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TMI Blog2013 (7) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... to any of the matters enumerated in List I in the Seventh Schedule to the Constitution. As per Article 246(3), the State Government has exclusive powers to make laws with respect to matters enumerated in List II - first limb of the Article 366(29-A) says that the tax on sale or purchase of goods includes a tax on transactions specified in sub Clauses (a) to (f). It was also found that the said Article is brought in to expand the tax base which should narrow down because of certain judgments of the Court. The deemed sale is therefore brought into effect as a concept in the constitutional definition. Very purpose of incorporating the definition of tax on sale or purchase of goods in Article 366 was to empower the State Governments to impose tax on the supply, whether it is by way of or as a part of any service of goods either being food or any other article for human consumption or any drink either intoxicating or not intoxicating whether such supply or service is for cash, deferred payment or other valuable consideration - transfer is during the course of a service and when the deeming provision permits the State Government to impose a tax on such transfer, there cannot be a diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Finance Act, 1994 and Section 66 of the Finance Act, 1994 as amended by the Finance Act 2011 relating to levy of service tax on taxable services referred there and for consequential reliefs. The relevant portion reads as under: (zzzzv) services provided or to be provided to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises; (zzzzw) Services provided or to be provided to any person, by a hotel, inn, guest house, club or camp-site, by whatever name called, for providing of accommodation for a continuous period of less than three months; 2. The main contention urged by the petitioners is that the imposition of service tax in relation to serving of food or beverage including alcoholic beverages represents only sale of goods which transaction squarely falls under Entry 54 of List II (State List) of the 7th schedule to the Constitution of India and therefore within the exclusive competence of the State Legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of tax on sale and purchase of goods under Article 366 (29A) (f) of the Constitution of India. ii) Whether the service provided in a hotel, inn, guest house, club etc. imposed with luxury tax under State Act in terms of Entry 62 of List II can be separately assessed and imposed by the Union with service tax, invoking the residuary powers at Entry 97 of List I of the Constitution. 5. The relevant entries of List I and II of the seventh schedule reads as under: List I -- Union List 97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists. List II -- State List 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A of List I.] 62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling. 8. Article 246 and 366 (29A) reads as under: 246. Subject-matter of laws made by Parliament and by the Legislatures of States. --(1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery or supply is made; 6. The judgment in State of M.P. v. Rakesh Kohli, (2012) 6 SCC 312) is relied upon by the learned counsel for respondent to highlight the principles to be kept in mind by courts while considering constitutionality of a statute and the Supreme Court held as under: 32. While dealing with constitutional validity of a taxation law enacted by Parliament or State Legislature, the court must have regard to the following principles: (i) there is always presumption in favour of constitutionality of a law made by Parliament or a State Legislature, (ii) no enactment can be struck down by just saying that it is arbitrary or unreasonable or irrational but some constitutional infirmity has to be found, (iii) the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law as Parliament and State Legislatures are supposed to be alive to the needs of the people whom they represent and they are the best judge of the community by whose suffrage they come into existence, (iv) hardship is not relevant in pronouncing on the constitutional validity of a fiscal statute or economic law, and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in on account of the activity undertaken by the professional like tax planning, advising, consultation, etc. It gives value addition to the goods manufactured or produced or sold. Thus, service tax is imposed every time service is rendered to the customer/client. This is clear from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted. Scope of Article 366(29-A) 49. If one examines Article 366(29-A) carefully, one finds that clause (29-A) provides for an inclusive definition and has two limbs. The first limb says that the tax on sale or purchase of goods includes a tax on transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of taxable services referred to in Section 65(105)(zm) read with Section 65(12) of the said Act, insofar as it relates to financial leasing services including equipment leasing and hire purchase as beyond the legislative competence of Parliament by virtue of Article 366(29-A) of the Constitution. In short, the legislative competence of Parliament to impose service tax on financial leasing services including equipment leasing and hire purchase is the subject-matter of challenge. Legislative competence was not the issue before this Court in BSNL case. In that case, the principal question which arose for determination was in respect of the nature of the transaction by which mobile phone connections are enjoyed. The question was whether such connections constituted a sale or a service or both. If it was a sale then the States were legislatively competent to levy sales tax on the transaction under Entry 54, List II of the Seventh Schedule to the Constitution. If it was service then the Central Government alone had the legislative competence to levy service tax under Entry 97, List I and if the nature of the transaction partook of the character of both sale and service, then the moot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices . 49. In Gujarat Ambuja Cements Ltd. v. Union of India it was held that service tax is not a tax on goods or on passengers but it was on the transportation itself and, therefore, it falls under residuary power of Parliament under Entry 97 of the Seventh Schedule to the Constitution. xxxxxxx In the present case, as stated above, we are concerned with Entry 60 of List II. As stated above, service tax is on performance based services itself. It is on professional advice, tax planning, auditing, costing, etc. On each of the exercise undertaken tax becomes payable. Therefore, the above judgment has no application. 50. In Bharat Sanchar Nigam Ltd. v. Union of India the question which arose for determination before this Court was whether a telephone service (mobile or fixed) would attract liability to service (sic sales) tax. It was held that in order to attract the liability under the sales tax there has to exist what is called as goods . Since goods in question consisted of electromagnetic waves or radio frequencies, which carries voice, messages or other data, a telephone service was nothing but a service. We are not concerned with such a controversy in the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing telephone connection a composite contract of service and sale? If so, is it possible for the States to tax the sale element? (D) If the providing of a telephone connection involves sale, is such sale an inter-State one? (E) Would the aspect theory be applicable to the transaction enabling the States to levy sales tax on the same transaction in respect of which the Union Government levies service tax? The Supreme Court further held as follows: 41. xxxxxxxx Sub-clause (f) pertains to contracts which had been held not to amount to sale in State of Punjab v. Associated Hotels of India Ltd. That decision has by this clause been effectively legislatively invalidated. 44. Of all the different kinds of composite transactions the drafters of the Forty-sixth Amendment chose three specific situations, a works contract, a hire-purchase contract and a catering contract to bring them within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in sub-clauses (b) and (f) of clause (29- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old that Entry 62 of List II does not permit the levy of tax on goods or articles. In our judgment, the word luxuries in the entry refers to activities of indulgence, enjoyment or pleasure. Inasmuch as none of the impugned statutes seek to tax any activity and admittedly seek to tax goods described as luxury goods, they must be and are declared to be legislatively incompetent. However, following the principles in Somaiya Organics (India) Ltd. v. State of U.P. while striking down the impugned Acts we do not think it appropriate to allow any refund of taxes already paid under the impugned Acts. Bank guarantees if any furnished by the assessees will stand discharged. 12. In T.N. Kalyana Mandapam Assn. v. Union of India, (2004) 5 SCC 632) the Supreme Court was considering whether the imposition of service tax on the services rendered by the mandap-keepers was intra vires the Constitution, and held as under: 44. In regard to the submission made on Article 366(29-A)(f), we are of the view that it does not provide to the contrary. It only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwise in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of 1987) held as under: 31. Indeed, the law with respect to a subject might incidentally affect another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. Lord Simonds in Governor General-in-Council v. Province of Madras in the context of concepts of Duties of Excise and Tax on Sale of Goods said: ... The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of, his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separated and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale.... 54. In the present case, the bases of classification cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or service or both. In fact, in BSNL (Supra) the Supreme Court held that providing mobile phone connections is only a service. In All-India Federation of Tax Practitioners (Supra), the question involved was whether the services rendered by Chartered Accountants could be imposed with service tax in the light of Entry 60 of List II. In that case also, Supreme Court had occasion to consider the judgments in Gujarat Ambuja Cements Ltd. v. Union of India and also BSNL (Supra). In BSNL (Supra) as already held, the Supreme court had occasion to consider the scope of Article 366 (29-A) it is held that after the 46th amendment the sale element of those contracts which are covered by six sub clauses of Clause (29-A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test being applied. In T.N. Kalyana Mandapam Assn. (Supra) the question involved was in relation to services rendered by mandap-keepers. While upholding the imposition of service tax the Supreme Court held that in regard to Article 366(29-A)(f) it only permits State to impose tax on the supply of food and drink by whatever mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption or any drink either intoxicating or not intoxicating whether such supply or service is for cash, deferred payment or other valuable consideration. The words and such transfer delivery or supply of goods is deemed to be a sale of those goods by the person making the transfer. Therefore the incidence of tax is on the supply of any goods by way of or as part of any service. When food is supplied or alcoholic beverages are supplied as part of any service, such transfer is deemed to be a sale. Apparently, the transfer is during the course of a service and when the deeming provision permits the State Government to impose a tax on such transfer, there cannot be a different component of service which could be imposed with any service tax in exercise of the residuary power of the Central Government under Entry 97 of List I of the Constitution of India. 20. Therefore it can be seen from Article 366(29-A) (f) that service is also included in the sale of goods. If the constitution permits sale of goods during service as taxable, necessarily Entry 54 has to be read giving the meaning of sale of goods as stated in the Constitution. If read in that fashion, necessarily service forms p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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