2001 (11) TMI 2 - HC - Service Tax

Service Tax on Security Agencies (1) Legislative competence (2) Professional (3) Constitutional Validity

Summary

Issues Involved:
1. Challenge to the provisions of Secs. 66 and 67 of the Finance Act, 1994.
2. Legislative competence of the Parliament to levy service tax on security agencies.
3. Alleged violation of Article 14 of the Constitution of India.

Detailed Analysis:

1. Challenge to the Provisions of Secs. 66 and 67 of the Finance Act, 1994:
The petitioners, who are security and detective agencies, argued that the assistance provided by them includes substantial recoverable expenses such as wages, statutory benefits, and administrative expenses. They contended that the service tax imposed by Sec. 66, which charges a 5% tax on the gross amount charged for services, was inequitable. They also argued that Sec. 67(v) unjustly included the entire gross amount, including reimbursable expenses, in the taxable value. They referenced a trade notice and other sections of the Act to demonstrate that other agencies, such as advertising agencies, were allowed to exclude reimbursable expenses from their taxable value, unlike security agencies.

2. Legislative Competence of the Parliament to Levy Service Tax on Security Agencies:
The petitioners claimed that the service tax on security agencies amounted to a tax on their profession, trade, calling, and employment, which falls under Entry 60 of List II of the Seventh Schedule of the Constitution, thus within the domain of the State Legislature. However, the court referred to a previous judgment where it was held that service tax has different aspects, and the aspect of providing a service is independent of the profession. The court concluded that even if running a security agency is considered a profession, the service tax levied by the Parliament was within its legislative competence and not a tax on the profession per se.

3. Alleged Violation of Article 14 of the Constitution of India:
The petitioners argued that the service tax imposed on security agencies was discriminatory under Article 14, as other agencies were allowed to exclude reimbursable expenses from their taxable value. The court, however, referred to a previous judgment involving advertising agencies, where it was held that the State has the discretion to choose which services to tax and that such discretion does not violate Article 14. The court reiterated that the legislature has wide latitude in formulating fiscal policy and that taxing laws are not outside the purview of Article 14 but are subject to less rigorous tests of discrimination. The court found no merit in the argument that security agencies were discriminated against by being included in the service tax net.

Conclusion:
The court held that the provisions of Secs. 66 and 67 of the Finance Act, 1994, are constitutional and do not violate Article 14. The challenge based on the alleged lack of legislative competence was also rejected, affirming that the Parliament is competent to levy service tax on security agencies. The writ petitions were dismissed without any orders as to costs.