2021 (1) TMI 103 - AT - Service Tax

Rent-a-cab scheme operator Service - Deemed Sale - constitutionally demarcated exclusion of the authority of the Union that precluded statutory enactment of tax on transactions of sale - section 73(1A) of Finance Act, 1994 - HELD THAT - It is not in dispute that the tax liability confirmed in the impugned order were demanded in statements issued, under section 73(1A) of Finance Act, 1994, by reference to facts, and evidence, elaborated in the first show cause notice for the period from 1st April 2008 to 30th September 2012 which straddles the service enumerated in section 65(105)(o) of Finance Act, 1994 and the successor negative list regime. The disputed tax in the present appeal pertains to leviability in the negative list regime as provider of service relating to lease of motor vehicles and on the entire consideration received as rentals from customers. The fitment for taxability under Finance Act, 1994, ignoring the scheme of distribution of exclusive tax jurisdictions in the lists of the Seventh Schedule of the Constitution, within the definitions therein was considered by the Tribunal in ARVAL INDIA PRIVATE LIMITED VERSUS PRINCIPAL COMMISSIONER OF SERVICE TAX IV AND (VICE-VERSA) MR CJ MATHEW, MEMBER (TECHNICAL) 2020 (9) TMI 125 - CESTAT MUMBAI that decided the appeal against the demands for the earlier periods with the core of the dispute and, drawing upon the judgement of the Hon ble Supreme Court on the constitutional constraints in taxing that part of works contract transaction deemed to be sale, to hold that the jurisdiction enabled by articulation of legislative intent specifically to tax service component - not deemed as sale - in works contract could not be appropriated by applying a non-specific description in Finance Act, 1994 to transactions that were taxed entirely as sale . As decided in earlier decision of the appellant, Agreements/contracts of lease are, acknowledgedly, taxable as deemed sale ; it is not the case of Revenue that any portion of the consideration for lease is not deemed sale . As the entire rental is subject to tax as deemed sale , there is no scope for any portion thereof to be leviable to tax by the Union and, thereby, under Finance Act, 1994 Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Constitutionality of Union's authority to levy tax on transactions of sale.
2. Applicability of Finance Act, 1994 on 'rent-a-cab scheme operator' and lease of motor vehicles.
3. Jurisdictional conflict between Union and State taxation powers.
4. Validity of tax demands under section 73(1A) of Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Constitutionality of Union's authority to levy tax on transactions of sale:
The appellant, M/s Arval India Pvt Ltd, challenged the authority of the Union to levy tax on transactions of sale, citing the constitutionally demarcated exclusion of the Union's authority under Article 366 (29A) of the Constitution, as incorporated by the Constitution (Forty-sixth Amendment) Act, 1982. The Tribunal referenced a previous decision in Arval India Pvt Ltd v. Principal Commissioner of Service Tax-IV, which set aside similar demands, emphasizing that the Union's taxing powers do not extend to transactions deemed as 'sale' under the Constitution.

2. Applicability of Finance Act, 1994 on 'rent-a-cab scheme operator' and lease of motor vehicles:
The impugned order confirmed demands for tax under section 65(105)(o) of Finance Act, 1994 for services provided as a 'rent-a-cab scheme operator' up to 30th June 2012 and under the broadened definition of service in section 65B(44) thereafter. The Tribunal noted that the demands were based on facts and evidence from a previous show cause notice covering 1st April 2008 to 30th September 2012. The core dispute was whether the lease of motor vehicles and rentals received could be taxed under the 'negative list' regime.

3. Jurisdictional conflict between Union and State taxation powers:
The Tribunal highlighted the exclusive tax jurisdictions outlined in the Seventh Schedule of the Constitution, stressing that the Union cannot encroach on the States' taxing powers. Citing the Supreme Court's judgment in re Association of Leasing & Financial Service Companies, the Tribunal reiterated that the Union's authority to tax services does not extend to transactions deemed as 'sale' or 'deemed sale', which fall under State jurisdiction.

4. Validity of tax demands under section 73(1A) of Finance Act, 1994:
The Tribunal scrutinized the tax demands issued under section 73(1A) of Finance Act, 1994, which were based on earlier adjudications and show cause notices. The Tribunal found that the adjudicating authority had erred by presuming the Union's authority to tax the entire rental consideration for leases, which are recognized as 'deemed sale' and thus taxable by the State. The Tribunal concluded that the impugned order was invalid as it misinterpreted the constitutional limitations on the Union's taxing powers.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal by M/s Arval India Pvt Ltd. The judgment underscored the constitutional constraints on the Union's taxing authority, reaffirming that transactions deemed as 'sale' or 'deemed sale' are exclusively taxable by the States. The Tribunal emphasized the necessity of clear legislative intent to tax specific service components, which was absent in the Finance Act, 1994 for the transactions in question.