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TMI Blog2016 (4) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... lved, when the facilities for amusement is offered for a price cannot be ignored. The Union Parliament's power to levy such tax by an appropriate enactment cannot also be effaced merely for the reason that amusements are covered under Entry 62. This Court, with due respect, is unable to agree with the extracted statement, since the Union Parliament quite aware of their power and the fields available under List I and List II would not have included “amusement” in the Negative List only for the reason that that is a field in which the State has the power to levy tax. This is because even dehors inclusion in the Negative List the Parliament would not be able to trench upon the field specifically set apart for the States under List II. Amusement facility, as defined under Section 65B(9), are facilities wherein exclusively rides, gaming devices, water and theme parks and so on and so forth are made available for fun or recreation. The Negative List also did not refer to “amusement”, but tax on admission on entry of such events quite understanding the power to levy service tax on such facilities offered by one to another for a consideration. The tax now levied on the admissions cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Seventh Schedule of the Constitution] deals with taxes on luxuries, including taxes on entertainments, amusements, betting and gambling . The State has also brought out the Kerala Local Authorities Entertainments Tax Act, 1961 [hereinafter referred to as State Act of 1961 ], wherein Section 3, the charging section, provides for levy of tax and the rate of tax; the same being on the price for admission to any entertainment at a rate not less than 24% and not exceeding 48%. The measure applicable to amusement parks; is separately provided under Section 3B, a non-obstante clause; different from that provided under the charging section. The measure for levy of entertainment tax, annually, is based on the investment and area in which such park is situated, at the rates fixed by the local authority within the range of rates provided in the table,. The levy now imposed as service tax by the Amendment of 2012 in the Finance Act, 1994 is on the price on admission and access to such amusement parks, which trench upon the State's powers, is the contention of the petitioners herein. 3. I have heard both learned Counsel appearing for the petitioners and both the learned Standing C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the persons admitted, regaling themselves in various activities which tend to amuse and entertain those individuals. The bulwark of the submissions made by the petitioners is based on the decision of a learned Single Judge of this Court in Kerala Classified Hotels and Resorts Assn. Ors. v. Union of India Ors. [2013 (3) KLJ 354], which was affirmed by a Division Bench in Union of India v. Kerala Bar Hotels Association [2015(1) ILR Kerala 267]. 6. The petitioners specifically rely on the second part of the challenge raised in the aforesaid case with respect to the levy on services in a hotel, guest house, etc. in relation to providing for accommodation for a continuous period of less than three months as included in the Finance Act, 1994 under sub-clause (zzzzw) of Clause 105 of Section 65 of the Finance Act, 1994 as it stood then. The challenge was on the question of Union Parliament having trenched upon the power of the State Government to tax luxuries under Entry 62 of List II. The reasoning would be identical in the present case and, hence, the writ petitions are to be allowed, following the binding precedent of the judgment of the learned Single Judge as affirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. The petitioners rely on the declaration found in para 129 (9): The residuary power of legislation in the field of taxation spelled out by Article 248 (2) and Entry 97 in List I can be applied only to such subjects as are not included in Entries 45 to 63 of List II (sic) . Amusements being covered under Entry 62 of List II no power can be traced to the residuary power to tax the very same activity is the long and short of the petitioners argument. 9. Even before the concept of service tax was introduced, the question of both the Union and the States taxing the very same transaction arose with respect to the expenditure tax levied under Entry 97 of List I and the luxury tax levied under Entry 62 of List II. Federation of Hotel Restaurant Association of India, Etc. v. Union of India [(1989) 3 SCC 634] challenged the vires of the Expenditure Tax Act, 1987 [hereinafter referred to as Expenditure Tax Act ], on grounds of lack of legislative competence, which was sought to be sustained by the Union under 248 (2) read with Entry 97 of List I. Tax on expenditure was sought to be imposed on the class of hotels or lodging houses where the room charges for any unit of residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist I should be the last refuge and would be available only if the other entries in List II and List III do not cover the topic was answered in the following manner, in paragraph 39: 39. Petitioners' reference to legislative practice as determining the scope of the present legislation does not assist them. There are two infirmities in the contention. The first is that the question of legislative practice as to what a particular legislative entry could be held to embrace is inapposite while dealing with a tax which is sui generis or nondescript imposed in exercise of the residuary powers so long as such tax is not specifically enumerated in Lists II and III. Secondly, there is no conclusive material indicating that the appropriate legislature had limited the notion of a tax of this kind within any confines It is relevant to recall the words of Lord Uthwatt in Wallace Brothers case [AIR 1948 PC 118] quoted in State of Madras v. Gannon Dunkerley Co. [AIR 1958 SC 560]: The point of the reference is emphatically not to seek a pattern to which a due exercise of the power must conform. The object is to ascertain the general conception involved in the words in the enablin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fereed to on the specific levy of service tax are Gujarat Ambuja Cements Ltd. v. Union of India [(2005) 4 SCC 214], Bharat Sanchar Nigam Ltd. v. Union of India [(2006) 3 SCC 1], All-India Federation of Tax Practitioners and Others v. Union of India and Others [(2007) 7 SCC 527] and Association of Leasing and Financial Service Companies. v. Union of India [(2011) 2 SCC 352]. 16. Gujarat Ambuja Cements Ltd. ( supra ) was a challenge against the services rendered, by a clearing and forwarding agent and a goods transporter, being treated as 'taxable services' under the Finance Act, 1994. The argument was that the tax levied under Entry 97 List I was in fact a tax on the transport of goods impinging upon Entry 56 List II. It was succinctly stated: Legislative competence is to be determined with reference to the object of the levy and not with reference to its incidence or machinery (sic-para 27). Drawing such a distinction it was held that the object of taxation under Entry 56 List II, are goods and passengers, while that under Entry 97 List I, was the service provided of transportation for a consideration. Aspect theory was applied to uphold the levy. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which tax was on their 'profession'. The Hon'ble Supreme Court considered the evolution of service tax and termed it a destination based consumption tax as is seen from paragraphs 6 and 7 of the said judgment: 6. At this stage, we may refer to the concept of Value Added Tax (VAT), which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer. 7. In the light of what is stated above, it is clear that service tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax . Service tax was held to be an economic concept, evolved on account of the service industry becoming a major contributor to the GDP of an economy, which resource was sought to be tapped with the Finance Act, 1994; providing further legal back up by the introduction of Article 268-A in the Constitution. As a concept of economics, it was found tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be a sale under Article 366(29-A)(c). Two distinct transactions were found to be in existence in leasing activities, a finance lease and an operating lease . The former was found to be one which transfers substantially all risks and rewards of ownership; and partakes the character of a mere funding of the purchase, bringing it within the definition of financial services. The income which the lessor earns by way of finance/interest charges in addition to the management fees, documentation charges etc. was the measure of tax, for the purpose of calculating the value of taxable services under the Finance Act was the finding. The principal amounts repaid by the lessee was found to be outside the service tax net since that was not the consideration for services rendered. The additional reasoning was that the principal amounts repaid, were credited to the capital account of the lessor/service provider. The interest or finance charges and the management/ processing/ documentation fees/ charges were credited to the revenue account of the service provider; which was the consideration for service provided on which service tax was payable, held the Hon'ble Supreme Court. 21. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that capacity; or (C) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section. Explanation 2.- For the purposes of this Chapter,- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Explanation 3.- A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory . (51) taxable service means any service on which service tax is leviable under section 66B . 23. The definition of service is all encompassing; bringing within it, any activity carried out by a person for another for consideration . Interesting is the fact that even the activity carried on by Courts for which a 'fee' was payable, was found to be includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [(1978) 4 SCC 36] and State of Punjab v. Associated Hotels of India Ltd. [(1972) 1 SCC 472] having held that the supply of food and beverages in a hotel is a part of service. It was held in BSNL ( supra ) that of the transactions covered under Article 366(29-A); only works contract and the supply of food and beverages; could have, within the same transaction an element of supply and sale. By the constitutional amendment the entire activity i.e., the service of providing food and beverages was deemed to be a sale of goods. After having created such a fiction, there could be no further fiction employed so as to demarcate a separate service element which could be taxed under the residuary entry under List I by the Union was the finding in K. Damodarasamy Bros Vs. State of T.N. (2000) 1 SCC 521; which was followed by the learned Single Judge and the Division Bench of this Court. 26. The issue herein stands on a totally different footing. There is no question of a deeming provision being employed herein. Here, the challenge is on the basis of the field having been covered by Entry 62 List II compreh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution of India, Sch VII List II, Entry 62, 63) . One cannot go by the dictionary meaning of amusement or entertainment, since it is a very subjective concept. Reading a book for some may be a luxury, given the constraints of time, for others, it could be a pastime and to still many an onerous task. An amusement as such indulged in by a person cannot be taxed since the definition mandates that there should be a consideration passed from one to another. Swimming could, for some, be an amusement and if carried out in a natural river or stream, there would not be any element of service nor would be there, passing of consideration. But, when a swimming pool is offered or the current in a river is simulated in an artificial water body and the person who owns and built it provides and offers the facility for a fee, then the partaking of the facility would result in the amusement of another. There is also definitely, an element of service in providing a facility, which would result in the enjoyment of an activity capable of being termed as an amusement or entertainment. The facility for the provider is not an amusement, but it is a service offered for a fee. The carrying on of an amu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong recognised that the measure employed for assessing a tax must not be confused with the nature of the tax. A tax has two elements: first, the person, thing or activity on which the tax is imposed, and second, the amount of tax. The amount may be measured in many ways; but a distinction between the subject-matter of a tax and the standard by which the amount of tax is measured must not be lost sight of. These are described respectively as the subject of a tax and the measure of a tax. It is true that the standard adopted as a measure of the levy may be indicative of the nature of the tax, but it does not necessarily determine it. The nature of the mechanism by which the tax is to be assessed is not decisive of the essential characteristic of the particular tax charged, though it may throw light on the general character of the tax . 31. A brief reference to the various decisions relied on by the Constitution Bench also would be apposite. The measure, of annual value of building, adopted for the purposes of levying building tax by the State and determining income from property under the Income Tax Act , were upheld holding that the identical measure did not detract from the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roads within the State, was sought to be levied, on the fare or rate, for the distance covered within the State. Interalia it was contended that the Parliament having exclusive legislative power over National Highway's under Entry 23 List I, such tax under the residuary clause could have been levied only by the Parliament and not by the State. The Hon'ble Supreme Court negatived such contention, finding that tax on goods and passengers were covered under Entry 56 List II and the nondescript residuary clause cannot be relied on to hold the State to have no competence under that entry. It was in that context that it was held: The federal nature of the constitution demands that an interpretation which would allow the exercise of legislative power by Parliament pursuant to the residuary powers vested in it to trench upon State legislation and which would thereby destroy or belittle State autonomy must be rejected . (para-7) 34. In the present case, no such contention can be taken, since the Supreme Court has time and again, after the Finance Act, 1994 came into force, upheld the tax levied on services as being available to the Union Parliament under the residuary cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmissions cannot also detract from the essential nature and character of the tax being one on the services; since it is only a measure and as has been held earlier, it would not determine the object of taxation. 36. In addition to the afore-cited judgments on the issue of measure of levy not being determinative of the character of levy, Gujarat Ambuja Cements Ltd. ( supra ) assumes significance, insofar as the statement: 34.The point at which the collection of the tax is to be made is a question of legislative convenience and part of the machinery for realisation and recovery of the tax. The manner of the collection has been described as an accident of administration; it is not of the essence of the duty It will not change and does not affect the essential nature of the tax. Subject to the legislative competence of the taxing authority a duty can be imposed at the stage which the authority finds to be convenient and the most effective, whatever stage it may be. The Central Government is therefore legally competent to evolve a suitable machinery for collection of the service tax subject to the maintenance of a rational connection between the tax and the person on whom i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 62. The learned Single Judge has dealt with the issue in the following manner: 21. Coming to the next question regarding the imposition of service tax in respect of hotel, inn, guest house, club or camp site etc., the contention of the petitioners is based on Entry 62 of List II. What exactly is the meaning of the expression luxuries in Entry 62 of List II has been held by the Constitution Bench judgment of the Supreme Court in Godfrey Philips India Ltd. ( supra ), wherein it is held that luxuries is an activity of enjoyment or indulgence which is costly or which is generally recognised as being beyond the necessary requirements of an average member of the society. While giving the said meaning to Entry 62 and if we look at the sub Clause (zzzzw), the service tax is imposed on services provided in a hotel and other similar establishments when State Legislature had enacted the Kerala Tax on Luxuries Act by exercising their legislative power under Entry 62 of List II. When applying the dictum laid down in Godfrey Philips India Ltd . ( supra ) which gives an extended meaning to the word luxuries , I am of the view that the amendment now made to the service tax trenche ..... X X X X Extracts X X X X X X X X Extracts X X X X
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