2001 (4) TMI 6 - HC - Service Tax

Service Tax Mandap Keeper (1) Constitutional Validity (2) Only official, social or business functions are included.

Summary

Issues:
1. Constitutional validity of service tax on services provided by mandap-keepers.
2. Legislative competence of the Union of India to levy such a tax.
3. Definition clarity and scope of terms like "social, official, or business function."
4. Alleged arbitrariness and unreasonableness of the tax provisions.

Detailed Analysis:

Constitutional Validity of Service Tax on Services Provided by Mandap-Keepers:
The petitioners challenged the constitutional validity of Sections 65, 66, and 67 of the Finance Act, 1994, arguing that the tax on services provided by mandap-keepers was beyond the legislative competence of the Union of India. They contended that this tax, in pith and substance, amounted to a "tax on land and buildings," which falls under Entry 49 of the State List (List II) of the Seventh Schedule to the Constitution of India. They also argued that the inclusion of catering services under the taxable services further complicated the issue, potentially bringing it under the ambit of a "tax on sale of goods" as per Article 366(29A)(f) and Entry 54 of the State List.

Legislative Competence of the Union of India:
The court examined whether the service tax on mandap-keepers could be considered a tax on land and buildings or a tax on the sale of goods. It was noted that the tax was on the service provided by mandap-keepers, which involved the use of immovable property for organizing functions, and not on the property itself. The court emphasized the distinction between the subject of the tax and the measure of the tax, citing precedents that supported the view that the measure of the tax (the amount charged for the use of the mandap) did not determine its essential character. The court held that the service tax was a tax on the service provided and not on the land or building, thus falling within the legislative competence of the Union under the residuary powers (Entry 97 of List I).

Definition Clarity and Scope of Terms:
The petitioners argued that terms like "social, official, or business function" were vague and lacked guidelines, leading to potential arbitrariness in the application of the tax. The court, however, found that these terms could be understood in their common parlance and did not require further elaboration. The court noted that the legislative scheme provided a mechanism for assessing and contesting the tax, thus addressing concerns about potential arbitrariness.

Alleged Arbitrariness and Unreasonableness:
The petitioners contended that the provisions were arbitrary and unreasonable, lacking clear guidelines for determining the taxable amount and the nature of functions subject to tax. The court rejected this argument, stating that the terms used in the provisions were clear and that the legislative scheme allowed for discretion and play in its application. The court cited precedents that supported the view that economic legislation should be given a wide latitude and that the legislature should be allowed some play in the joints.

Conclusion:
The court dismissed the writ petitions, holding that the service tax on services provided by mandap-keepers was within the legislative competence of the Union of India and did not suffer from any constitutional infirmity. The court found that the provisions were clear, reasonable, and did not violate any constitutional principles. The petitions were dismissed with no costs.