2002 (1) TMI 15 - HC - Service Tax

Service Tax, Chartered Accountants, Interpretation Of Taxing Statutes - This writ petition under article 226 of the Constitution of India impugnes the constitutional validity of service tax levied under the Finance (No. 2) Act, 1998, on taxable service rendered by practising chartered accountants. - we are of the considered view that there is no substance in this writ petition challenging the levy of service tax on the tax able service rendered by practising chartered accountants

Summary

Issues Involved:
1. Constitutional validity of service tax on practising chartered accountants.
2. Legislative competence of Parliament to levy service tax.
3. Violation of Article 14 (Equality before law).
4. Violation of Article 19(1)(g) (Right to practice any profession).

Issue-wise Detailed Analysis:

1. Constitutional Validity of Service Tax on Practising Chartered Accountants:
The petition challenged the constitutional validity of the service tax levied on practising chartered accountants under the Finance (No. 2) Act, 1998. The petitioner, an association of chartered accountants, argued that the tax was unconstitutional and beyond the legislative competence of Parliament.

2. Legislative Competence of Parliament to Levy Service Tax:
The court examined the legislative competence of Parliament under Article 246 read with Article 248 and List I of the Seventh Schedule. The court noted that Parliament has exclusive power to make laws with respect to any matter not enumerated in the Concurrent List or State List, including the imposition of a tax not mentioned in either of those lists. The court referred to the Supreme Court's decision in Union of India v. Harbhajan Singh Dhillon, which established that if a statute does not relate to any of the entries in List II, Parliament is competent to enact it. The court rejected the petitioner's argument that the service tax was a tax on the practice of a profession under Entry 60 of List II, which is within the State's jurisdiction. The court clarified that the service tax is levied on the value of services rendered, not on the privilege of practising a profession, thus falling within Parliament's competence.

3. Violation of Article 14 (Equality before Law):
The petitioner contended that the service tax discriminated against certain professionals, including practising chartered accountants, while excluding others. The court emphasized that taxing statutes have a limited role under Article 14, and the Legislature enjoys wide latitude in selecting persons, subject-matter, and events for taxation. The court cited the Supreme Court's decision in Federation of Hotel and Restaurant Association of India, which stated that classifications in taxing statutes must be rational and have a nexus with the objective sought to be achieved. The court found that the classification of taxable services was not arbitrary or irrational and did not violate Article 14.

4. Violation of Article 19(1)(g) (Right to Practice Any Profession):
The petitioner argued that the service tax infringed on the fundamental right to practice a profession under Article 19(1)(g). The court noted that the right to practice a profession is subject to reasonable restrictions under Article 19(6). The court held that the service tax, being a levy of 5% on the value of taxable services, was not harsh, onerous, or unreasonable. The court referred to the Supreme Court's decision in Secretary to Government of Madras v. P. R. Sriramulu, which emphasized judicial deference to legislative judgment in economic regulations. The court concluded that the service tax did not violate Article 19(1)(g).

Conclusion:
The court dismissed the writ petition, upholding the constitutional validity of the service tax on practising chartered accountants. The court found that Parliament had the legislative competence to levy the tax, and the tax did not violate Articles 14 or 19(1)(g) of the Constitution. The court emphasized the importance of judicial restraint in matters of economic regulation and taxation.