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TMI Blog2001 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ude the various services which were brought under tax-net. Under the scheme of the Act, the impost of the tax was against the persons who provided the services and they had collect and pay the same. Thus, this tax could be legitimately passed on to the customers and more particularly to the persons whom the services were being offered. 4. The "services" offered by the "mandap-keepers" were included for the first time by Chapter VI of the Finance Act, 1997. Some of the relevant provisions in that Chapter are as follows : "65(19) mandap means any immovable property as defined in section 3 of the Transfer of Property Act, 1882 (4 of 1882) and includes any furniture, fixtures, light fittings and floor coverings therein let out for consideration for organising any official, social or business function. 65(2) mandap-keeper means a person who allows temporary occupation of a mandap for consideration for organising any official, social or business function. 65(41)(p) taxable service means any service provided to a client, by a mandap-keeper in relation to the use of a mandap in any manner including the facilities provided to the client in relation to such use and also the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers would not be ready to pay the tax. By the second representation, it was pointed out that the tax could not be remitted immediately after every marriage or function when the mandap was rented out and, therefore, reasonable time should be granted from the date of rendering the services to make the payment of tax. 10. Shortly stated, the case of the petitioners before us is that this tax and the provisions therefor in Sections 65, 66 and 67 of the Finance Act are firstly beyond the "legislative competence" of the Union of India as, in fact, in pith and substance, this tax amounts to a "tax on land and buildings", which is covered by Entry 49 of the State List (List II) of Seventh Schedule to the Constitution of India. The learned Counsel argue that presumably this legislation is under the "residuary entry", i.e. Entry 97 of Union List (List I) and, therefore, it could have been so legislated only if the subject of legislation was not covered by any of the entries in State List (List II) or the Concurrent List (List III). Learned Counsel further argue that in order to test as to whether the challenged provisions fall under Entry 49 of State List (List II) or any other ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization." Learned Counsel suggest that this would be a "tax on land" and, therefore, would be integrally connected with the "tax on collection of rents" and for this reason also, the provisions are beyond the "legislative competence" of the Union because of the positive language of Art. 248(1) pertaining to the "residuary powers" enjoyed by the Parliament. 13. In so far as the other challenge is concerned, the learned Counsel argue that the definition of "mandap" suggests that an immovable property should have been let out for consideration for organising any official, social or business function. Learned Counsel point out that there is absolutely no guidelines in the Finance Act or Rules to suggest as to what is meant by "official, social or business function". According to the learned Counsel, the provision is vague and, therefore, it would be left to the "wild discretion" of the tax authorities to decide as to whether a particular function was a "social, official or business function" and as such taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel appearing on behalf of the petitioners to begin with tried to argue that in pith and substance this tax was a "tax on land and building". Learned Counsel argue that the tax depends on the very existence of the land and/or building and is, therefore, integrally connected with that subject. It was argued that even if a playground is rented out for any social, official or business function even then, the service tax liability would arise. From this the learned Counsel argue that the impost of the tax is entirely depended upon the existence of the immovable property which may include the land and/or building and it is only for the "user of such land and/or building" that the tax is charged. The learned Counsel argue that for the same reason even Entry 18 of List II can be brought into service and, therefore, further argues that once the item is found to be under any of these entries in List II, the Parliament would have no power to legislate with the help of Entry 97 of List I because of the positive language of Art. 248. 17. There could be no dispute about the proposition that the Parliament would have no right to legislate under Entry 97 of List I if in pith and substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land which was let out for the user of the client by way of holding a social, official or business function. The argument is clearly incorrect. Here the basic fallacy in the argument is that the nature of the tax is being judged from the "measure of the tax". Merely because the tax is charged on the amount charged by the "mandap keeper" on account of his having let out the premises, it would not mean that the tax is wholly and integrally connected with such charges and, therefore, amounts to a tax regarding the rent of such a land or pertains to the collection of rents of that land. That would be clearly incorrect approach which has been shunned by the Supreme Court in the decision reported in AIR 1961 SC 1480 ( Sainik Motors v. State of Rajasthan ). There, the Supreme Court was considering as to whether the State in the guise of taxing passengers and goods under Entry 56 of List II was in pith and substance and in reality tax the income of the stage carriage operators or at any rate was taxing the fares and freights, both of which were outside its powers. It was argued that operators were required to pay the tax calculated at the rate related to the value of the fare and frei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of pith and substance to the present tax, it does not in any way come near the barred border line of Entry 18 or Entry 49 of List II let apart its entry into that barred territory. 21. It will be seen that impost of the tax under Entry 49 of List II would essentially be vis-a-vis the land and/or building as the case may be whereby such tax under Entry 49 would be essentially connected with the proprietory or ownership rights in the said land and/or building. Following observations of Hidayatullah, J. in the decision reported in AIR 1970 S.C. 999 ( Second Gift Tax Officer v. Nazareth ) are extremely relevant in this behalf. They are : "Since entry 49 of the State List contemplated a tax directly levied by reason of the general ownership of lands and buildings, it cannot include the gift tax as levied by Parliament." (Emphasis supplied) When we consider the definition of "mandap keeper" on whom alone is the impost of service tax, it is obvious that such person need not be having any proprietary or ownership rights in respect of the immovable property. Any person allowing the user of the immovable property for the purposes mentioned in Sec. 65(22) or (23) whether he is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have already referred to the background of the "service tax". In this behalf, it will be better to see that the concept of " service tax" is a totally novel concept, which was introduced for the first time in the year 1994. The learned Counsel for the respondent heavily relied on the speech of the then Finance Minister on the floor of the House while introducing the service tax for the first time. In paragraph 87 of his speech, the then Hon'ble Finance Minister has referred to the fact that the "service sector" which accounts for 40% of our Gross Domestic Product (GDP) was not subjected to the relaxation and that there was a need to widen the base for Domestic indirect taxes. The Finance Minister argued that there was no sound reason for exempting the service sector from taxation when "goods" are taxed and that in many countries "goods" and "services" were treated alike for the tax purposes. A reference was also made to the report of the Taxation Reforms Committee suggesting tax on "services" for broadening the base of the indirect taxes. That is how the "services" offered to begin with by telephones, non-life insurance and stock brokers came to be charged at the rate of 5% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd is entirely independent of and different from the existing taxes covered by the taxes provided in List II. That itself would suggest that this cannot come within the arena of Entry 49 of List II also. 27. In the decision reported in AIR 1990 S.C. 85 ( India Cements Ltd. v. State of Tamil Nadu ) when the Apex Court was considering the legality and constitutional validity of the cess on royalty on mineral rights again the scope of Entry 49 of List II came to be considered. The Supreme Court held that cess on royalty could not be sustained under Entry 49 of List II as being a tax on land. It was further held that royalty on mineral rights was not a tax on land but a payment for the "user" of the land. It would mean that the Apex Court has pointed out a "subtle distinction" between the "tax on the land" and the "tax for the user of the land". The case of the "mandap keepers", from the very language of the provisions, would be clearly covered by the law laid down in this case regarding the "user of the land". In the present case, the tax is on the "user" of the "mandap", which is provided as a "service" by the "mandap keeper". Therefore, in our opinion, the argument that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support of the argument, the learned Counsel heavily relies on the provisions of Art. 366(29A)(f) of the Constitution, which we have already quoted in the earlier part of this Judgment. The contention is that if the service of catering by a mandap keeper is included in the "services" provided by the "mandap keeper" then, it would amount to a tax on "sale or purchase of goods" as it would be totally covered under clause (f) of Art. 366(29A). Under clause (f) of Art. 366(29A), a tax on the supply by way of or a part of any service or in any other manner whatsoever of food or any other article for human consumption or any drink, intoxicating or otherwise, will be included in the tax on sale or purchase of goods. The learned Counsel argues that this tax is directly covered by Entry 54 as such the supply of food is deemed to be a sale thereof by the person making the supply by way of a service. The argument is extremely attractive. 29. By way of a reply, the learned Senior Counsel for the Department, however, suggested that Art. 366(29A)(f) will have no application as the concept of service envisaged in that clause is entirely different from the concept of service, which is covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of (a) ... (not relevant) ... and (b) food or drink by the hotel whether at the hotel or outside or by any other person at hotel. The learned Counsel further argues that entry 54 of List II fell directly for consideration, which would be clear from the references to it in paragraphs 10, 11, 13 and 19 of the Apex Court's judgment. While the references in paragraphs 10 and 11 pertain to the contentions raised, in paragraphs 13 and 19, the Supreme Court discusses the aspect of sale of goods. In paragraph 13, the Supreme Court says : "The crucial questions, therefore, are whether the economists concept of such a tax qualifies and conditions the legislative power and, more importantly, whether "expenditure" laid out on what may be assumed to be "luxuries" or on the purchase of goods admits of being isolated and identified as a distinct aspect susceptible of recognition as a distinct field of tax legislation." (Emphasis supplied) In paragraph 19, the Court records the finding in the following words : "The submissions of the learned Attorney General that the tax is essentially a tax on expenditure and not on luxuries or sale of goods falling within the State power must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and point out that in the present matters also, the aspect of service is totally "independent of" and "distinct" from the aspect of "supply of food or drink" as the case may be. In the Federation of Hotels and Restaurants case, cited supra, also the question which fell for consideration was as to whether the tax on "expenditure" was validly imposed by the Parliament when the said expenditure pertained to food or drink supplied by the hotel whether at the hotel or outside or by any other person at the hotel. Mr. Chandrasekharan argues very forcefully that in spite of the striking similarity of the language in between Sec. 5 of the Expenditure Act and clause (f) of Art. 366(29A), there could be simply no question of the said tax being covered under entry 54 of the State List (List II) for the simple reason, the Supreme Court had found that the aspect of expenditure was "distinct and separate". In the same manner, the learned Counsel points out that the aspect of service is totally "distinct and separate" in the present case. 32. We feel that the aspect of service is extremely important and can be viewed as a "distinct and independent aspect" from the very language of Sec. 65(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tence of the legislature. In Sainik Motors v. State of Rajasthan (1962) 1 SCR 517 : AIR 1961 S.C. 1480, the provisions of a State law levying a tax on passengers and goods under entry 56 of List were assailed on the ground that the State was in the guise of taxing passengers and goods, in substance and reality taxing the income of the stage carriage operators, or, at any rate, was taxing the "fares and freights", both outside of its powers. It was pointed out that the operators were required to pay the tax calculated at a rate related to the value of the fare and freight. Repelling the contention, Hidayatullah, J. speaking for the Court, said (at p.1484 of AIR 1961 S.C.) : "... we do not agree that the Act in its pith and substance, lays the tax upon income and not upon passengers and goods. Section 3, in respect of all passengers carried and goods transported by motor vehicles and though the measure of the tax is furnished by the amount of fare and freight charged, it does not cease to be a tax on passengers and goods..." We have already pointed out that the majority judgment in paragraph 19 has specifically held as follows : "The submissions of the learned Attorney Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dap". The Apex Court has, on more than one occasions, pointed out that there could be two levies by two separate enactments and that by itself would not be a vitiating factor. 34. There is one more reason why we say that this "service" is "distinct and separate". It will be seen that in the definition of "caterer", which we have already quoted above, provides that it means "any person who supplies, either directly or indirectly, any food, edible preparations, alcoholic and non-alcoholic beverages or crockery and similar articles or accoutrements for any purpose or occasion". It can, therefore, be said that "catering service" could be given even without the supply of food, drink, etc. because even if a "mandap keeper" provides the services by supplying the crockery and similar articles or accoutrements and does not choose to supply food, drink, etc., which the customer may arrange himself, the "service" which has been given by the "mandap keeper" would still be that of a "caterer". Therefore, it is not necessary that every catering service must include the supply of food, drink, etc. and the charges for catering would be the price of food, drink, etc. supplied by the caterer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th this "distinct aspect" of "service". 37. A reference came to be made to the decisions reported in JT 2000 (1) S.C. 498 ( M/s. Rainbow Colour Lab. v. State of Madhya Pradesh ) and 2001 (128) E.L.T. 21 (S.C.) = JT 2001 (2) S.C. 141 ( M/s. Associated Cement Companies Ltd . v. Commissioner of Customs ). Both the decisions and more particularly the decision in Associated Cement Companies case would be really of no consequence as all that it provides is that after the introduction of the Forty-sixth Amendment, there cannot be a splitting of the works contract. The Apex Court holds in paragraphs 24, 25 and 26 that the conclusion arrived at in Rainbow Colour Lab case runs counter to the express provision contained in Art. 366(29A) as also of the Constitution Bench decision in Builders Association of India case, cited supra. We are not concerned with the splitting of any works contract here. We have no hesitation in holding that the supply of food, drink, etc. by the mandap keeper may attract "sales tax". We do not say that such supply will not attract "sales tax" because it is a "service" of a different kind. On the other hand, we say that though it may attract the "sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se-laws, it will be better to consider the language of Sections 65(22) and (23) of the Finance Act. 40. The objection by the learned Counsel for the petitioners is that there is no guidance as to which kind of function would be "social", "official" or "business", which would come in the dragnet of the Finance Act. In fact, according to us, there is nothing confusing in the sections which requires any explanation. When any provision is to by understood, the first rule is that it has to be understood by its reference to the language. The terms given in the provisions clearly are to be understood by their plain meaning which are understood ordinarily. We do not think there is any difficulty about understanding as to what kind of function would be the "official function", "social function" or "business function". Again, there is a complete machinery given in the Act to decide the nature of the function. If a "mandap keeper" seeks any exemption or contends that the function for which he has provided the service of the user of the mandap is not of the nature covered by sub-sections (22) or (23), it would be for the assessee to claim any exemption and it would be for the authorities t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry; that exact wisdom and nice adaptation of remedy are not always possible and that judgment is largely a prophecy based on meagre and uninterpreted experience." Similarly, in the same decision, the following observations in Kesavananda Bharati v. State of Kerala [1973 (4) SCC 225] were also approved. The observations are quoted in paragraph 88 of the judgment. They are : "In exercising the power of judicial review, the Courts cannot be oblivious of the practical needs of the government. The door has to be left open for trial and error. Constitutional law like other mortal contrivances has to take some chances. Opportunity must be allowed for vindicating reasonable belief by experience." We do not, therefore, find that the legislature has done anything wrong in bringing the "social function", "official function" and "business function" alone in the dragnet of service tax while leaving other kinds of functions, if any. 42A. As regards the contention of the "language" of the provisions, let us now c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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