of provision of services of transportation of goods by air/sea, other than by mail or courier, is the destina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectively, entertainment tax and service tax on entry to entertainment and service aspect, service tax and Central Excise/VAT on contract manufacturing, service tax and luxury tax on hotel stay etc.). The only question is whether demand of tax is sustainable under the particular statute or not. 7.11 In the instant case, the value of transportation services is includible in the assessable value of the goods in terms of the Customs Act, 1962 and the Rules made there under [Customs Valuation of imported goods, Rules, 2007]. However, there is no provision under Service tax provisions (Finance Act, 1994) wanting non-levy of service tax on service of transportation of imported goods on the grounds that Custom duty has been levied on ouch value being included in the value of goods under a different statute viz. Customs Act, 1962. Vice. Versa, there is no provision warranting exclusion of value of transportation services from the assessable value for customs purposes, on the ground that service tax has become levied on such services under a different statute. 7.12 In the case of FOB (Free on Board) imports, the freight amount which is the consideration for transportation services i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their services being exports from their home country, are zero-rated in their home country and thus have suffered no taxes. Further the foreign shipping lines do not get registered in India and do not follow the provisions of the Cenvat Credit Rules. 7.15 Vide notification Nos 15/2017-ST and 16/2017-ST respectively dated 13th April, 2017, the importer of goods as defined in the Customs Act, 1962 has been made liable for paying service tax in cases of services of transportation of goods by sea provided by a foreign shipping line to a foreign charterer with respect to the goods destined for India. This change has come into effect from 23rd April, 2017. The Shipping/steamer agents are no longer liable to pay the service tax for the services provided on or after 23rd April, 2017. 8. On 27th December, 2018, a Coordinate Bench of this Court passed the following order; "1. Mr. Paresh Dave, learned advocate for the petitioners submitted that by virtue of the impugned notification dated 13.4.2017 issued in exercise of power under sub-section (2) of section 68 of the Finance Act, 1994, it has been provided that services provided or agreed to be provided by a person located in non-taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India. 4. It was submitted that, therefore, the impugned notifications to the extent they seek to make the importer liable for payment of service tax in respect of ocean freight is ultra vires the provisions of section 66B and section 68(2) of the Finance Act, 1994. 5. The attention of the court was invited to section 94 of the Finance Act which provides for "Power to make rules". It was submitted that in none of the items enumerated thereunder, is the Central Government empowered to fix the tariff value of any service. It was submitted that, therefore, the impugned notification dated 13.4.2017 which provides for an option to pay the amount calculated at the rate of 1.4% by way of sum of cost, insurance and freight value of the imported goods is de hors the powers conferred on the Central Government under sub-section (2) of section 94 of the Act. 6. Referring to section 67 of the Act which provides for "Valuation of taxable services for charging service tax", it was submitted that there is no such power to fix tariff as has been done by virtue of the notification dated 13.4.2017 which is beyond the machinery provision also. 7. Various other submissions have been ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vider), manpower supply (partially also payable by service provider), work contract (partially also payable by service provider), service provide from nontaxable territory but received in taxable territory (partially also payable by service provider)- Notification Nos.15/2012-S.T. & 36/2004-S.T. Superseded. In exercise of the powers conferred by sub-section (2) of section 68 of the Finance Act, 1994 (32 of 1994), and in supersession of (i) notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 15/2012-Service Tax, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i),vide number G.S.R 213(E), dated the 17th March, 2012, and (ii) notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 36/2004-Service Tax, dated the 31st December, 2004, published in the Gazette of India, Extraordinary, Part II, Section 3, Subsection (i), vide number G.S.R 849 (E), dated the 31st December, 2004, except as respects things done or omitted to be done before such supersession, the Central Government hereby notifies the following taxable services and the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he service for the taxable services specified in paragraph I shall be as specified in the following Table, namely:- TABLE Sr. No. Description of a service Percentage of service tax payable b the person providing service Percentage of service tax payable by the person receiving the service 1 in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business Nil 100% 2 In respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road. Nil 100% 3 in respect of services provided or agreed to be provided by way of sponsorship Nil 100% 4 in respect of services provided or agreed to be provided by an arbitral tribunal Nil 100% 5 in respect of services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, Nil 100% 6 in respect of services provided or agreed to be provided by Government or local authority by way of support services excluding,- (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1962 (52 of 1962) of such goods. 2.This notification shall come into force on the 1st day of July, 2012." 12. Mr. Dave, thereafter, invited our attention to Chapter-V of the Finance Act, 1994 and Chapter- VA of the Finance Act, 2003. Section 65(52) defines the term "taxable territory". It reads thus; "(52) 'taxable territory' means the territory to which the provisions of this Chapter apply." 13. Section 66B is with regard to the charge of service tax on and after the Finance Act, 2012. It reads thus; "(66B):-There shall be levied a tax (hereinafter referred to as the service tax) at the rate of (fourteen) per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed." 14. Section 68 is with regard to the payment of service tax. It reads thus; "68. Payment of service tax:- (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section [66B] in such manner and within such period as may be prescribed. (2) Notwithstanding anything cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount due to the Central Government under section 87; (f) provisions for determining export of taxable services; (g) grant of exemption to, or rebate of service tax paid on, taxable services which are exported out of India; (h) rebate of service tax paid or payable on the taxable services consumed or duties paid or deemed to have been paid on goods used for providing taxable services which are exported out of India; (hh) rebate of service tax paid or payable on the taxable services used as input services in the manufacturing or processing of goods exported out of India under section 93A; (hhh) the date for determination of rate of service tax and the place of provision of taxable service under section 66C; (i) provide for the amount to be paid for compounding and the manner of compounding of offences; (j) provide for the settlement of cases, in accordance with sections 31, 32 and 32A to 32P (both inclusive), in Chapter V of the Central Excise Act, 1944 (1 of 1944) as made applicable to service tax vide section 83; (k) imposition, on persons liable to pay service tax, for the proper levy and collection of the tax, of duty of furnishing information, keeping re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thods. 18. FOB (i.e. Free on Board) is a contract of sale between the foreign supplier and the local importer, where the importer would engage the vessel/ship owner or operator for importing goods into India. In the FOB contract, the service of transportation of goods by ship or vessel is received by the importer in India, whereas such service is rendered by the owner/operator of the foreign going vessel. 19. In the case of CIF contract, the overseas supplier would engage the vessel owner/operator for the transportation of goods to India. The hiring of the vessel/ship and also payment of the transportation charges i.e. ocean freight of such vessel owner/operator are made by the overseas supplier in the CIF contract. The service of transportation of goods by vessel is thus received by the overseas supplier from the foreign going vessel owner/operator in the CIF contract. 20. Thus, the basic difference between the FOB and CIF contract is that the service of transportation of goods by vessel/ship is received by the importer in the FOB contract, whereas such service is received by the overseas supplier in case of CIF contract. The transportation charges for transporting goods by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reed, the goods remain at the seller's risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not: Provided that, where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault: Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as bailee of the goods of the other party." 23. The title of Section 26 shows that the rule provided there- under is the prima facie rule subject to the agreement otherwise between the parties. This is clearly indicated by the expression "unless otherwise agreed" with which the section begins. The parties to the contract are, thus, free to by-pass the prima facie rule provided in Section 26 by making agreement otherwise. The prima facie rule in Section 26 is that the goods remain at the seller's risk until the property in the goods is transferred to the buyer. But when the property in the goods is transferred to the buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verse charge Notification No.30/2012-ST. The service for which tax is proposed to be collected under the impugned provisions is thus admittedly rendered and consumed outside the country, because the service is that of transportation of goods by a vessel from a place outside India upto the Customs station of clearance in India. 24. "Customs station" is defined under Section 2(13) of the Customs Act, 1962 to mean any Customs port, Customs Airport, International Courier Terminal, Foreign Post Office or land Customs station; and thus "Customs station" is a place on the land mass of the country. In this case, the transportation of goods by a vessel is involved, and therefore the Customs station of clearance in India would be the "Port", where the goods are unloaded from the vessel and then assessed to customs duties under Section 46 and 47 of the Customs Act, and then clearance of the goods shall be allowed on payment of duties assessed. This Court has conclusively held in para 11 of Prabhat Cotton and Silk Mills Ltd. 1982 (1) ELT 203 (Guj.) that importation into India was with reference to the land mass of India, and not with reference to the territorial waters of India. The judgemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K Industries Ltd. vs. Income Tax Officer, 2017 (48) STR 177 (SC) that the Parliament has power to enact laws for extraterritorial events subject to three conditions as referred to in para 41 of the judgement; but the Executives having delegated powers under any Act of the Parliament do not possess any jurisdiction to make Rules or Notifications for taxing extraterritorial events. In the present case, the Parliament has restricted the provisions of Chapter-V of the Finance Act in respect of service tax to events occurring in the taxable territory i.e. India by virtue of Section 66B (the charging section), Section 66B(52) and Section 64(1) and therefore the impugned Notifications issued by the Executive i.e. the Central Government by way of Rules, are beyond Sections 64, Section 66B and Section 65B(52) of the Finance Act. The impugned Rules and Notifications seek to levy and collect service tax on services rendered and consumed outside India, and therefore these provisions are ultra-vires the above referred three provisions of the Act made by the Parliament. 30. All the three impugned provisions are made by the Central Government by way of amending Service Tax Rules, but there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian importer make any payment of ocean freight to the service provider. But the impugned provisions make such "importer" liable to pay service tax; and therefore such provisions allowing the Central Government to recover service tax from a third party are ultra vires the statutory provisions of the Finance Act, as discussed below. 35. The charging section 66B provides for levy of service tax on the value of "services", other than those specified in the Negative List. The term "service" is defined under Section 65B(44) to mean any activity carried out by a person for another for consideration. Thus, service is an activity carried out by a person (i.e. the service provider) for another person (i.e. the receiver of service). Only two parties are recognized by the Parliament in regard to "service" viz. the service provider and the recipient of service. 36. Section 68(a) of the Finance Act lays down that every person providing taxable service to another person shall pay service tax; and thus the primary obligation to pay service tax is on the person providing such service. 37. By virtue of Sub Section (2) of Section 68, the Central Government has power to shift the liability to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods, and not any service. Secondly, liability to pay tax cannot be fastened on a person if the charging provision does not charge or levy the tax; because a charging section has to be strictly interpreted, and not by way of inferences or presumptions about any indirect benefit to a person. 42. In Commissioner, Surat-I V/s. Patel Vishnubhai Kantilal & Co., 2012 (28) STR 113 (Guj.), this Court has considered relevant case law on this proposition in paras 19 to 22, and held at para 22 that the rule of construction of a charging section is that before taxing any person it must be shown that he falls within the ambit of the charging section by clear words used in the section. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all. 43. When the Respondents have admitted that the importers in India are not persons receiving service of sea transportation, and that it is the Respondent's case that the Indian importers were "indirectly" receiving such service and hence were persons liable to pay service tax on such service; it is clearly a case where the Respondents propose to charge service tax from the third parties i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mported goods. But this insertion of Sub Rule (7CA) in Rule 6 is also ultra vires the machinery provision of Section 67, and also rule making power of Section 94. 47. There is no power conferred upon the Central Government under Section 94 to fix value of any service, the way such power is conferred upon the Board under Section 14(2) of the Customs Act, 1962. In absence of any power vested in the Central Government to fix value of any service by way of making a rule or a notification, Rule 6(7CA) of the Service Tax Rules is ultra vires the Rule making power. Secondly, it is an option under Rule 6(7CA) to pay service tax on the amount calculated @1.5% of CIF value of the imported goods; but if the importer does not exercise this option, then there is void because actual value of this service i.e. ocean freight is not known even to the Revenue officers. Therefore, the scheme of taxation would fail and fall in absence of a machinery provision for valuation of the service when tax is proposed to be recovered from a third party not having any information about the value of such service. 48. Therefore, Rule 6(7CA) amended by the Central Government is also ultra vires Section 67 and S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;India' when it is used in the context of exportation of goods from India as also when it is used in the next breath in the context of importation of goods into India. We have, therefore, no hesitation in holding that section 12 refers to exportation from, or importation into, of goods with reference to the landmass of India and not with reference to the territorial waters of India. Once we reach this conclusion the main plank of the submission urged on behalf of the petitioners must collapse. In paragraph 6 of the petition (Special Civil Application No. 1640/81) the argument has been structured in the following manner : "The petitioner say that the duty which is imposed under the Customs Act is a tax charged on the entry of the goods into India. The petitioner states that taxable event occurs at the time when the goods enters into Indian territorial water and the duty becomes leviable at that stage." The basis of the argument that the landing charges cannot be included in the assessable value in the premise that the taxable event occurs when the vessel carrying the goods for importation enters in the territorial waters of India. If the very basis of premise assumed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities as soon as the goods are landed, and the sale can take place only after they are landed, the price at which the goods are sold or offered for sale would of necessity include the landing charges payable before the transaction of sale is effected. An argument as regards the post-importation charges was advanced in the Privy Council in Ford Motor Company of India Ltd. v. Secretary of State A.I.R. 1938 Privy Council 15 = ELT J 265. The Privy Council has expressed the opinion : "That the Legislature intended to exclude post-importation expenses need not doubted but it had to do this in a practicable manner without undue refinement, and it must be taken to have regarded the phrase which it employed as sufficient for the purpose if taken in a reasonable sense". If this principle were to be applied, the only manner in which the interpretation can be made in the reasonable sense or commonsense manner is to apply the test of valuation of goods after they are unloaded on the Port on payment of landing charges incidental to the unloading of the goods on the wharf. In the said decision the phrase "at the place of importation" camp up for consideration and an argument was urged as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well where sanctity must be accorded to an interpretation which has found acceptance by all concerned over such a long time without making any one unhappy (let alone considerations regarding desirability for pragmatism and undesirability for undue refinement and other weighty factors outlined earlier). We have therefore, no hesitation in repelling the contention urged on behalf of the petitioners in this behalf. 12. If the argument of the counsel for the petitioners were right, customs duty would be payable even if the ship were to stray in the territorial waters of India for it would amount to importation of goods into India. So also customs duty would be payable even when the ship which enters the territorial waters changes its course, turns back, and leaves the territorial waters before landing the goods on the landmass. Such a construction leading to absurdity should be avoided as observed in Meras Docks and Harbour Board v. Twigge, (1898) 67 LJQB 604. It would be difficult to countenance an interpretation which would lead to such results. So also it would be futile to contend that in the course of international trade the goods are being sold or being offered for sale on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted with the mass of the property in the local areas. The concept of import as implying something brought for the purpose of sale or being kept is supported by the observations of Kalley C.B. in Harvey v. Corporation of Lyme toll was made under the Harbour Act and the words for construction were "goods landed or shipped within the same cobb or harbour". Construing these words Kally C.F. said : "The ordinary meaning and purport of the words is perfectly clear, namely, that tolls are to be paid on goods substantially imported that is, in fact, carried into the port for the purpose of the town and neighbourhood. This very position has been reiterated by the Supreme Court In re : Sea Customs Act, A.I.R. 1963 Supreme Court 1760, wherein Sinha, C.J. Speaking for the majority has observed in paragraph 26 of the judgment as under :- "Similarly in the case of duties of customs including export duties though they are levied with reference to goods, the taxable event is either the import of goods within the customs barriers of their export outside the customs barriers. They are also indirect taxes like excise and cannot in our opinion be equated with direct taxes on goods themse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue. Since the question before us was not directly before the Supreme Court, we do not propose to dwell at length on the question which was posed before the Supreme Court in order to call out the ratio of the said decision for the purpose of the present discussion. " 51. A Division Bench of the Madras High Court in the case of Lucas TVS, Madras vs. Assistant Collector of Customs, Madras & Ors., reported in 1987 (28) E.L.T. 266 (Mad.), while following the aforesaid Division Bench decision of this High Court, observed as under; "6. Mr. P. Narasimhan, learned Senior Central Government Standing Counsel, appearing for the respondents has vehemently contended that since India is defined as including the territorial waters of India, the goods cannot be said to have been exported unless they cross the territorial waters. Reliance is placed on the definition of the term "export goods" found in section 2(19) of the Act. The said section defines "export goods" as meaning any goods which are to be taken out of India to a place outside India. It is argued by the learned counsel that when the definition of the term "export goods" referred goods which are to be taken out of India to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the peace, good order or security of India." We are not concerned with the concept of "contiguous zone of India" which is defined in this Act. 9. We may also refer to section 2(16) of the Act which defines "entry". It reads as follows :- 'S. 2(16) : "Entry" in relation to goods means an entry made in a bill of entry, shipping bill or bill of export and includes in the case of goods imported or to be exported by post, the entry referred to section 82 or the entry made under the regulations made under section 84.' It may be pointed out that the definition of "entry" includes reference to import or export by post. "Import" is also defined in Section 2(23) as meaning, with its grammatical variations and cognate expressions, bringing into India from a place outside India. 10. The relevant statutory provisions with regard to levy of customs duties is to be found in section 12(1) which refers to the levy of customs duty on excisable goods, whether they are imported or exported. Section 12(1) reads as follows :- "S. 12(1) : Except as otherwise provided in this Act, or any other law for the time being in force, duties of customs shall be levied at such rates as may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any goods entered for export are not prohibited goods and the exporter has paid the duty, if any, assessed thereon and any charges payable under this Act in respect of the same, the proper officer may make an order permitting clearance and loading of the goods for exportation." 12. Section 50 laid down a pre-condition before the goods are exported. The exporter of the goods has to make an entry by presenting to the proper officer in the case of goods to be exported by a vessel or aircraft, a shipping bill and in the case of goods which are to be exported by land, a bill of export. For both the kinds of bills, a form has been prescribed. The exporter also while presenting a shipping bill or a bill of export has to make a declaration as to the truth of the contents of the entry. 13. Section 51, in our view, is an important provision. Under the provision, if the proper officer is satisfied that any goods entered for export are not prohibited goods and the exporter has paid the duty, if any, assessed thereon and any charges payable under the Act in respect of the same, he may make an order permitting clearance and loading of the goods for exportation. Once the exporter has com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re known as the Customs and Central Excise Duties Drawback Rules, 1971 and found at page 163 of Vol. I, Sixth Edition, of Customs Manual. In rule 2(a) of the said rules, there is a definition of "drawback" given as follows :- "Drawback" in relation to any goods manufactured in India and exported, means - (i) the rebate of duty chargeable on any imported materials or excisable materials used in the manufacture of such goods in India." When the definition of "drawback" refers to goods exported, in rule 2(c) the definition of "export" has been given. The definition of "export" reads as follows :- "Export" within its grammatical variations and cognate expressions, means taking out of India to a place outside India and includes loading of provisions or store or equipment for the use on board a vessel or aircraft proceeding to a foreign port." The inclusive part of the definition is not relevant for our purpose. The substantive part of the definition is nothing but a reproduction of the definition found in the Act itself. Nothing therefore turns on these rules in so far as we are concerned with the determination of the question as to whether by loading the goods in the shi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers the customs area and makes a declaration of what all he had brought and does not make any attempt to take the goods across the customs barrier in violation of the customs laws of this country, "it cannot be said that he had imported or attempted to import any goods contrary to any prohibition imposed by and under the Act or any other law for the time being in force." We are referring to the decision which deals with the concept of import because just as in the case of export of goods outside India and contention is that goods must go beyond the territorial waters, it has been the contention of the Department sometimes, as and when it suits the Department that so far as import is concerned, the import is complete the moment the goods have been brought within the limits of the territorial waters. This question assumes some importance when at the time of entry into territorial waters, the goods are either exempted from customs duty or the customs duty is less and at the point when they cross the customs barrier, either the exemption is taken away or the import duty has been enhanced. In such cases, courts have been called upon to decide as to when import takes place. In the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es payable to the Port authorities upon the unloading of the goods on the dock known as the landing charges cannot be included in the assessable value. Repelling that contention, the Division Bench after quoting section 12 of the Act observed as follows :- 'What requires to be underlined is a reference to 'goods imported into, or exported from, India'. 'Surely, the expression 'goods exported from India' cannot mean goods exported from the territorial waters of India. It cannot mean goods exported from the territorial waters of India. It cannot means goods exported from the hypothetical line drawn on the boundary of the Indian territorial waters. It is susceptible to only one interpretation, viz., the goods exported from the 'landmass' of India. Once this view if taken in the context of exportation from India, the expression 'imported into' which forms a part a of the expression 'imported into or exported from India cannot carry any other meaning : the expression India must mean landmass of India whether it is in the context of 'exportation from India' or 'importation into India' of goods within the meaning of dutiable g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en berthing in the port of Bombay will not, vis-a-vis the petitioners importers at Cochin, constitute at completed import of the goods at Bombay. That was a matter of mere transit. Importation took place only when the vessel crossed the customs barriers at the intended port of importation, namely, Cochin.". 20. We may with advantage quote a passage from an Australian decision on which the learned Judge of the Kerala High Court has relied. In the Australian decision. The Qureen v. Bull and Others [1974 (48) A.L.J.R. 232], the concept of import was elaborately explained as follows :- "However, whether or not the sea within three nautical miles of the coast should be regarded as part of Australia for other purposes, it is in my opinion, clear that goods are not imported simply by bringing them within the three miles limit. It does not conform to ordinary usage to say that goods are imported into a place if they are brought there in the course of transit but with no intention that they should be unloaded there. For example, in ordinary understanding goods would not be thought to have been imported into Australia if they were carried through the waters within three miles of the Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her decision in Aluminium Industries Ltd. v. Union of India [1984 (16) ELT 183 (Kerl)], the Kerala High Court also took a similar view. 24. The concept of import and export once again came up for consideration before a Division Bench of this Court in M. Jamal Company v. Union of India [1985 (21) ELT 369 (Mad.)]. After referring to the decisions cited above and noticing the controversy in the different courts, the Division Bench pointed out that the object of the Act was not to tax the goods which are passing, through the territorial waters, but only those which got mixed up with the mass of goods in India. The Division Bench then observed in paragraph 19 as follows :- "It is thus abundantly clear that the definition of the word "India" as including the territorial waters under Section 2(27) of the Act, is compatible with S. 12(1) of a the Act. The context of S. 12(1) clearly requires that the word 'In India' in this section is not given the meaning it has as per S. 2(27) of the Act. It should instead be given the meaning as per the General Clauses Act, viz., the territory of India." This decision specifically deals with the meaning to be given to the word 'Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... until they are removed from the landmass and pass out of the territorial waters of India. We do not see how that follows. In the case of import, they are words used are 'imported goods' and in the case of export, they are 'export goods' and not exported goods. The duty in the case of export goods has to be paid before they are exported; in the case of imported goods, they become liable to duty no sooner than they are imported. While in the case of import the duty is attracted if the goods become imported goods, in the case of goods sought to be exported, duty has to be paid when they are still 'export' goods and not after they are exported. This distinction has been made and maintained throughout the Customs Act. An examination of these provisions further fortifies our conclusions that the goods become imported goods no sooner than they are brought from outside the country into the territorial waters of India and the taxable event is not postponed till a bill of entry is filed or till they are sought to be cleared for home consumption." Therefore, even though the Full Bench of the Bombay High Court took a view which runs counter to the decisions which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... door transportation of time sensitive documents, goods or articles. Thus, for the purpose of falling within the ambit of charging section, the taxable service should satisfy the ingredients of sub-clause (f) of Clause (105) of Section 65 of the Act. 24. On a conjoint reading of the definition of "courier agency" as defined under Clause (33) of Section 65 of the Act with sub-clause (f) of Clause (105) of Section 65 of the Act, it is apparent that it is only if a courier agency provides services in relation to door-to-door transportation of time-sensitive documents, goods or articles that the taxable event would take place. In the present case, the service receiver hands over cash in Indian currency at a recipient branch, which transfers instructions to the delivery branch, where payment is made from the corpus available at the delivery branch. Thus, there is no movement of the cash from the recipient branch to the delivery branch. There is no transportation of such cash as contemplated under Clause (33) of Section 65 or sub-clause (f) of Clause (105) of Section 65 of the Act. In the aforesaid premises, the transfer of cash by the assessees in the manner aforesaid, does not fall w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 6A of the ST Rules is a piece of delegated of legislation. It is a rule made by the central government in exercise of the powers under Section 94 (1) read with Section 94 (2) (f) of the FA. The grounds on which delegated legislation can be challenged are well-settled and set out in G. P. Singh's Principles of Statutory Interpretation, 10th Edition as under: "Grounds for judicial review Delegated legislation is open to the scrutiny of courts and may be declared invalid particularly on two grounds: (a) violation of the Constitution; and (b) violation of the enabling Act. The second ground includes within itself not only cases of violation of the substantive provisions of the enabling Act, but also cases of violation of the mandatory procedure prescribed. It may also be challenged on the ground that it is contrary to other statutory provisions or that it so arbitrary that it cannot be said to be in conformity with the statute or Article 14 of the Constitution or that it has been exercised in bad faith. The limitations which apply to the exercise of administrative or quasi- judicial power conferred by a statute except the requirement of natural justice also apply to the exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e delegated legislation must be exercised, it is trite, within the parameters of essential legislative policy. The question must be considered from another angle. Delegation of essential legislative function is impermissible. It is essential for the legislature to declare its legislative policy which can be gathered from the express words used in the statute or by necessary implication, having regard to the attending circumstances. It is impermissible for the legislature to abdicate its essential legislative functions. The legislature cannot delegate its power to repeal the law or modify its essential features." 43. The question that requires to be answered is whether the levy of tax on services is an essential legislative function that cannot be delegated? The answer perhaps lies in the language of Section 94 of the FA itself. Section 94 (1) is the general power given to the central government to make rules to carry out the provisions of Chapter V of the FA. The words 'carry out' necessarily imply providing a mechanism for the levy enforcement and WP (C) 5267 of 2013 Page 19 of 26 collection of service tax. The Rules in this sense are instrumental and intended to achiev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tue of Section 66B read with Section 65 (51) and (52) read with Section 64 (1) and (3) of the FA is not amenable to service tax in the first place, and is therefore not 'taxable' service, Rule 6A is ultra vires the FA. Even Section 94 (2) (hh) of the FA permits central government to determine when there would be an export of 'taxable service' and not 'non-taxable service.' Something which is impermissible under the FA cannot, by means of the rules made thereunder, be brought within the net of service tax. 47. Viewed from another angle, 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 ST Rules. Thus under a combination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led 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. The position remains the same even though sub-section (2) of section 281 of the Act has specifically provided that after the rules are framed and published they shall have effect as if enacted in the Act. In other words, in spite of the provision of sub-section (2) of section 281, any rule framed under the Cantonment Act has to fulfill the two conditions mentioned above for their validity. The observation of this Court in Jestamani v. Scindia Steam Navigation Company, [1961] 2 SCR 811, 70 relied upon by Mr. Aggarwal, that a contract of service may be transferred by a statutory provision, does not at all help the appellants. There can be no doubt that a contract of service may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct to be followed. 19. In State of Karnataka and another v. H. Ganesh Kamath etc., AIR 1983 SC 550 it has been stated that it is a well settled principle of interpretation of statutes that the conferment of rule making power by an Act does not enable the rule-making authority to make a rule which travels beyond the scope of the enabling Act or which is inconsistent therewith or repugnant thereto. 20. In Kunj Behari Lal Butail and others v. State of H.P. and others, AIR 2000 SC 1069 it has been ruled thus:- "13. It is very common for the legislature to provide for a general rule making power to carry out the purpose of the Act. When such a power is given, it may be permissible to find out the object of the enactment and then see if the rules framed satisfy the test of having been so framed as to fall within the scope of such general power confirmed. If the rule making power is not expressed in such a usual general form then it shall have to be seen if the rules made are protected by the limits prescribed by the parent act... " 21. In St. Johns Teachers Training Institute v. Regional Director, AIR 2003 SC 1533 it has been observed that a regulation is a rule or order pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keep ourselves confined within the well-known parameters." 24. In this context, it would be apposite to refer to a passage from State of T.N. and another v. P. Krishnamurthy and others (2006) 4 SCC 517 wherein it has been held thus:- "16. The court considering the validity of a subordinate legislation, will have to consider the nature, object and scheme of the enabling Act, and also the area over which power has been delegated under the Act and then decide whether the subordinate legislation conforms to the parent statute. Where a rule is directly inconsistent with a mandatory provision of the statute, then, of course, the task of the court is simple and easy. But where the contention is that the inconsistency or non-conformity of the rule is not with reference to any specific provision of the enabling Act, but with the object and scheme of the parent Act, the court should proceed with caution before declaring invalidity." 25. In Pratap Chandra Mehta v. State Bar Council of Madhya Pradesh and others, (2011) 9 SCC 573 while discussing about the conferment of extensive meaning, it has been opined that the Court would be justified in giving the provision a purposive construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges against him and given a reasonable opportunity of being heard in respect of such charges. Section 26 provides the Member to act as a Chairperson in certain circumstances. The senior most Member has been empowered to act as Chairperson until the date on which a new Chairperson is appointed in accordance with the provisions of the Act." 57. The Supreme Court in the case of GVK Inds. Ltd. vs. Income Tax Officer, 2017 (48) S.T.R. 177 (S.C.), has observed in paras 41 to 45 as under; "41. Because of interdependencies and the fact that many extra- territorial aspects or causes have an impact on or nexus with the territory of the nation-state, it would be impossible to conceive legislative powers and competence of national parliaments as being limited only to aspects or causes that arise, occur or exist or may be expected to do so, within the territory of its own nationstate. Our Constitution has to be necessarily understood as imposing affirmative obligations on all the organs of the State to protect the interests, welfare and security of India. Consequently, we have to understand that the Parliament has been constituted, and empowered to, and that its core role would be to, enact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a territory. That would be an immediate transgression of the condition that the Parliament be a parliament for India. The word "for", that connects the territory of India to the legislative powers of the Parliament in Clause (1) of Article 245, when viewed from the perspective of the people of India, implies that it is "our" Parliament, a jealously possessive construct that may not be tinkered with in any manner or form. The formation of the State, and its organs, implies the vesting of the powers of the people in trust; and that trust demands, and its continued existence is predicated upon the belief, that the institutions of the State shall always act completely, and only, on behalf of the people of India. While the people of India may repose, and continue to maintain their trust in the State, notwithstanding the abysmal conditions that many live in, and notwithstanding the differences the people may have with respect to socio-political choices being made within the country, the notion of the collective powers of the people of India being used for the benefit of some other people, including situations in which the interests of those other people may conflict with India' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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