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TMI Blog2017 (9) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... s visiting India as well as her neighbouring countries. They state that they enter into contracts with the foreign clients either directly or through foreign tour operators. Such contracts/bookings are generally made through phone calls or emails. The bookings are confirmed generally in writing by stating the cost and other terms and conditions. They make all arrangements for the foreign tourist including hotel accommodation, transport by all modes such as rail, tourist buses, monuments visits including entrance tickets, entertainment, food and restaurant bookings etc. Members of the Petitioner organize package tours which include a bouquet of services. It is stated that the foreign tourists/foreign tour operators make the entire payment for the package tour in convertible foreign exchange through bank transfer, or bank draft or credit card payment etc. 3. Sample copies of the invoices issued by the Indian tour operators to the foreign tourists for the period prior to 1st July 2012 and thereafter have been placed on record. Prior to insertion of Section 6A of the ST Rules with effect from 1st July 2012 tour operator services provided to foreign tourists was treated as 'Export of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... government is provided in Section 94. Section 94 (1) states that the central government may make rules for carrying out the provisions of Chapter V of the FA which pertained to service tax. Section 94 (2) permits the central government to make rules on matters specified therein "without prejudice to the generality of "the power under Section 94 (1). Section 94 (2) (f) permits the central government to make rules 'for determining export of taxable services'. 9. On the strength of Sections 93 and 94 (2) (f) of the FA, the central government issued the Export of Services Rules 2005 ('ESR 2005'). Rule 3 (1) (ii) ESR 2005 inter alia stated that "export of taxable services shall in relation to taxable services specified in sub-clause (n) of clause (105) of Section 65 of the Act, be provision of such services as are performed outside India". The proviso thereto stated that where such taxable service is partly performed outside India, "it shall be treated as performed outside India." 10. Rule 3 (2) of ESR 2005 initially stated that the provision of any taxable service specified in Rule 3 (1) shall be treated as export of service when the following conditions are satisfied, viz.: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed." Prior to its omission by way FA 2013, with effect from 1st May 2013, there was an Explanation to Section 66B which stated that "for the removal of doubts, it is hereby clarified that the references to the provisions of Section 66 in Chapter V of the Finance Act, 1994 or any other Act, for the purpose of levy and collection of service tax, shall be construed as references to the provisions of Section 66B." This entire Explanation has now been inserted as a separate provision, Section 66 BA. 18. A plain reading of the charging provision, Section 66 B of the FA, brings out the following facets: (i) Service tax is leviable on the value of all services "other than those services specified in the negative list." The negative list of services are set out in Section 66D of the FA, inserted again with effect from 1st July 2012. Tour operator services is not part of the negative list. (ii) Such service should be "provided or agreed to be provided" by one person to another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer only to 'taxable services." This is because in terms of Section 64 (3) of the FA Chapter V, in which Section 66 C is located, applies only to 'taxable services'. 22. In terms of Section 66C of the FA, the central government had made Place of Provision of Services Rules 2012 ('PPSR 2012'). Under Rule 3 of PPSR 2012, it is stated that "the place of provision of a service shall be the location of the recipient of service." The proviso thereto states that in case of services "other than online information and database access or retrieval services" where the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service. PPSR 2012 envisages the provision of service relating to the immovable property, events, and also performance based services. Rule 7 talks of place of services provided at more than one location. All these provisions talk of services in the taxable territory. They do not seek to describe export of services. Analysis of Rule 6A 23. It in the above background that Rule 6A of the ST Rules, inserted with effect from 1st July 2012, requires to be examined. Rule 6A reads as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r operator service could be exported without payment of service tax. Further the proviso to Rule 3 (1) (ii) of ESR 2005 stated that where such taxable service is partly performed outside India, "it shall be treated as performed outside India." This took care of composite tour operator services which may have been provided partly outside India and partly within India. They were entirely outside the ambit of service tax. Rule 6A of the ST Rules, which substitutes the repealed ESR 2005, however, changes this position. While clauses (a) to (c) of sub-rule (1) of Rule 6A is consistent with the pearlier description of 'export of services', clause (d) brings about a change inasmuch as it recognises only such tour operator service rendered outside India as 'export of service'. Further sub-rule (2) of Rule 6A states that the central government may by notification grant rebate of service tax or duty paid input services or inputs subject to conditions where there is an export of services. This pre-supposes that such provision of service outside India is in fact amenable to service tax. However, as already noticed, the entire Chapter V of the FA applies only to taxable services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn exchange. Representations by the Petitioner 29. It is stated that Indian tour operators through the Petitioner Association sought the extension of the benefit of export of services to tour operators. The Petitioner made a representation dated 22nd May 2012 to the Joint Secretary, TRU in the Ministry of Finance seeking exemption to the tour operators under the amended provisions based on foreign exchange earnings. It was inter alia contended that the principle of Export of Services cannot be changed year after year and that it should be defined through legislation by Parliament and not by the Rules. Since tour operators were earning huge foreign exchange for the country, they ought to be given the status of exporters of service. However, there was no response thereto. 30. It may be noted here that pursuant to an order dated 23rd August 2013 passed in the present case, the Petitioner filed an additional affidavit on 27th August 2013 bringing on record certain facts relevant to the functioning of the members of the Petitioner and the services provided by them. Inter alia it was pointed out that although payments were received in convertible foreign exchange the members of the Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... government. Reference was made to the decisions in Municipal Corporation of Delhi v. Birla Cotton Spinning & Weaving Mills AIR 1968 SC 1232 and Union of India v. Indian Charge Chrome 1999 (112) ELT 753 (SC). 34. Mr. Mittal submitted that if Section 94 (2) (f) of the FA was interpreted as permitting such delegation of essential legislative function, then Section 94 (2) (f) of the FA too would be vulnerable to invalidation on the ground that it was ultra vires the FA. Mr. Mittal submitted that as a result of having to pay service tax, which had to be passed on to the customers i.e. foreign tourists, the Indian tour operators were losing business to their foreign counterparts. It was further contended that Rule 6A was arbitrary, discriminatory and violative of Articles 14 and 19 (1) (g) of the Constitution of India. Submissions on behalf of the Respondents 35. Mr. Amit Bansal, learned counsel appearing for Respondent No. 3, Commissioner of Service Tax, submitted that in terms of Section 94 (1) of the FA it was permissible for the central government to make rules as long as they were consistent with the object and purpose of the FA. Mr. Bansal referred to the decisions in Pratap Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no standard or that there was plenary, unguided and uncontrolled delegation of the essential legislative function to the central government. The mere receipt of convertible foreign currency from foreigners cannot be the only criteria for determining whether the provision of services by tour operators to foreign tourists in India should be considered as export of services. Reliance was placed by Mr. Bansal on the decision in Subhash Photographics v. Union of India 1993 (66) ELT 3 (SC) where it was held that the Courts should not question the wisdom of government's policy and interfere with delegated legislation. Reference was also made to the decision in Avinder Singh v. State of Punjab (1979) 1 SCC 137. Challenge to Rule 6 A on the ground of excessive delegation 39. Rule 6A of the ST Rules is a piece of delegated of legislation. It is a rule made by the central government in exercise of the powers under Section 94 (1) read with Section 94 (2) (f) of the FA. The grounds on which delegated legislation can be challenged are well-settled and set out in G. P. Singh's Principles of Statutory Interpretation, 10th Edition as under: "Grounds for judicial review Delegated legislation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which power has not been conferred, it becomes ultra vires. The basic test is to determine and consider the source of power which is relatable to the rule. Similarly, a rule must be in accord with the parent statute as it cannot travel beyond it." 42. An essential legislative function cannot be delegated to the executive. It has to be exercised by the legislature. This was emphasized in the decision in Vasu Dev Singh v. Union of India (2006) 12 SCC 753 in the following words: "118. A statute can be amended, partially repealed or wholly repealed by the legislature only. The philosophy underlying a statute or the legislative policy, with the passage of time, may be altered but therefor only the legislature has the requisite power and not the executive. The delegated legislation must be exercised, it is trite, within the parameters of essential legislative policy. The question must be considered from another angle. Delegation of essential legislative function is impermissible. It is essential for the legislature to declare its legislative policy which can be gathered from the express words used in the statute or by necessary implication, having regard to the attending circumstances. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 94, what is not taxable under the FA cannot be made taxable, equally they cannot even by rules under Section 93 B. The words 'any other service' occurring in Section 93 B is subject to Section 64 (3) of the FA that precedes it. It cannot expand the scope of Chapter V itself. As already noted, this is an essential legislative function and cannot be delegated to the central government. 46. As already noticed Rule 6A (1) (d) treats even services provided outside the taxable territory i.e. where the place of provision of service is outside India, as an export of 'taxable' service. Since such service by virtue of Section 66B read with Section 65 (51) and (52) read with Section 64 (1) and (3) of the FA is not amenable to service tax in the first place, and is therefore not 'taxable' service, Rule 6A is ultra vires the FA. Even Section 94 (2) (hh) of the FA permits central government to determine when there would be an export of 'taxable service' and not 'non-taxable service.' Something which is impermissible under the FA cannot, by means of the rules made thereunder, be brought within the net of service tax. 47. Viewed from another angle, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is provided outside the taxable territory can also be included by Rule 6A of the ST Rules in determining what constitutes export of services. Thus not only Rule 6A but even Section 94 (2) (f) of the FA would also be unconstitutional if it were to be interpreted to permit determination of even export of non-taxable services not to talk of bringing to tax what is non-taxable under the FA. Taxability of composite services 51. At this juncture it is necessary to examine what is the types of service provided by the Indian tour operator to a foreign tourists when arranging for package tours not only in India but in the neighbouring countries as well. Let us take the example of an Indian tour operator organising a package tour for foreign tourists in India and its neighbouring countries say Nepal and Bhutan. Undoubtedly this would comprise a composite bouquet of services. This might involve several steps at each stage such as planning, scheduling and organising the tour. Incidental steps would include fixing the probable dates and venues, finalising the itinerary, booking of accommodation in hotels in India and foreign countries, making travel and transport arrangements, arranging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive function could not have been delegated to the central government. Once the Parliament determines by law what is amendable and not amenable to service tax, the modalities for working out the procedure for levy and collection of such tax can be left to the Rules. However, the question of whether certain services should be amenable to tax cannot be left to be determined by rules made by the central government. 54. The Courts will not ordinarily question legislative wisdom. However, the Courts will strike down delegated legislation that is ultra vires the parent statute. Even a legislative policy has to conform to the Constitution. In State of Rajasthan v. Basant Nahata (2005) 12 SCC 77 the Supreme Court explained: "66. The contention raised to the effect that this Court would not interfere with the policy decision is again devoid of any merit. A legislative policy must conform to the provisions of the constitutional mandates. Even otherwise a policy decision can be subjected to judicial review." Conclusion 55. For all the aforementioned reasons, the Court declares that: (i) Rule 6A (1) read with Section 6A (2) of the ST Rules, insofar as it seeks to describe export of tour op ..... X X X X Extracts X X X X X X X X Extracts X X X X
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