2001 (7) TMI 1 - HC - Service Tax

Service Tax on Caterer (1) Legislative Competence (2) Outdoor Caterer (3) Constitutionality

Summary

Issues Involved:
1. Constitutional validity of the service tax levied on services provided by mandap-keepers.
2. Constitutional validity of the service tax levied on services provided by outdoor caterers.
3. Legislative competence of the Parliament to levy service tax on mandap-keepers and outdoor caterers.
4. Alleged arbitrariness and discrimination in the imposition of service tax on outdoor caterers and mandap-keepers.

Detailed Analysis:

1. Constitutional Validity of Service Tax on Mandap-Keepers:
The petitioner challenged the constitutional validity of the service tax levied on mandap-keepers under the Finance Act, 1994, as amended. The court observed that the challenge to the constitutionality of Sections 65(19), 65(20), and 65(41)(p) of the unamended Act must fail for the reasons stated in a previous judgment (W.P. No. 1617 of 1998). The court had already held that the service tax provided under Section 65(48)(m) is a valid tax and the provisions of Sections 65(22), (23), and (48)(m) are constitutionally valid.

2. Constitutional Validity of Service Tax on Outdoor Caterers:
The petitioner also challenged the service tax levied on outdoor caterers, which was defined under Sections 65(24) and 65(41)(n) of the Finance Act, 1994. The court noted that these provisions were deleted from the list of taxable services in the amended Act, making the tax applicable only between July 1997 and July 1998. The court found that the argument that such services provided by outdoor caterers amount to a sale of goods and should be covered under Entry 54 of the State List (List II) was incorrect and rejected it.

3. Legislative Competence of the Parliament:
The petitioner argued that the legislation could be ascribed to Entry 54 of the State List (List II), which pertains to taxes on the sale or purchase of goods. The court examined whether the provisions relating to "outdoor caterer" were attributable to Entry 54 of the State List. The court referred to previous judgments and concluded that the impugned provisions could not be attributed to Entry 54 of List II. The court held that the tax was more related to the aspect of services offered by the mandap keeper and outdoor caterer, and not merely a sale of goods.

4. Alleged Arbitrariness and Discrimination:
The petitioner argued that the inclusion of the value of foodstuffs and drinks supplied for the purpose of service tax was unreasonable and arbitrary. The court rejected this argument, stating that it is within the legislature's discretion to decide on what items to impose a tax. The court also addressed the argument that there was no guideline in the Act regarding which part of the gross amount charged was to be taxed. The court found that the provisions were clear and there was no vagueness. The court further rejected the argument that taxing outdoor caterers while not taxing hoteliers providing indoor services was arbitrary, stating that it is within the legislature's discretion to select the items and areas to be taxed.

Conclusion:
The court concluded that the petitioner failed to establish that any of the provisions in question were arbitrary, unreasonable, or discriminatory. The writ petition was dismissed with no costs.