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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 ..... 67(o) of the Finance Act, 1994 and Rule 2(1)(d)(ix) of the Service Tax Rules, 1994 and other provisions related to Kalyana Mandapams and Mandap-Keepers to be intra vires of 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rer." 9. It is relevant to mention here that some of the sub-sections of Section 65 were renumbered by the Finance Act 2 of 1998, which came into 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 collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 of S. 65 of the Finance Act, 1994 'Mandap' means any immovable property as defined in S. 3 of the Transfer of Property Act, 1882 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of 'Mandap' and 'Mandap-Keepers' would amply demonstrate that the impugned provisions are not within the domain of the Union and that 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration. and such transfer, delivery 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice tax on Mandap-Keepers, because the tax on land/or building is charged because such land and/or building exists irrespective of the fact whether they are used or not. Their very existence is taxable, whereas it is the use of the immovable property in a particular manner, which amounts to providing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 1 SCC 12] 2. M/s. J.K. Jute Mills Co. Ltd. v. The State of Uttar Pradesh and Another [1962] 2 SCR 1 3. M/s. Gannon Dunkerley and Co. and Others v. State of Rajasthan and Others [(1993) 1 SCC 364] 4. The State of Madras v. Gannon Dunkerley Co., ( Madras ) Ltd. [1959] SCR 379 5. The Sales Tax Officer, Pilibhit 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. High Land 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 lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [1988 (38) E.L.T. 535 (S.C.) = 1989 (3) SCC 488 at 513] and S.P. Mittal v. Union of India Ors . [1983 (1) SCC 51, 78, 79 and 82]. 36. The case of Goodyear India Ltd. Ors. v. State of Haryana Anr. [1990 (2) SCC 71] was relied upon by learned senior counsel for the appellant for the proposition that nomenclature of tax not conclusive for determining the true character or nature of a particular tax and that the Court will look into its pith and substance. He also relied 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. Broach Borough Municipality 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. Damodarasa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring within the ambit of taxation transactions, which could not be a sale in law. The following judgments and the principles laid down therein can be very well applied to the case on hand. 1. M/s. J.K. Jute Mills Co. Ltd. v. The State of U.P. Anr. [1962] 2 SCR 1; 2. M /s. Gannon Dunkerley Co. and Ors. v. State of Rajasthan Ors . (1993) 1 SCC 364; 3. The State of Madras v. Ganon Dunkerley Co. ( Madras ) Ltd. [1959] SCR 379; 4. The Sales Tax Officer, Pilibhit v. M/s. Budh Prakash Jai Prakash [1955] 1 SCR 243; 5. M/s. George Oakes (P) Ltd. v. State of Madras [1962] 2 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " and also the services "rendered as a caterer". The phrase "in relation to" has been construed by this Court to be of the widest amplitude. In M/s. Doypack Systems Pvt. Ltd. v. Union of India and Others - 1988 (36) E.L.T. 201 (S.C.) = (1988) 2 SCC 299 at 302, this Court observed as under : "The expressions 'pertaining to', 'in relation to' and 'arising out of', used in the deeming provision, are used in the expansive sense. The expression 'arising out of' has been used in the sense that it comprises purchase of shares and lands from income arising out of the Kanpur Undertaking. The words "pertaining to" and "in relation to" 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in relation thereto. No distinction from restaurants, hotels etc. which provide limited access to property for specific purpose. 51. It may be noted that in recent times the service sector has grown phenomenally all over the world and, therefore, it was recommended by Dr. Raja Chelliah Committee in the early 90s that it should be taxed. Pursuant thereto, service tax was first levied in 1994 by way of the Finance Act. The power to levy such tax can be traced to Sl. No. 97 of List I of Seventh Schedule and this Court in Laghu Udyog Bharati v. Union of India (1999) 112 E.L.T. 365 found no lack of legislative competence as far as the levy of 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase agreement of a right to use goods or property. The services provided by a mandap-keeper are professional services which he alone by virtue of his experience has the wherewithal to provide. A customer goes to a mandap-keeper, say a star hotel, not merely for the food that they will provide but for the entire variety of services provided therein which result in providing the function to be solemnized with the required effect and ambience. Similarly the services rendered by out door caterers is clearly distinguishable from the service rendered in a restaurant or hotel inasmuch as, in the case of outdoor catering service the food/eatables/drinks 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 personali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out earlier, the manner of service provided assumes predominance over the providing of food in such situations which is a definite indicator of the supremacy of the service aspect. The legislature in its wisdom noticed the said supremacy and identified the same as a potential region to collect indirect taxes. Moreover, it has been a well established judicial principle that so long as the legislation is in substance, on a matter assigned to a legislature enacting that statute, it must be held valid in its entirety even though it may trench upon matters beyond its competence. Incidental encroachment does not invalidate such a statute on the 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 power ..... X X X X Extracts X X X X X X X X Extracts X X X X
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