2001 (4) TMI 3 - HC - Service Tax

Summary

Issues Involved:
1. Legislative competence of the Parliament to levy service tax on advertising agencies.
2. Alleged discrimination under Article 14 of the Constitution.

Summary:

Legislative Competence:
The petitioners challenged the constitutional validity of the service tax levied on advertising agencies, arguing that it amounts to a "tax on advertisements" and falls under Entry 55 of the State List (List II), thus only the State Government has the legislative competence to levy such tax. The court examined the language of the relevant provisions and the "pith and substance" of the taxing provisions. It concluded that the service tax is a "tax on service" provided by advertising agencies in relation to advertisements and does not fall under Entry 55 of the State List. The court held that the tax pertains to the "service sector" and is entirely different from a tax on advertisements, thus falling within the legislative competence of the Parliament.

Alleged Discrimination Under Article 14:
The petitioners argued that the service tax provisions are discriminatory as they tax advertising agencies but not the press media or electronic media, which provide similar services directly to clients. The court rejected this argument, stating that the services provided by advertising agencies are distinct from those provided by the press or electronic media. The court noted that the advertising agencies use their expertise to prepare, display, and exhibit advertisements, which is not the case with the press or electronic media. The court also emphasized that the legislature has wide discretion in matters of taxation and can classify different entities for tax purposes without it being discriminatory. The court found no "hostile discrimination" against advertising agencies and upheld the provisions under Article 14.

Measure of Tax:
The petitioners contended that the calculation of tax on the "gross amount" charged by advertising agencies, without excluding actual expenses, is arbitrary. The court held that the nature of the tax cannot be determined by its measure and that the constitutional validity of the taxing provision cannot be decided based on the measure of the tax. The court found no merit in the argument that the provisions are discriminatory in this regard.

Conclusion:
The court dismissed the petitions, upholding the constitutional validity of the service tax levied on advertising agencies and finding no violation of Article 14 or issues with legislative competence. The petitions were dismissed with no costs, and connected W.M.Ps were closed.