TMI Blog2019 (9) TMI 1315X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Finance Act, 1994, which is an Act of the Parliament for levy of service tax, do not permit nor empower the Central Government to collect service tax on such extraterritorial events, and the services which are rendered and consumed beyond the land mass of the country. The charging provision i.e. Section 66B provides for levy of service tax on the value of services provided or agreed to be provided in the taxable territory by one person to another. Section 65B(52) defines taxable territory to mean the territory to which the provisions of this Chapter apply. As seen above, the provisions of this Chapter i.e. Chapter V, apply to the whole of India by virtue of Section 64(1) of the Finance Act; and thus it is the mandate of the Parliament for applying the provisions of Chapter V of the Finance Act for service tax to whole of India, and not to extraterritorial events occurring outside the land mass of India - 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) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following reliefs; (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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Government thereby laying down that the importer was the person liable to pay service tax on services by way of transportation of goods by a vessel from a place outside 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs under CIF contracts has been to deliver the concerned materials to the Petitioner by bearing cost, insurance and freight by such sellers/suppliers. 5. In international trade, goods are bought and sold by way of two different modes/methods, 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 contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable territory and non-taxable territory) are enclosed and marked as Annexure- B . 8. The Central Government has framed Service Tax Rules vide Notification No.2/94-Service Tax dated 28.6.1994. These Rules have been amended from time to time. Under Rule 2(1)(d) of the Service Tax Rules, the expression person liable for paying service tax has been defined. By virtue of Notification No.2/2017-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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis. 11. However, on 13.4.2017, the Central Government has issued two Notifications being Notification Nos.15/2017-ST and 16/2017-ST. Both the Notifications dated 13.4.2017, however, have been brought into force from 23.4.2017. By virtue of Notification No.15/2017-ST, the Central Government has substituted certain Explanations in the original Notification No.30/2012-ST dated 20.6.2012. Explanation-V so substituted/inserted vide this Notification No.15/2017-ST provides that the importer as defined under Section 2(26) of the Customs 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 Notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on liable to pay service tax on ocean freight is now liable to pay service tax on the entire value of transportation charges i.e. the whole of ocean freight without any abatement in value that the Central Government has otherwise allowed vide Sl.No.10 of Notification No.26/2012-ST. 13. For value of this service, the Central Government has also amended Rule 6 of Service Tax Rules by inserting Sub Rule (7CA), thereby laying down that the person liable for service tax for ocean freight shall have option to pay service tax on 1.4% of sum of cost, insurance and freight (CIF) value of the imported goods. Thus, the Central Government has extended 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officers raised the objection. The show cause notice above referred is pending before the adjudicating authority. The Petitioners have not filed any formal reply to the show cause notice, and no order has been made by the adjudicating authority on this show cause notice dated 28.6.2018. 15. The Petitioners submit that the provisions made by the Central Government for charging service tax on ocean freight and also for recovering service tax on ocean freight from the importer in respect of CIF transactions are ultra-vires the provisions of the Finance Act, 1994 as amended from time to time, and also ultra vires the Constitution of India, inasmuch as no tax in the nature of service tax can 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice provider or service receiver (under reverse charge system); but the importer is a third party in CIF transactions, who is neither serviced provider nor recipient of service. Therefore, the provisions for payment of service tax by a third party are ultra vires. (iii) No power is conferred upon the Central Government under the Finance Act, 1994 for charging extraterritorial events, and therefore the provisions are ultra vires the rule making power of the Central Government. (iv) No power for fixing value of a taxable service is conferred upon the Central Government under the Finance Act, 1994, and therefore Rule 6(7CA) of the Service Tax Rules inserted vide Notification No.16/2017- ST is ultra vires the rule making powers and also the machinery provision of Section 66. 7. Submissions on behalf of the respondents Nos.1 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 Kash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the Parliament by subjecting the service aspect to the Service Tax, is levying a tax distinct from the Customs duty levied by it under Entry 83 of List I. 7.9 In the present case, 'import of goods' which is carried out by a person other than the importer himself is an activity, which gives rise to the aspect of providing transportation services of the said imported goods and as such it is giving rise to more than one taxing incident. Therefore, the taxing incidents in relation to Customs duty on imports (Entry 83 of List 1) is completely distinguishable and is not in conflict with the taxing incidents of service tax on transportation services (Entry 97 of List I) . 7.10 There is no constitutional bar in levying of taxes under different statutes on different aspects, if there are distinct taxable events, eligible to different taxes (e.g. Central Excise and VAT on manufacture and sale of goods 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17-ST dated 13th April, 2017 an optional alternate mechanism has been provided with effect from 22nd January, 2017 for calculating and paying service tax @ 1.4% of CIF value of the imported goods. 7.14 Under the notification No. 26/ 2012-ST dated 20.06.2012 (Sr. No. 10), there is an exemption on 70% of the value of services of transportation of goods in a vessel subject to the fulfillment of the condition that the Cenvat credit on inputs and capital goods used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004 This conditional exemption has been extended for the reason that out of the full value of such services, the exempted value of service has already suffered taxes (Central Excise) which would have been available as Cenvat credit to set off service tax on full value of service In effect, the service tax is levied on the added value only. However, in case of foreign shipping lines, 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 Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in India is concerned, the importer is neither the service provider nor the recipient. 2. Referring to section 66B of Finance Act, 1994, which is the charging section, it was pointed out that the same provides for levy of tax provided in the taxable territory by one person to another. It was submitted that the same does not contemplate levy of service tax of a person other than the service provider and/or the recipient of such service. It was submitted that, moreover, tax can be levied provided such service is provided in the taxable territory. 3. Reference was made to section 65B(52) which defines taxable territory to mean the territory to which the provisions of that Chapter apply. Referring to Chapter V of the Act, it was contended that by virtue of sub-section (2) of section 64 thereof, the same extends to the whole of India except to the State of Jammu and Kashmir. It was submitted that, therefore, no service tax can be levied to service provided outside 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such goods. 10. Rule 6 is with regard to the payment of service tax. Rule 6(7CA) reads thus; 6[7CA]: The person liable for paying service tax for the taxable services provided or agreed to be 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 up to the customs station of clearance in India, shall have the option to pay an amount calculated at the rate of 1.4% of the sum of cost, insurance and freight (CIF) value of such imported goods. 11. Mr. Dave, thereafter, invited our attention to the Notification No.30/2012-S.T. dated 20th June, 2012. The notification reads thus; Service for which tax is payable or partially payable by persons receiving the service- Service Tax payable by Reverse Charge system in relation to insurance business, GTA, sponsorship, Arbitral Tribunal, legal services by Advocates, support services provided by Govt. or local authorities (except specified services), renting of motor vehicles on abated value, renting of motor vehicles on unabated value (partially also payable by service provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons; (iii) provided or agreed to be provided by way of sponsorship to anybody corporate or partnership firm located in the taxable territory; (iv) provided or agreed to be provided by,- (A) an arbitral tribunal, or (B) an individual advocate or a firm of advocates by way of support services, or (C) 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 of the Finance Act,1994, to any business entity located in the taxable territory; (v) provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers to any person who is not in the similar line of business or supply of manpower for any purpose or service portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, loca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil 100% 7 (a) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business Nil 100% (b) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business 60% 40% 8 in respect of services provided or agreed to be provided by way of supply of manpower for any purpose 25% 75% 9 in respect of services provided or agreed to be provided in service portion in execution of works contract 50% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice 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 contained in sub-section (1), in respect of 2[such taxable services as may be notified] by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section [66B] and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIF contract and FOB contract. Therefore, we must give a fair idea about both these modes/methods. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1930 Act upon which reliance was placed by the learned senior counsel for the sellers reads as follows : S. 26. Risk prima facie passes with property.-- Unless otherwise agreed, 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... described as the transportation of goods by a vessel from a place outside India upto the Customs station of clearance in India........... in all the impugned provisions under Rule 2(1)(d)(EEC) of Service Tax Rules, Rule 6(7CA) of Service Tax Rules and also in Explanation V of reverse 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 allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus it is the mandate of the Parliament for applying the provisions of Chapter V of the Finance Act for service tax to whole of India, and not to extraterritorial events occurring outside the land mass of India. 29. It is a settled legal position as held by a Constitution Bench of the Supreme Court in the case of GVK 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing service of sea transportation in CIF contracts is the seller-supplier of the goods located in a foreign territory. The Indian importers like the writ applicants are not the persons receiving sea transportation service, because they receive the goods contracted by them, and they have no privity of contract with the shipping line nor does the Indian 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they indirectly receive sea transportation service also; and therefore obligation to pay service tax can be shifted to them. 41. First, the Indian importers like the Petitioners have contracted for purchase and delivery of goods, and under CIF contract where the lump sum amount is paid for delivery of the goods on the land mass of the country; and what the importers receive in India is the 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 taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Srinivas Setty, AIR 1981 SC 972 are relevant in this regard, because it is held in these cases that if the computation provision cannot be applied, then the substantial provisions of chargeability become redundant. 46. In the present cases, since the value of ocean freight is not available, Sub Rule (7CA) is inserted in Rule 6 of the Service Tax Rules thereby giving an option to the importer to pay service tax on 1.4% of CIF value of imported 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontext of section 12(1) of the Act. To construe the expression 'goods exported from India' to mean goods exported from the landmass of India on the one hand and to interpret the expression following on its heels the goods imported into India' to mean goods imported into territorial waters of India and not the landmass of India would introduce an anachronism and so incongruity. Section 12 must, therefore, be read in a consistent manner so that the same meaning can be assigned to the expression '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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are ordinarily sold or offered for sale in accordance with the international trade, and (4) the price must be genuine price between a commercial seller and a commercial buyer unrelated to each other. Such being the position, proposition Nos. (2) (3) must be called into aid for the purpose of determination of assessable value of the goods. And the goods will have to be valued at the point of time of being unloaded on the landmass of India and at the place where they are unloaded. Since the landing charges have to be paid to the Port authorities 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 refi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and has acquired the sanction of the continued decisions over a very long period [see Empress Mills v. Municipal Committee, Wardha, A.I.R. 1958 Supreme Court 341 (para 19)]. No doubt the proposition is adverted to in the context of sanction of continued decisions over a long period. So also no doubt the Supreme Court came to the conclusion that the said principle was not attracted in the case before the Court because the interpretation in question had not been acquiesced in for a long time. All the same this principle can be extended to a situation like the present one as 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of legislation on the subject shows that in the opinion of the legislature the right to sell is connected with the payment of the duties. Continuing, the learned Chief Justice at p. 447 observed : Sale is the object of importation, and is an essential ingredient of that intercourse, of which importation constitutes a part. It is as essential an ingredient, as indispensable to the existence of the entire thing, than as importation itself................ This supports the contention raised that import is not merely the bringing into but comprises something more i.e., incommorating and mixing up of the goods imported 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier part as our judgment were not highlighted before the Bombay High Court. We are not prepared to uphold the contention of the petitioners on the basis of the aforesaid decision rendered by the Bombay High Court. The learned standing counsel for the Union of India in this context called our attention to the decision in Prakash Cotton Mills (P.) Ltd. v. B. Sen, A.I.R. 1979 Supreme Court 75 = 1979 E.L.T. (J 241), wherein the Supreme Court has taken the view that the rate and valuation of goods for the purpose of section 15(1)(b) of the Customs Act was the rate and valuation in force on the date on which the warehoused goods were actually cleared from the warehouse. It was contended that the ratio of this decision lends support to the view point canvassed by 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 Act which may be relevant to the question which has arisen before us. Under Section 4, there is a statutory right on all foreign ships to enjoy the right of innocent passage into the territorial waters. The explanation in section 4(1) explains what is innocent passage and says that the passage is innocent so long as it is not prejudicial to the peace, good order or security of India. Section 4(1) with its explanation reads as follows :- S. 4 : Use of territorial waters by foreign Ships. - (1) Without prejudice to the provisions of any other law for the time being in force, all foreign ships (other than warships including submarines and other underwater vehicles) shall enjoy the right of innocent passage through the territorial waters. Explanation. - For the purpose of this section, passage is innocent so long as it is not prejudicial to 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o any export goods in the case of goods entered for export under section 50, on the date on which a shipping bill or a bill of export in respect of such goods is presented under that section, and in the case of any other goods, on the date of payment of duty. The proviso says that if the shipping bill has been presented before the date of entry outwards of the vessel by which the goods are to be exported, the shipping bill shall be deemed to have been presented on the date of such entry outwards. Sections 50 and 51 of the Act which deal with clearance of export goods, read as follows :- S. 50(1) : The exporter of any goods shall make entry thereof by presenting to the proper officer in the case of goods to be exported in a vessel or aircraft, a shipping bill, and in the case of goods to be exported by land, a bill of export in the prescribed form. (2) The exporter of any goods, while presenting a shipping bill or bill of export, shall at the foot thereof make and subscribe to a declaration as to the truth of its contents. S. 51. Where the proper officer is satisfied that any goods entered for export are not prohibited goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in respect of such goods in accordance with, and subject to, the rules made and subject to, the rules made under sub-section (2). This section, therefore, clearly provides that drawback is permitted in respect of goods which are manufactured in India and exported to any place outside India. The question now is when section 75(1) of the Act refers to goods exported outside India, what is the point of time when it can be said that the goods have been exported to any place outside India. Normally when once the goods are put in the ship, they will reach the country of destination. In this process, they will undoubtedly cross the territorial waters. But in a certain contingency such as the one which has arised in this case, namely, after having been loaded on the vessel after being cleared by the proper officer under section 51 and after having left the landmarks territory of India and were undoubtedly in the process of being carried to the country of destination, could it be said that the goods have been exported to any place outside India. 15. The Drawback Rules made under Section 75(2) of the Act are themselves not determinative of the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... courts, and we would rather refer to these decisions than traverse once again, the same ground which is covered by the decisions while construing the concept of import. The question as to when goods can be said to have been imported came up for consideration for the first time in this Court in K.R. Ahmed Shah v. Additional Collector of Customs, Madras Others [1981 ELT 153 (Mad.)]. The learned Judge (Padmanabhan, J.) after referring to the decision of the Supreme Court in Express Mills v. Municipal Committee and an unreported Division Bench decision of this Court in Writ Appeal No. 84 of 1968, culled out the following principles with regard to the meaning the word import in Sections 2(23) of the Act. In paragraph 11, the learned Judge observed as follows :- The principles that could be deducted from the above decisions can be summarised as follows :- (1) Goods can be said to be imported to the country only when they are incorporated in and mixed up with the mass of goods in the country. (2) It cannot be said that the moment an aircraft lands at an international airport in this country, the goods are imported and to ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a ship which will stray into the territorial waters or when the ship enters the territorial waters and changes it course, turns back and leaves the territorial waters before landing the goods on the landmass of India, would also have to be considered as importing goods into India. There it was the importer who took the stand that the import takes place when the ship entered the territorial waters. The question arose in the context of the valuation of the goods for the purpose of assessment to import duty. The department wanted certain landing charges to be included as a part of the assessable value of the articles. The argument of the assessee was that since the goods were imported as soon as they crossed the territorial waters the taxable event occurs at the point of time when the goods enter the Indian territorial water and the price of the goods has to be determined in the context of the said circumstance. Thus, according to the importer, the goods would have to be valued at the point of time when the vessel entered the Indian Customs water, and so the valuations to be made on the basis of the price at which the same would be sold and offered for sale on the vessel before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oners must collapse. We are in respectful agreement with the view taken by the Gujarat High Court that when section 12 of the Act refers to goods exported from India, it does not mean goods exported from the territorial water of India. The export of the goods clearly takes place on the landmass of the country. If the construction canvassed on behalf of the respondents is to be accepted, then there is nothing in the Customs Act to indicate what is the position of the goods from the time of loading the goods on the ship till they cross the boundary line of the territorial waters. Within the region between the boundary of the landmass of India on one side and the outer limit of the territorial waters the goods are beyond the control of the exporter. The customs duty is payable on export, and if export takes place only at the place where the territorial waters of India cease, then strictly speaking the customs duty will have to be collected only at that place which is almost an impossibility. 19. We may also refer the decision of the Kerala High Court in Shri Ramalinga Mills (P) Ltd. v. Assistant Collector of Customs [1983 ELT 65 (Ker.)]. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Shuda Vanaspathi Ltd. v. Union of India [1983 ELT 1688 (Del.)]. In that case, it was the argument of the importer that the ship having entered the territorial waters on 7.10.1980, the chargeability of the duty must be determined as on that date, and since an exemption notification was in operation on that date, the rate of duty should be considered as nil. This argument was rejected. In paragraph 23 of the judgment, the Division Bench observed as follows :- Import therefore must necessarily mean at a point of time when the goods are to be off-loaded from the ship so that thereafter they form a part of the mass of goods in the country of consumption . In paragraph 37, while observing that the goods coming within the territorial waters were undoubtedly subject to the control of the customs, the Division Bench pointed out that the entry in the territorial waters though amounting to import, will not for fiscal purposes determine the date and the time for the purpose of calculating the rate of duty which is leviable under section 15 of the Customs Act. The judgment also made it clear that it was settled law that unless the goods are brought in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned. 25. We have referred earlier to the provisions of Section 4 of the 1976 Act. It is possible that several foreign ships may be passing through the territorial waters enjoying the right of innocent passage, and if the constriction placed by the department that import takes place the moment a vesel crosses the territorial waters is accepted, then these foreign ships which are enjoying a statutory right will also be brought within the net of the Act, when obviously that is not the intention of the Act at all. 26. Mr. P. Narasimhan relied on a Full Bench decision of the Bombay High Court in Apar Private Ltd. v. Union of India - 1985 (22) ELT 644 (Bom.) = (1985 Vol. 6 Excise Customs Cases 241). There is no doubt that the Full Bench has taken a positive view that under the Customs Act, 1962, the event of importation occurs when the goods from a place outside India enter the territorial waters of India. This decision undoubtedly is entitled to be noticed. But so far as we are concerned, we are not dealing with the case of import and it is to be pointed out that the Full Bench of the Bombay High Court was not inclined to apply the logic of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India , it would be enough for the exporter to show that the goods were out of his control and were on their way to the country of destination. 52. A Division Bench of this High Court in the case of Commr. Of C. Ex. Cus, Surat-I vs. Patel Vishnubhai Kantilal Co., reported in 2012 (28) S.T.R 113 (Guj.), has observed as under; 22. The Supreme Court in CWT v. Ellis Bridge Gymkhana (supra), held 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. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all. 23. In the facts of the present case, the charging section is Section 66 which provides for charge of Service tax and lays down that there shall be levied a tax at the rate of twelve per cent of the value of taxable services referred to in sub-clause (f) of Clause (105) of Section 65 and collected in such manner as may be prescribed. sub-cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect falls squarely within the letter of law he must be taxed, howsoever inequitable the consequences may appear to the judicial mind. If the Revenue seeking to tax cannot bring the subject within the letter of law, the subject is free no matter that such a construction may cause serious prejudice to the Revenue. As held by the w:st= on Apex Court in the case of CWT v. Ellis Bridge Gymkhana (supra), no one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all. In the present case, insofar as the facility for transfer of money as provided by the assessees is concerned, the same has not been brought within the ambit of charging section by clear words and as such, the assessees cannot be taxed in respect of the same. The view taken by the Tribunal, therefore, is in consonance with the statutory provisions and as such, the Tribunal was justified in holding that the tender of Indian currencies and its transmission and compensatory payment would not be covered by the levy of Service tax under heading courier agency . 26. It may al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 India v. S. Srinivasan (2012) 7 SCC 683 the above principles were reiterated in the following words: 16. At this stage, it is apposite to state about the rule making powers of a delegating authority. If a rule goes beyond the rule making power conferred by the statute, the same has to be declared ultra vires. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious 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 of service tax, is impermissible. 45. Section 93 B of the FA states that the Rules made under Section 94 would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 the central government to determine by rules. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as framed by the Central Government in excess of its rule making power as contained in clause (c) of sub-section (2) of section 280 of the Cantonment Act before its amendment by the substitution of clause (c); it is, therefore, void. 56. The Supreme Court in the case of Union of India vs. S. Srinivasan, reported in 2012 (281) E.L.T. 3 (S.C.), has observed in paras-16 to 26, as under; 16. At this stage, it is apposite to state about the rule making powers of a delegating authority. If a rule goes beyond the rule making power conferred by the statute, the same has to be declared ultra vires. If a rule supplants any provision for which power has not been conferred, it becomes ultra vires. The basic test is to determine and consider the source of power which is relatable to the rule. Similarly, a rule must be in accord with the parent statute as it cannot travel beyond it. In this context, we may refer with profit to the decision in General Officer Commanding-in-Chief v. Dr. Subhash Chandra Yadav, AIR 1988 SC 876, wherein it has been held as follows:- ......Before a rule can have the effect of a statutory provision, two conditions mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome business and implies a rule for general course of action. Rules and Regulations are all comprised in delegated legislation. The power to make subordinate legislation is derived from the enabling Act and it is fundamental that the delegate on whom such a power is conferred has to act within the limit of authority conferred by the Act. Rules cannot be made to supplant the provisions of the enabling Act but to supplement it. What is permitted is the delegation of ancillary or subordinate legislative functions, or, what is fictionally called, a power to fill up details. 22. In Global Energy Ltd. and another v. Central Electricity Regulatory Commission, (2009) 15 SCC 570 this Court was dealing with the validity of clauses (b) and (f) of Regulation 6-A of the Central Electricity Regulatory Commission (Procedure, Terms and Conditions for Grant of Trading Licence and other Related Matters) Regulations, 2004. In that context, this Court expressed thus:- It is now a well-settled principle of law that the rulemaking power for carrying out the purpose of the Act is a general delegation. Such a general delegation may not be held to be laying down a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court would be justified in giving the provision a purposive construction to perpetuate the object of the Act while ensuring that such rules framed are within the field circumscribed by the parent Act. It is also clear that it may not always be absolutely necessary to spell out guidelines for delegated legislation when discretion is vested in such delegated bodies. In such cases, the language of the rule framed as well as the purpose sought to be achieved would be the relevant factors to be considered by the Court. 26. Keeping in view the aforesaid enunciation of law, we think it appropriate to consider the nature, object and scheme of the enabling Act, the power conferred under the rule, the concept of purposive construction and the discretion vested in the delegated bodies. Before bringing the legislation in the year 1994, a task force was constituted to have an overall look on the subjects relating to foreign exchange and foreign trade to suggest the required changes. Considering the significant developments, namely, substantial increase in the foreign exchange reserve, growth in foreign trade, rationalization of tariffs, current account convertibility, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to understand that the Parliament has been constituted, and empowered to, and that its core role would be to, enact laws that serve such purposes. Hence even those extra-territorial aspects or causes, provided they have a nexus with India, should be deemed to be within the domain of legislative competence of the Parliament, except to the extent the Constitution itself specifies otherwise. 42. A question still remains, in light of the extreme conclusions that may arise on account of the propositions made by the learned Attorney General. Is the Parliament empowered to enact laws in respect of extra-territorial aspects or causes that have no nexus with India, and furthermore could such laws be bereft of any benefit to India? The answer would have to be no. 43. The word for again provides the clue. To legislate for a territory implies being responsible for the welfare of the people inhabiting that territory, deriving the powers to legislate from the same people, and acting in a capacity of trust. In that sense the Parliament belongs only to India; and its chief and sole responsibility is to act as the Parliament of India and of no other territo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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's interests, is of an entirely different order. It is destructive of the very essence of the reason for which Parliament has been constituted: to act as the Parliament for, and only of, India. 45. The grant of the power to legislate, to the Parliament, in Clause (1) of Article 245 comes with a limitation that arises out of the very purpose for which it has been constituted. That purpose is to continuously, and forever be acting in the interests of the people of India. It is a primordial condition and limitation. Whatever else may be the merits or demerits of the Hobbesian notion of absolute sovereignty, even the Leviathan, within the scope of Hobbesian logic itself, sooner rather than later, has to realize that the legitimacy of his or her powers, and its actual continuance, is premised on such powers only being used for the welfare of the people. No organ of the Indian State can be the repository of the collective powers of the people of India, unless that power is being used exclusively for the we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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