2005 (1) TMI 4 - HC - Service Tax

Service Tax Goods Transport Operator The service tax is levied on providing the service of transportation of goods Constitutional validity

Issues Involved:
1. Constitutional validity of the levy of service tax on freight charges for the carriage of goods by road.
2. Legislative competence of the Parliament to impose such a tax.
3. Allegations of discrimination and violation of Articles 14 and 19(1)(g) of the Constitution of India.

Detailed Analysis:

1. Constitutional Validity of Levy of Service Tax:
The petitioners challenged the constitutional validity of the levy of service tax by the Parliament on freight charges incurred for the carriage of goods by road. They argued that the tax imposed by Chapter V of the Finance Act, 1994, as amended by subsequent Finance Acts, was unconstitutional and ultra vires to the legislative powers of the Parliament. The petitioners contended that the provisions were unreasonable, discriminatory, and violated Articles 14 and 19(1)(g) of the Constitution of India.

2. Legislative Competence of the Parliament:
The primary argument revolved around the legislative competence of the Parliament to legislate on matters that, according to the petitioners, fell exclusively within the domain of the State Legislature. The petitioners argued that taxes on goods and passengers carried by road or inland waterways were within the exclusive domain of the State Legislature as per Entry 56 in List-II of Schedule-VII of the Constitution. They contended that the tax imposed by the impugned Acts was essentially a tax on goods and passengers, which was outside the scope of Parliament's legislative competence.

3. Arguments and Counterarguments:
The respondents countered that the tax levied by the Parliament was not on goods or passengers but on the service of providing transportation. They argued that the tax was within the domain of the Parliament as it was a tax on services. The respondents relied on various judgments, including the Supreme Court's decision in Laghu Udyog Bharathi v. Union of India, which held that the levy of service tax on users of goods transport operator services was illegal. However, subsequent amendments to the Finance Act were made to validate the imposition of the tax and rectify the defects pointed out by the Supreme Court.

4. Relevant Judgments:
Several judgments were cited to support the arguments of both parties:

- Laghu Udyog Bharathi v. Union of India (1999): The Supreme Court held that certain rules making persons other than clearing and forwarding agents responsible for collecting service tax were ultra vires the Act.
- Khyerbari Tea Co. Ltd. v. State of Assam (1964): The Supreme Court held that the State Legislature had the power to levy a tax on goods carried by road under Entry 56 of List-II.
- M/s. Sainik Motors, Jodhpur v. State of Rajasthan (1961): The Supreme Court held that a tax on passengers and goods carried by road was within the legislative competence of the State Legislature.
- A.S. Karthikeyan v. State of Kerala (1974): The Supreme Court upheld the validity of a tax on passengers and goods carried by road, emphasizing that the tax was on the service provided.

5. Supreme Court's Decision in Tamilnadu Kalyana Mandapam Association v. Union of India (2004):
The Supreme Court upheld the validity of service tax on mandap keepers, holding that the tax was on services and not on the sale or hire of goods. The Court emphasized that the tax could be attributed to the residuary power of the Parliament under Article 246(1) of the Constitution.

6. Conclusion:
The High Court concluded that the service tax levied on the transportation of goods by road was a tax on the service provided and not on the goods themselves. The Court held that the tax was within the legislative competence of the Parliament and dismissed the writ petitions challenging the validity of the tax. The Court also noted that the validation provisions in the Finance Acts were not seriously contested and were within the Parliament's power to amend the Act.

Judgment:
The writ petitions were dismissed, and the levy of service tax on the transportation of goods by road was upheld as constitutionally valid and within the legislative competence of the Parliament.

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