2006 (2) TMI 43 - HC - Service Tax

Service Tax - Liability to pay - Provider of service shall pay tax from his income without collecting service tax from user of services is unsustainable

Summary

Issues:
1. Whether the second respondent can demand service tax from telephone subscribers.
2. Whether the burden of paying service tax can be shifted to customers.
3. Interpretation of relevant provisions of the Finance Act and Central Excise Act.
4. Application of Supreme Court judgment in Laghu Udyog Bharati case.
5. Rectification of defects pointed out by the Supreme Court in the legislation.

Analysis:

Issue 1:
The petitioners argue that the second respondent, a service provider, is wrongfully demanding service tax from telephone subscribers, violating the Finance Act. They contend that only the service provider should be liable to pay the tax, not the consumers. On the other hand, the respondents assert that service tax is an indirect tax collected from customers for services rendered. They argue that the legal duty falls on the service provider to collect and pay the service tax to the Central Excise department. The respondents rely on provisions of the Finance Act and Central Excise Act to support their position.

Issue 2:
The petitioners claim that the burden of paying service tax is being shifted to consumers by the second respondent, which they deem illegal. They cite the Supreme Court's decision in the Laghu Udyog Bharati case to support their argument. However, the respondents argue that subsequent amendments rectified the defects highlighted by the Supreme Court, making the service provider responsible for collecting and remitting service tax from users as per the Central Excise Act.

Issue 3:
The judgment delves into the relevant provisions of the Finance Act and Central Excise Act to determine the obligations of service providers and consumers regarding service tax. Sections 65, 68, and 83 of the Finance Act, along with provisions of the Central Excise Act like Section 12A and 12B, are analyzed to establish the legal framework for service tax collection and payment.

Issue 4:
The petitioners rely on the Supreme Court's ruling in the Laghu Udyog Bharati case to challenge the legality of the service tax collection process. They argue that the amendments made post the Supreme Court's decision do not absolve the service provider from paying the tax. However, the respondents contend that the amendments addressed the issues raised by the Supreme Court, making the service provider responsible for collecting and passing on the service tax.

Issue 5:
The judgment acknowledges the amendments made to Section 68 of the Finance Act to rectify the defects highlighted by the Supreme Court. It notes that the amendments were retrospective and aimed at aligning the legislation with the court's observations. The court concludes that the service provider must collect service tax from users as per the amended provisions, dismissing the petitioner's argument that the tax burden should not be passed on to consumers.

In conclusion, the court dismisses the writ petition, upholding the legality of the second respondent's collection of service tax from telephone subscribers. The judgment emphasizes the obligations of service providers to collect and remit service tax as per the relevant laws, rejecting the petitioner's argument against shifting the tax burden to consumers. The analysis provides a detailed examination of the legal provisions and the application of the Supreme Court's ruling in the context of service tax collection and payment responsibilities.