2001 (4) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Constitutional validity of the service tax levied on services provided by mandap-keepers.
2. Legislative competence of the Union of India to impose the service tax.
3. Vagueness and arbitrariness of the provisions defining taxable services and the valuation thereof.

Issue-Wise Detailed Analysis:

1. Constitutional Validity of the Service Tax:
The petitioners, who are owners of premises rented out for various functions, challenged the constitutional validity of sections 65, 66, and 67 of the Finance Act, arguing that the service tax on mandap-keepers is beyond the legislative competence of the Union of India. They contended that the tax is essentially a tax on land and buildings, which falls under the State List (List II) of the Seventh Schedule to the Constitution of India.

2. Legislative Competence:
The petitioners argued that the tax on services provided by mandap-keepers, including catering services, should be considered a tax on land and buildings (Entry 49 of List II) or a tax on the sale of goods (Entry 54 of List II). They claimed that the tax on catering services would fall under Article 366(29A)(f) of the Constitution, which defines a tax on the supply of goods as part of any service.

The court rejected these arguments, stating that the service tax is not a tax on land and buildings but a tax on the service provided by mandap-keepers. The court emphasized that the tax is on the "user of the immovable property in a particular manner," which constitutes a service. The court further clarified that the service tax is distinct from a tax on the sale of goods and falls within the legislative competence of the Union under Entry 97 of List I, which covers residuary powers of legislation.

3. Vagueness and Arbitrariness:
The petitioners argued that the definitions of "official function," "social function," and "business function" in the Finance Act are vague and lack guidelines, leading to arbitrary classification by tax authorities. They also contended that the provisions for valuing taxable services are unclear, particularly regarding the inclusion of catering charges.

The court dismissed these arguments, stating that the terms "official function," "social function," and "business function" are to be understood in their common parlance and do not require further explanation. The court noted that the legislative scheme allows for judicial interpretation and discretion, which is acceptable in economic legislation. The court also pointed out that the valuation of taxable services, including catering charges, is clearly defined in section 67(1) of the Finance Act.

Conclusion:
The court concluded that the service tax on mandap-keepers is constitutionally valid and within the legislative competence of the Union of India. The definitions and valuation provisions in the Finance Act are neither vague nor arbitrary. Consequently, all writ petitions challenging the service tax were dismissed.