2004 (8) TMI 680 - HC - Service Tax

Issues Involved:
1. Liability for service tax on goods transport operators.
2. Validity of retrospective amendments to the Finance Act, 1994.
3. Constitutional validity of sections 116 and 117 of the Finance Act, 2000.
4. Validity of notices demanding service tax from the petitioners.
5. Application of the Supreme Court judgment in Laghu Udyog Bharati v. Union of India.
6. Limitation period for demand of service tax.

Issue-wise Detailed Analysis:

1. Liability for Service Tax on Goods Transport Operators:
The petitioners, bidi manufacturers, contended that they did not avail services from clearing and forwarding agents, nor did they pay service tax on goods transport services. The Central Government had imposed service tax on goods transport operators in 1997, leading to a nationwide strike. Assurance was given that transporters would not be required to follow the procedures for service tax collection. However, Rule 2(d)(xii) of the Service Tax Rules, 1997, made customers liable for service tax, which was challenged and held ultra vires by the Supreme Court in Laghu Udyog Bharati v. Union of India.

2. Validity of Retrospective Amendments to the Finance Act, 1994:
The Finance Act, 2000, retrospectively amended the service tax legislation, validating Rule 2(d)(xii) and (xvii) of the Service Tax Rules, 1994, and amending the definition of "assessee" to include customers of goods transport operators. The amendments aimed to validate the levy and recovery of service tax from customers retrospectively.

3. Constitutional Validity of Sections 116 and 117 of the Finance Act, 2000:
The petitioners argued that sections 116 and 117 of the Finance Act, 2000, were ultra vires the Finance Act, 1994, and violated Articles 14, 19(1)(g), and 265 of the Constitution of India. They contended that the amendments did not remove the defect identified by the Supreme Court in Laghu Udyog Bharati and that the Legislature cannot overrule a judicial decision by mere declaration.

4. Validity of Notices Demanding Service Tax from the Petitioners:
The petitioners received notices demanding service tax for the period from November 16, 1997, to June 1, 1998. They objected on the ground that the retrospective amendment did not shift the burden to them and that the demand was unjustified. The respondents argued that the amendments validated the provisions and that the notices were within the limitation period.

5. Application of the Supreme Court Judgment in Laghu Udyog Bharati v. Union of India:
The Supreme Court in Laghu Udyog Bharati had held that Rule 2(d)(xii) and (xvii) of the Service Tax Rules, 1994, were ultra vires as they made customers liable for service tax. The petitioners argued that the amendments did not alter this judgment. However, the court held that the amendments to sections 65, 66, and 67 of the Finance Act, 1994, had removed the defect identified by the Supreme Court, thus diluting the impact of the Laghu Udyog Bharati judgment.

6. Limitation Period for Demand of Service Tax:
The petitioners contended that the demand for service tax was barred by limitation as it was not a case of escaped assessment. The respondents argued that the show-cause notice was within the limitation period as it was a case of escapement of tax.

Conclusion:
The court upheld the validity of the retrospective amendments to the Finance Act, 1994, and the constitutional validity of sections 116 and 117 of the Finance Act, 2000. It held that the amendments had removed the defect identified by the Supreme Court in Laghu Udyog Bharati, making the provisions valid and constitutional. The court also found that the notices demanding service tax were within the limitation period. The writ petitions were disposed of without any order as to costs.

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