1997 (7) TMI 2 - HC - Service Tax

Service Tax Advertising service (1) Constitutional not violative of article (2) Legislative competence (3) Taxable service

Summary

Issues:
1. Challenge to the vires of Sections 65(16)(d) and 66(2) of the Finance Act, 1994 regarding the imposition of service tax on advertising services.
2. Constitutionality of the tax on freedom of speech and expression under Articles 14, 19(1)(a), and 265 of the Constitution of India.
3. Allegation of vague and arbitrary classification of commercial and non-commercial advertising under Article 14 of the Constitution.
4. Legislative competence of the Parliament to impose service tax on advertising agencies.

Analysis:
1. The petitioner, an advertising agency, challenged the imposition of service tax on advertising services under Sections 65(16)(d) and 66(2) of the Finance Act, 1994. The provisions defined taxable service and outlined the charging mechanism for the service tax. The challenge was based on constitutional grounds, specifically Articles 14, 19(1)(a), and 265 of the Constitution of India.

2. The petitioner argued that taxing advertising services infringed upon the fundamental right to freedom of speech and expression guaranteed by Article 19(1) of the Constitution. Citing Supreme Court judgments, it was highlighted that while taxation on press activities is permissible, measures that stifle freedom of expression are subject to judicial review. The court noted that the 5% tax rate on advertising services was not unreasonable and fell within the legislative domain.

3. The contention regarding vague and arbitrary classification of commercial and non-commercial advertising under Article 14 was dismissed. The court held that such classifications were rational and not violative of the Constitution. Reference was made to a Supreme Court case upholding similar classifications for levy of customs duty on newspapers.

4. The issue of legislative competence to impose service tax on advertising agencies was raised. The petitioner argued that the tax fell under Entry 60 of the State List concerning taxes on professions, trades, callings, and employments. However, the court clarified that the tax was on the service rendered, not the calling itself, and therefore did not fall under Entry 60. Additionally, it was noted that the tax was not on advertisements but on services related to advertising, making it distinct from Entry 55 of the State List.

In conclusion, the court found no merit in the petitioner's contentions and dismissed the petition, upholding the validity of the service tax on advertising services under the Finance Act, 1994.