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TMI Blog2004 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution of India. 2. The appellant is an Association of various Kalyana Mandapams bearing Registration No. 513 of 1992. The appellant-Association has been formed to protect the interest of the owners of Kalyana Mandapams in the city of Madras and elsewhere in the State of Tamil Nadu. The owners of Kalyana Mandapams/Mandap-Keepers let out mandapas/premises to the clients. In addition to letting out the Kalyana Mandaps, the Mandap Keepers also provide other facilities such as catering, electricity, water etc. to their clients. 3. Service Tax was introduced in India vide the Finance Act, 1994. Service Tax is legislated by the Parliament under the residuary entry i.e. Entry 97 of List I of the Seventh Schedule of the Constitution of India. The service tax provisions have the following scheme. (i) Section 65 of the Act provides for taxable services; (ii) Section 66 of the Act provides for the charge of service tax by the person designated as "the person responsible for collecting the service tax" for the Government; (iii) Section 67 of the Act provides for the value of taxable service which is to be subjected to 5% Service tax, and (iv) Section 68 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force from 16-10-1998. Section 65(19) was renumbered as S. 65(22), while S. 65(20) was renumbered as S. 65(23). S. 65(41)(p) was renumbered as S. 65(48)(m). However, by the Finance Act, 1998 only the numbers were changed and the language of the provisions remained the same. 10. S. 66 of the Finance Act, 1994 was sought to be replaced by a new Section which is reproduced hereinbelow :- "S. 66(1). - On and from the commencement of this Chapter, there shall be charged a tax (hereinafter referred to as service tax) @ 5% of the value of the taxable services referred to in sub-clauses (a), (b) and (d) of Clause 41 of S. 65, which are provided to any person by the person responsible for collecting the service tax. (2) With effect from the date notified under S. 85 of the Finance Act (No. 2) 1996 there shall be charged a service tax at the rate of five per cent of the value of taxable services referred in sub-clauses (c) (e) and (f) of Clause (41) of Section 65 which are provided to any person by the person responsible for collecting the service tax. (3) With effect from the date notified under Section 84 of the Finance Act, 1997 there shall be charged a service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 and includes any furniture, fixtures, light fittings and floor coverings therein let out for consideration for organising any official, social or business function. The Trade Notice further stated that the scope of the said Notice was very wide and it included within its scope places like Kalyan Mandap, Marriage Halls, Banquet Halls, Conference Halls etc. and hotels and restaurants providing any such facilities would also be included in the coverage of service tax. 15. The said Notice also mentioned that where a Mandap-Keeper was providing catering services i.e. supply of food, in addition to letting out of a Mandap and charges the customer for supply of foods, service tax would be levied on 60% of the total amount of the Bill in such cases. 16. The appellant-Association submitted representations dated 29-3-1997 and 9-6-1997 to Respondent No. 2 citing out in detail the various problems and complication that might arise as a result of the said Notification and requested to desist from including the mandap-keepers within the Finance Act. Even though the said representations were duly acknowledged by Respondent No. 2, the same were not replied to. 17. On 4-2-199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the State Legislatures have the competence to levy taxes of this nature in exercise of its legislative powers under Entries 54, 49 and 18 of List II of the Seventh Schedule read with Article 246 of the Constitution; (c) The definition of 'Mandap' and 'Mandap-Keepers' are reproduced hereinbelow :- Sec. 65(19) 'Mandap' means any immovable property as defined in Section 3 of the Transfer of Property Act, 1882 and includes any furnitures, fixtures, light fittings and floor coverings therein let out for consideration for organizing any official, social or business function. Section 65(20) 'Mandap-Keeper' means a person who allows temporary occupation of a mandap for consideration for organizing any official, social or business function; (d) Under Service Tax Notice No. 4/99, any open land/ground is exigible to service tax if the same is let out for organizing any official, social or business function, even if no services whatsoever are rendered by the mandap-keeper. Therefore, the service tax levied on the mandap-keepers, is in fact a tax on land per se which is a subject specifically earmarked for the State Legislatures under Entries 18 and 49 of List II of the Constitution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, deliver or supply is made;" (j) Though the High Court appreciated this position, it erroneously invoked the 'Aspect Doctrine' as evolved by this Court in the case of Federation of Hotel and Restaurant v. Union of India & Ors. AIR 1990 SC 1637 and upheld the levy of service tax thus allowing the Parliament to encroach upon the subjects specifically demarcated for the State Legislatures under the Constitution. (k) If the reasonings given by the High Court were accepted, then it would empower the Parliament under Entry 97 of List-I to legislate even on the legislative fields specifically demarcated for the state legislatures in the Constitution, merely because such transactions have some element of providing service aspect in them. Therefore, this would lead to a violation of the federal taxing structure as envisaged in the Constitution. 24. In conclusion, he submitted that the Division Bench of the Madras High Court is not correct in its conclusion in the light of the scheme in the Constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of service has been made taxable. 28. It is also further submitted that the inclusion of the service rendered as a caterer in the definition is clearly beyond the "legislative competence" of the Parliament as that subject is covered in Entry 54 of List II. The learned senior counsel submitted that it is the service provided by the Mandap-Keeper as a Caterer' which is taxable and not the supply made by him of the food or drinks etc. and thus it is clear that the levy of service tax on Mandap-Keepers is not covered under Entry 54 of List II as contended by learned senior counsel for the appellant. 29. He would further urge that the term "Mandap" under service tax has been defined to mean any immovable property as defined in Section 3 of the Transfer of Property Act, 1882. Accordingly, any open land or ground is also an immovable property qualifying as mandap and when the same is let out for a specified purpose, service tax is chargeable and that the levy of service tax is not a subject matter covered under List II and is very much covered under residual power of the Union Parliament under Entry 97 of List I and Union Parliament is competent to levy service tax by vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... libhit v. Messrs. Budh Prakash Jai Prakash [1955] 1 SCR 243 6. M/s. George Oakes (P) Ltd. v. State of Madras[1962] 2 SCR 570 7. Doypack Systems Pvt. Ltd. v. Union of India and Others [1988 (Supp) SCC 792] 8. Regional Director, Employees' State Insurance Corporation v. HighLand Coffee Works of P.F.X. Saldanha and Sons and Another [(1991) 3 SCC 617] 9. Renusagar Power Co. Ltd. v. General Electric Company and Another [(1984) 4 SCC 679] 10. Thyssen Stahlunion GMBH v. Steel Authority of India Ltd. [(1999) 9 SCC 334] 11. Laghu Udyog Bharati v. Union of India [1999 (112) E.L.T 365] 12. Mafatlal Industries Ltd. and Others v. Union of India and Others [1997 (89) E.L.T. 247 (S.C.) = (1997) 5 SCC 536] 32. On the above factual and legal submissions made by both the parties, the following questions of law would emerge for our consideration :- (i) Whether the High Court was correct in coming to the conclusion that the provisions in the Finance Act, 1994 imposing service tax on the services rendered by the Mandap-Keepers are intra vires of the Constitution? (ii) Was the High Court correct in not construing the specific entries in List II viz. Entries 18, 49 and 54 by giving the wid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied on Synthetics & Chemicals Ltd. & Ors. v. State of U.P. & Ors. [1990 (1) SCC 109 at 153, 154] for the proposition that the taxing power can be derived only from specific taxing taxing entry in the legislative lists. 37. The following three decisions were cited on Entry 49, List II Taxes on Land and Buildings :- 1. Shri Prithvi Cotton Mills Ltd. & Anr. v. BroachBoroughMunicipality & Ors. [2000 (123) E.L.T. 3 (S.C.) = 1969 (2) SCC 283] 2. Ralla Ram v. The Province of East Punjab [AIR 1949 FC 81] 3. The Govt. of A.P. & Anr. v. Hindustan Machine Tools Ltd. [1975 (2) SCC 274] 38. The judgment in the case of K. Damodarasamy Naidu & Bros. and Ors. v. State of T.N. & Anr. reported in 2000 (1) SCC 521 at 528 para 8 & 9 was relied on for the proposition 'Sale' Article 366(29A)(b). 39. In the present case, service tax levied on services rendered by Mandap-Keeper as defined in the said Act under Sections 65, 66 and 67 of the Finance Act has been challenged by the appellants on the following two grounds : (a) That it amounts to the tax on land and, therefore, by reason of Entry 49 of List 2 of the Seventh Schedule of the Constitution, only the State Government is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCR 570. 43. In regard to the submission made on Article 366(29A)(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 includes the supply to services within the definition of sale and purchase of goods. This is particularly apparent from the following phrase contained in the said sub-article "such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods". In other words, the operative words of the said sub-article is supply of goods and it is only supply of food and drinks and ther articles for human consumption that is deemed to be a sale or purchase of goods. 44. The concept of catering admittedly includes the concept of rendering service. The fact that tax on the sale of the goods involved in the said service can be levied does not mean that a service tax cannot be levied on the service aspect of catering. Mr. Mohan Parasaran, learned senior counsel for the appellant submitted that the High Court before applying the aspect theory laid down by this Court in the case of Federation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the same wide meaning and have been used interchangeably for among other reasons, which may include avoidance of repetition of the same phrase in the same clause or sentence, a method followed in good drafting. The word 'pertain' is synonymous with the word 'relate'. The term 'relate' is also defined as meaning to bring into association or connection with. The expression 'in relation to' (so also 'pertaining to'), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might have both a direct significance as well as an indirect significance depending on the context." 47. In Renusagar Power Co. Ltd. v. General Electric Company and Another (1984) 4 SCC 679, this Court observed as under : "Expressions such as "arising out of" or "in respect of" or "in connection with" or "in relation to" or "in consequence of" or "concerning" or "relating to" the contract are of the widest amplitude and content and include even questions as to the existence validity and effect (scope) of the arbitration agreement." 48. In Thyssen Stahlunion GMBH v. Steel Authority of India Ltd. (1999) 9 SCC 334, this Court observed as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f service tax was concerned. 52. It is also emphasized that a tax cannot be struck down on the ground of lack of legislative competence by enquiring whether the definition accords what the layman's view of service. It is well settled that in matters of taxation laws, the court permits greater latitude to pick and chose objects and rates for taxation and has a wide discretion with regard there to. We may in this context refer to the decision of Mafatlal Industries Ltd. and Others v. Union of India and Others 1997 (89) E.L.T. 247 (S.C.) para 147 = (1997) 5 SCC 536 para 343 at page 740 "....In the matter of taxation laws, the court permits a great latitude to the discretion of the legislature. The State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation, if it does so reasonably. The courts view the laws relating to economic activities with greater latitude than other matters." 53. Therefore, a levy of service tax on a particular kind of service could not be struck down on the ground that it does not conform to a common understanding of the word "service" so long as it does not transgress any specific restriction contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinks are the choice of the person who partakes the services. He is free to choose the kind, quantum and manner in which the food is to be served. But in the case of restaurant, the customer's choice of foods is limited to the menu card. Again in the case of outdoor catering, customer is at liberty to choose the time and place where the food is to be served. In the case of an outdoor caterer, the customer negotiates each element of the catering service, including the price to be paid to the caterer. Outdoor catering has an element of personalized service provided to the customer. Clearly the service element is more weighty, visible and predominant in the case of outdoor catering. It cannot be considered as a case of sale of food and drink as in restaurant. Though the Service Tax is leviable on the gross amount charged by the mandap-keeper for services in relation to the use of a mandap and also on the charges for catering, the Government has decided to charge the same only on 60% of the gross amount charged by the mandap-keeper to the customer. 56. In the case of Additon Advertising v. Union of India [1998 (98) E.L.T. 14 (Guj HC DB)], the High Court of Gujarat rejected the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he grounds that it is beyond the competence of the legislature (Prafulla Kumar v. Bank of Commerce). Article 246(1) of the Constitution specifies that the Parliament has exclusive powers to make laws with respect 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 (State List). In respect of matters enumerated in List III (Concurrent List) both Parliament and State Government have powers to make laws. The service tax is made by Parliament under the above residuary powers. 58. The impugned Act was challenged on the ground that it infringed on the State's power to levy tax on luxury vide Entry 62 of the State List. 59. It would be appropriate to quote Mr. Justice Venkatachelliah who ruled that "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 transaction may involve two or more taxable events in its different aspects. But the fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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