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2025 (2) TMI 850 - HC - Service TaxConstitutional validity of sub-clauses (zzzzv) (zzzzw) of clause 105 of Sec. 65 of the Finance Act 1994 - authority of Parliament to introduce levy of service tax on certain services - appellants argue that the subject matter of impugned provisions of the Act in pith substance would fall within the precincts of State Legislative power under Entries 54 62 of List II Schedule VII of the Constitution of India - HELD THAT - By virtue of the amendment the services enumerated in the impugned clauses were brought within the Service Tax net so that on and from the commencement of the Amendment Act the services enumerated therein came to be subjected to levy of said tax. Entry 97 of List I is a residuary Entry under which Parliament is empowered to make laws in respect of any matter not enumerated in List II or List III including any tax not mentioned in either of those laws. But Entry 54 of List II specifically deals with taxes on the sale or purchase of goods other than newspapers subject to the provisions of Entry 92A of List I is a subject on which the State Legislature can enact laws. Entry 97 of List I derives its powers from Article 248 of the Constitution which gives power to the Parliament to make a law imposing a tax not mentioned in either of two other lists namely List II and III and therefore Service Tax is leviable by the part. It has been well settled by now that there can be no question of conflict solely on account of two aspects of the same transaction being utilized by two legislatures for two levels both of which may be taxes fees or one which may be a tax and the other a fee falling within two fields of legislation respectively available to them as observed by the learned Single Judge at para 25 of the impugned order. There may be more than one taxable events in a single transaction involving different kinds of taxes and different aspects of taxation. The Apex Court in IMAGIC CREATIVE PRIVATE LIMITED vs. COMMISSIONER OF COMMERCIAL TAXES 2008 (1) TMI 2 - SUPREME COURT has said that the payment of service tax and remittance of VAT are mutually exclusive the nature of levies being different. Different aspects of a single transaction can be taxed under different statutes. Conclusion - i) There can be levy of more than one tax on a subject matter if incidence of each of the taxes is different from the other and such taxes may be imposed under different statutes. ii) Sales Tax can be levied by the State Government and the State Legislature is competent to enact law with regard to levy of Sales Tax. When State Government imposes tax on sale of goods it does not do so on the service aspect of the sale. iii) The constitutional validity of the impugned provisions upheld. Appeal dismissed.
ISSUES PRESENTED and CONSIDERED
The primary legal issue considered in this judgment was the constitutional validity of sub-clauses (zzzzv) and (zzzzw) of clause 105 of Section 65 of the Finance Act, 1994, as amended by the Finance Act, 2011. The appellants contended that these provisions, which introduced service tax on certain services, fell within the legislative competence of the State under Entries 54 and 62 of List II, Schedule VII of the Constitution of India, and thus, the Parliament lacked the authority to enact them. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The Finance Act, 1994 initially introduced service tax, which was structured based on the recommendations of the Raja Challaiah Committee on Tax Reforms. The Act's evolution saw a shift from a Positive List basis, where only specified services were taxed, to a Negative List basis, where all services except those specified were subject to taxation. The impugned provisions, sub-clauses (zzzzv) and (zzzzw), were introduced under the residuary powers of Parliament as per Entry 97 of List I of the Seventh Schedule to the Constitution. Court's interpretation and reasoning: The Court upheld the legislative competence of Parliament to levy service tax on the services enumerated in the impugned provisions, distinguishing between the aspects of service and sale in transactions. It emphasized that service tax and sales tax are distinct, with service tax being levied on the service aspect of a transaction, while sales tax is levied on the sale of goods. Key evidence and findings: The Court referenced several precedents, including the Apex Court's decisions in All India Federation of Tax Practitioners vs. Union of India and Imagic Creative Private Limited vs. Commissioner of Commercial Taxes, which clarified the distinct nature of service tax and sales tax. It also considered the legislative history and the broader economic context of service tax as a value-added tax. Application of law to facts: The Court applied the principles established in previous judgments to conclude that the impugned provisions validly imposed service tax on the service aspects of transactions involving restaurants and hotels. It dismissed the appellants' argument that the provisions fell within the State's legislative competence. Treatment of competing arguments: The appellants relied on the Kerala High Court's decision in Union of India vs. Kerala Bar Hotels Association, which supported their view. However, the Court found the reasoning in the Kerala decision to be inconsistent with the Apex Court's jurisprudence and preferred the reasoning of the Bombay High Court in Indian Hotels and Restaurants vs. Union of India. Conclusions: The Court concluded that the impugned provisions were constitutionally valid and within the legislative competence of Parliament. It dismissed the appeals, allowing the appellants the liberty to seek recall or modification of the judgment based on future Supreme Court decisions. SIGNIFICANT HOLDINGS The Court reiterated the principle that service tax and sales tax are distinct levies, each applicable to different aspects of a transaction. It held that Parliament has the competence to levy service tax on the service aspect of transactions involving restaurants and hotels, as provided in the impugned provisions. Verbatim quotes of crucial legal reasoning: "Thus, a tax on the sale of purchase of goods and tax on service are two distinct aspects. Tax on sale or purchase of goods is envisaged under Entry 54 of List II (Sales Tax) and the taxable event therein is transfer of property in goods or any of the nature of transactions stipulated in Article 366 (29A) (a) to (f). Sales Tax can be levied by the State Government and the State Legislature is competent to enact law with regard to levy of Sales Tax. When State Government imposes tax on sale of goods, it does not do so on the service aspect of the sale." Core principles established: The judgment established the principle that service tax is levied on the service aspect of a transaction, distinct from the sale of goods, and that Parliament has the legislative competence to enact laws imposing such a tax under its residuary powers. Final determinations on each issue: The Court dismissed the appeals, upholding the constitutional validity of the impugned provisions and affirming Parliament's competence to levy service tax on the specified services. It provided the appellants with the option to seek recall or modification of the judgment based on future Supreme Court rulings.
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