2004 (4) TMI 1 - SC - Service Tax

Service Tax Services by mandap keepers to their clients is not in the nature of a sale of hire purchase of goods (2) Constitutional validity (3) Legislative competence (4) Taxable service

Summary

Issues Involved:

1. Legislative competence of Parliament to levy service tax on Mandap-Keepers.
2. Whether the service tax on Mandap-Keepers is a tax on goods and/or land.
3. Applicability of Article 366(29A)(f) regarding the sale of goods.
4. Validity of the High Court's application of the 'Aspect Theory.'
5. Whether the service tax provisions violate Articles 14 and 19(1)(g) of the Constitution.
6. Interpretation of the Finance Act, 1994, and related notifications.

Issue-wise Detailed Analysis:

1. Legislative Competence of Parliament to Levy Service Tax on Mandap-Keepers:

The appellant argued that the service tax on Mandap-Keepers is a colorable legislation and unconstitutional as it is a tax on 'goods' and/or 'land.' The appellant contended that the definitions of 'Mandap' and 'Mandap-Keepers' fall within the domain of the State Legislature under Entries 54, 49, and 18 of List II of the Seventh Schedule read with Article 246 of the Constitution. The respondents countered that the service tax is a tax on the consideration received for allowing temporary occupation of the Mandap for organizing functions and not a tax on "goods" and/or "land." The court held that the service tax is not a tax on land per se but on the use of the immovable property in a particular manner, which amounts to providing a service. The court upheld the legislative competence of Parliament to levy service tax under Entry 97 of List I.

2. Whether the Service Tax on Mandap-Keepers is a Tax on Goods and/or Land:

The appellant argued that the service tax is essentially a tax on land and goods, which falls under the State's jurisdiction. The court noted that for a tax to be considered a tax on land, it must be directly on the land, not on the income derived from it. The court cited several judgments to affirm that the service tax is not a tax on land but on the service provided by Mandap-Keepers. The court also clarified that the tax on catering services does not amount to a tax on the sale and purchase of goods.

3. Applicability of Article 366(29A)(f) Regarding the Sale of Goods:

The appellant argued that Article 366(29A)(f) deems any service related to providing food and drinks as a sale of goods, thereby precluding the imposition of service tax. The court held that Article 366(29A)(f) permits the State to impose a tax on the supply of food and drinks but does not conceptually include the supply of services within the definition of the sale and purchase of goods. The court emphasized that the concept of catering includes rendering service, and the service aspect can be taxed separately from the supply aspect.

4. Validity of the High Court's Application of the 'Aspect Theory':

The appellant contended that the High Court erred in applying the 'Aspect Theory' from the case of Federation of Hotel and Restaurant v. Union of India, which was not relevant due to the non-consideration of Article 366(29A)(f). The court upheld the High Court's application of the 'Aspect Theory,' stating that the service aspect can be distinguished from the supply aspect, and the reliance on the Federation of Hotel and Restaurant case was appropriate.

5. Whether the Service Tax Provisions Violate Articles 14 and 19(1)(g) of the Constitution:

The respondents argued that the levy and collection of service tax by the Union Parliament on Mandap-Keepers is not violative of Articles 14 and 19(1)(g) of the Constitution. The court agreed with the respondents, stating that the service tax is a tax on the service provided and not on the goods or land, and therefore does not infringe upon the constitutional rights of the Mandap-Keepers.

6. Interpretation of the Finance Act, 1994, and Related Notifications:

The court examined the relevant sections of the Finance Act, 1994, and the notifications issued under it. The court noted that the service tax is levied on the gross amount charged by Mandap-Keepers for the use of the Mandap, including facilities provided and catering services. The court upheld the validity of the Finance Act and related notifications, stating that the service tax is within the legislative competence of Parliament and does not violate any constitutional provisions.

Conclusion:

The court dismissed the appeal, confirming the judgment of the High Court. The court held that the service tax on Mandap-Keepers is within the legislative competence of Parliament, does not violate Articles 14 and 19(1)(g) of the Constitution, and is not a tax on goods or land. The court upheld the application of the 'Aspect Theory' and the interpretation of the Finance Act, 1994, and related notifications.