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TMI Blog2001 (4) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax-net. The services provided by the "Air Travel Agents" came to be brought into the tax-net by way of an amendment of Section 65 of the Finance Act. The "charging section" is Section 66(3) while the "measure of tax" is pro vided by Section 67(k). 3. We have deliberately quoted the prayer in the writ petitions because at the argument stage, the learned senior counsel did not address us on the constitutional questions raised in the petitions. In the writ petitions, these provisions have been challenged on the ground that they violate Article 19(1) (g) and also Article 14 of the Constitution. There is also a challenge to be found to the "legislative competence" and on that ground Section 65(3) and Section 67(k) of the Finance Act have been challenged. However, at the argument stage, the learned senior counsel abandoned the challenge regarding the "constitutionality" and restricted himself only to two propositions. The said propositions are: I. That Section 67(k) of the Finance Act, 1994 which provides for valuation of taxable services for charging service tax is inconsistent with the provisions of Section 65(3) arid Section 65(48) (i) which provisions 'define "Air Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice Tax Rules have framed. Rule 6 provides for "payment of service tax" and sub (7) thereof runs as under: 6(7) The person liable for paying the service tax in relation to the services provided by an air travel agent, shall have the option, to pay an amount calculated at the rate of 0.25% of the basic fare in the case of domestic bookings, and at the rate of 0.5% of the basic fare in the case of international bookings, of passage for travel by air, during any calendar month or quarter, as the case may be, towards the discharge of his service tax liability in stead of paying service tax at the rate of five per cent of the value of taxable service rendered by him and the option, once exercised, shall apply uniformly in respect of all the bookings of passage for travel by air made by him and shall not be changed during a financial year under any circum- stances. Explanation. - For the purposes of this sub-rule, the expression 'basic-fare' means that part of the air fare on which commission is normally paid to the air travel agent by the airline. 6. On the backdrop of these provisions, it will be our task to test the claim of the petitioners. 7. Mr. C. Natarajan, the learned se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 65(48) (l) suggest that this is a tax on the services offered by the air travel agents to the customers in relation to booking of passages for travel by air, the "measure of the tax" is against the commission which the air travel agents earn not because of the services that they offer under Section 65(48) (l) but on the commission that they earn on account of their services to the airlines. The learned counsel argues that the commission is given only to promote the business of the airlines or air carriers on the basis of an agreement in between the air travel agents and the air lines. Therefore, the basic submission is that the commission received from the airlines by the air travel agents is basically for the promotion of the business of the airlines and the tax cannot be charged against this commission which has got nothing to do with the services offered by the air travel agents to their customers in booking of passages. 11. The further argument is that Section 66, which is the "charging Section", levies the tax at the rate of five per cent "on the value of taxable service" under Section 65(48)(l) and it must operate on the taxable service referred to in the definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved is correct. The learned senior counsel appearing on behalf of the petitioners argues that the commission that the air travel agents earn from the airlines is not on account of the services that they give to the air-travellers but because they procure business for the airlines. This is the basic submission. Now, it is obvious that the airlines give the commission to the air travel agents and undoubtedly the air travel agents provide business for the air-lines. However, it has to be noted that unless the air travel agents provide a service to the customers, there would be no question of their getting a commission from the airlines. It is not as if the air travel agents get a fixed commission or in come from the airlines irrespective of the passages booked by them in favour of the customers in the nature of a "retainer fee" or "guarantee money", at least that is not the case pleaded before us. Therefore, unless the air travel agents book the tickets and thereby unless they provide the services to the customers, they do r become entitled to any commission. Their commission is entirely depended on and connected with the passage they book for the customers. It cannot, therefore, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn for measuring the liability under the levy must bear a relationship to the nature of the levy. In the case before us, however, we find that the nexus with the tea estate is lost altogether in the provisions for exemption or reduction of the levy and that throughout the nexus is confined to despatches of tea rather than related to the tea estate…… .....While there must always be a nexus between the subject of the levy and the measure of the levy that nexus extends into different dimensions. Variations considered appropriate for the purpose of determining the measure must correspond to variations in the subject of the levy. …. …..When the provisions before us are examined in their totality, we find no such relationship or nexus between the tea estate and the varied treatment accorded in respect of despatches of different kinds of tea." 16. In our opinion, the observations made in Buxa Dooars Tea Co. Ltd. case, cited supra, and more particularly those in paragraph 11 thereof cannot be read out of context. The situation regarding the levy and the measure of the tax was entirely different. It was found as a fact that the measure of the tax had no nexus with levy therein. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can pay the amount calculated at the rate of 0.25% of the basic fare in case of domestic bookings and at the rate of 0.5% of the basic fare case of international bookings of passage of travel by air during any calendar month or quarter towards the discharge of his service tax liability, instead of paying the service tax at the rate of five per cent of the value of the taxable service rendered by him and such option once exercised is to apply uniformly in respect the bookings of passages of travel by air made by such agent and is not to be changed during the financial year under any circumstances. This would in short mean that instead of calculating the tax at the rate of 5% of the commission that air travel agent receives from the airlines and then paying the tax, the air travel agent can have the option of paying the tax per month or per quarter calculating it in the manner stated above. According to the learned counsel, this rule is totally unconnected with and contradictory to the charging section and amounts to a "levy". The argument goes further and suggests that this method amounts to a different levy than what is suggested by the main provision. It s also suggested that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rule is provided for giving a benefit to a taxpayer and indeed the taxpayers have chosen to go by these rules because it is beneficial to them to go by these rule. 22. The further argument is that there is a specific power under Section 93 of the Act whereby the Government can grant the exemption and this being a beneficial rule amounts to a partial exemption. Therefore, when Section 93 is read with Section 94, there is ample powers in the Government to enact and an argument that this rule is beyond the "rule making power" is totally incorrect. 23. It is then contended that the rule pertains to only the collection and cannot be said to be an independent levy. According to the learned counsel, as per Section 94(2)(a), the rule provides for an alternative way of collection which is of beneficial nature. The learned counsel relies on the decision reported in AIR 1962 SC 204 (Chandrakant Krishnarao Pradhan v. Jasjit Singh). 24. We will first consider as to whether the petitioners can justifiably challenge the said rule, which is in the nature of an "option". In this behalf, the Supreme Court in Builders' Association of India case, cited supra, while considering the "legislati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnate method of taxation. The following observations of the Supreme Court in Builders' Association of India case, cited supra, are apposite in this behalf: "It must yet be remembered that the method of taxation introduced by subs sections (7) and (7A) is in the nature of composition of tax payable under Section 5(1)(iv). The impugned sub-sections have evolved a convenient, hassle-free and simple method of assessment just as the system of levy of entertainment tax on the gross collection capacity of the cinema theatres. By opting to this alternate method, the contractor saves himself the botheration of book-keeping, assessment, appeals and all that it means. It is not necessary to enquire and determine the extent or value of goods which have been transferred in the course of execution of a works contract, the rate applicable to them and so on. For example, under sub-section (7), the contractor pays two per cent of the total value of the contract by way of tax and he is done with all the above-mentioned botheration. The rate of two per cent prescribed by sub-section (7) is far lower than the rates in First, Second and Fifth Schedules referred to in Section 5(1) (iv) (a). In short, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem. 30. Our attention was invited to the decisions reported in AIR 1955 SC 123 (Behram Khurshid v. Bombay State); AIR 1959 SC 149 (Basheshar Nath v. Com missioner of Income Tax, Delhi Rajasthan); AIR 1986 SC 180 (Olga Tollis v. Bombay Municipal Corpn.) and AIR 1998 (6) SCC 507 (P.R. Deshpande v. Maruthi Balaram Haibatti) and it was suggested that since these cases were not taken into consideration in the aforementioned decision of Builders' Association of India case, cited supra, it must be taken that the law laid down in Builders' Association of India case is not correct. 31. It is not for us to comment on the Supreme Court judgment in the manner the petitioners would want us to do. In the decision reported in 1997 (8) SCC 176 (Mahesh Kumar Saharia v. State of Nagaland), the Apex Court has specifically held and approved the earlier observations to the following effect: "The binding effect of a decision does not de upon whether a particular argument was considered therein or not, provided that the point with reference to which an argument was subsequently advanced was actually decided." Again in the decision reported in 1970 (2) SCC 267 para 4 (R.M. Lakhani v. Municipal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the special topics mentioned there for furthering some of the purposes of the other parts of the Act. The learned counsel invited our attention to the following observations: "Thus, if it is necessary the agents must carry out certain provisions of the Act, a rule can be made in the exercise of the two powers together. Though the impugned rules are headed as framed under Section 202 of the Sea Customs Act, they cannot be questioned, if they carry out not only the special purposes of Section 202 but also certain other purposes of the Act because the two powers will concur to sustain them. It is only when a rule or rules are pointed out which subserve neither the special purpose of the section nor the general purposes of the Act that they can be successfully questioned." Here also according to the learned counsel the Rule 6(7) which is more beneficial to the taxpayer serves the purpose of Section 93 which is a general power wherein there is a power to grant exemption or concession in the service tax. The learned counsel argues and rightly that the rule is obviously beneficial and that is why it was opted by most of the air travel agents. It is also pointed out that the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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