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TMI Blog2020 (1) TMI 974X X X X Extracts X X X X X X X X Extracts X X X X ..... TION NO. 10479 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 10480 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 10957 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 11410 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 11732 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 11885 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 11887 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 11889 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 12681 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 16313 of 2018 With R/SPECIAL CIVIL APPLICATION NO. 652 of 2019 With CIVIL APPLICATION NO.1 of 2019 in R/SPECIAL CIVIL APPLICATION NO. 11410 of 2019 MR SHASHANK SHEKHAR with M/S. PARITOSH GUPTA AND MIHIR GUPTE for the Petitioner(s) in SCA No.11410 of 2019. DR C.MANICKAM with M/s. AJAYKUMAR GUPTA AND GAURAV K.LAKHWANI for the Petitioner(s) in SCA No.6117 of 2019. MR TUSHAR P.HEMANI, SR.ADVOCATE with M/S.VIJAY H.PATEL AND APURVA MEHTA for the Petitioner(s) in SCA Nos.92849282 of 2019. MR V.SRIDHARAN, SR.ADVOCATE with M/S.JIGAR SHAH AND ANAND NAINAWATI for the Petitioner(s) in SCA No.7330 of 2019. MS AMRITA M.THAKORE for the Petitioner(s) in SCA No.11732 of 2019. MR PARESH M.DAVE with AMAL PARESH DAVE for the Petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Mr.Apurva Mehta, Mr.Shashank Shekhar with Mr.Paritosh Gupta and Mr.Uchit Sheth. 6. We also heard Mr.Nirzar S.Desai, Mr.Parth H.Bhatt, Mr.Ankit Shah and Mr.Dhaval D.Vyas, the learned standing counsel appearing for the Union of India. 7. For the sake of convenience, we treat the Special Civil Application No.726 of 2019 as the lead matter. 8. By this writ-application under Article 226 of the Constitution of India, the writ-applicant, a company engaged in the business of import of non-cooking coal from Indonesia, South Africa and U.S.A., has prayed for the following reliefs : "(A) ...this Hon'ble High Court be pleased to issue a writ of certiorari/mandamus or any other appropriate writ/order/direction against the Respondents by quashing the impugned Notification No.8/2017-Integrated Tax (Rate), dated 28.6.2017 and Entry 10 of the Notification No.10/2017-Integrated Tax (Rate), dated 28.6.2017 by declaring that same lack legislative competency, ultra vires to the Integrated Goods and Services Tax Act, 2017 and hence unconstitutional; (B) this Hon'ble High Court be pleased to issue a writ of certiorari/mandamus or any other appropriate writ/order/direction against the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght on which customs duty is demanded and paid. The writ-applicant is liable to pay integrated tax in terms of provisions of the Integrated Goods and Services Tax Act, 2017 (IGST/Integrated Tax Act) and accordingly the writ-applicant is paying the integrated tax at the time of import itself, which also includes value of Ocean Freight involved in imported coal. 11. The respondent no.1 is responsible for the implementation of the Central Goods and Services Tax Act, 2017 (for short, 'the CGST') and the Integrated Goods and Services Tax Act, 2017 (for short, 'the IGST') and has also issued the Notifications in question under the said Acts. 12. The respondent no.2 is a constitutional body constituted under Article 279A of the Constitution of India, as made applicable w.e.f. 12.9.2016, and it is mandatory on the part of the respondent no.2 to make recommendations on various matters relating to the Goods and Services Tax (GST) and further provisions have been made under the respective GST laws, whereby the respondent no.1 have to act on the recommendations of the respondent no.2. To the best of the knowledge of the writ-applicant, the respondent no.2 has not placed, at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of such freight. It is similar to the purchases of coal on CIF basis; 16. The writ-applicant discharges the customs duty on the imported coal at the time of importation and such customs duty is paid on the value of the imported coal which includes the value of Ocean Freight, as determined on the value under Section 14 of the Customs Act, 1962 and Rules made thereunder. IGST PAID ON IMPORT : 17. The writ-applicant, at the time of importation, in addition to the customs duty, pays the 'Integrated Tax' (known as IGST) under the IGST Act, 2017, on the imported coal on the value as determined under the Customs Tariff Act, 1975 (vide proviso to Section 5(1) of the IGST Act, 2017). The said value also includes the value of the Ocean Freight, when the goods are purchased on FOB basis, whereas in case of goods purchased on CIF basis, the cost itself is the sum of cost, insurance and freight basis. SUBMISSIONS ON BEHALF OF THE WRIT-APPLICANT : 18. Mr.Mittal, the learned senior counsel assisted by Mr.Modh made the following submissions : No levy, but for the impugned Notifications, is ultra vires to the IGST Act and on the supply made beyond the territory to which the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 2018, extend its operation to offence committed outside India. Therefore, the IGST Act, 2017, which is not extended to the supply made outside India, through the impugned Notifications, cannot be brought to tax. Therefore, the levy has been imposed but for the impugned Notifications, on the supply which happened outside India, which is impermissible under the law. Therefore, the impugned Notifications lack the legislative competency, ultra vires to the IGST Act, 2017, and are liable to be quashed. The principle of extra-territorial levy applies to both; CIF and FOB purchases : 23. In case of purchases made on the CIF basis, indisputably, both, the service provider and the service recipients are outside India and the writ-applicant - purchaser is concerned only with the purchases of goods and having no idea of payments made towards the freight for vessel. Therefore, the supply has happened outside India. Similarly, when purchases are made on FOB basis by the writ-applicant, the Ocean Freight is paid by the writ-applicant to the foreign shipping line. The transportation of goods by a vessel is done from a place outside India upto the port in India. Thus, the supply h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the charges for the same, which is the sole responsibility of the supplier of the coal outside India. 27. First, in the Act, there is no concept of 'taxable service', which has been the concept only in the erstwhile Finance Act, 1994, to levy the service tax. 28. Secondly, through the delegated legislation there cannot be a deeming fiction to ascertain the value on which the tax is payable as it is an essential legislative function (see Indian Association of Tour Operators v. Union of India and others, reported in 2017(5) GSTL (Del.) (para 48). 29. Thirdly, as per the settled law, the vagueness in the measure or value on which the rate will be applied for computing the tax liability makes the levy fatal to its validity (see Govind Saran Ganga Saran v. CST, AIR 1985 SC 1041: 1985 Supp (1) SCC 205 (para 6) and also Mathuram Agrawal v. State of MP, AIR 2000 SC 109 : (1999)8 SCC 667 (para 12)). Therefore, the deeming fiction for the valuation inserted in the impugned Notification is illegal and liable to be quashed. 30. The expression 'service provided or agreed to be provided' used in Entry 9(ii) of the impugned Notification No.8/2017 is not to be found in the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to making a non-taxable supply as taxable supply, which is ultra vires to the Act itself. 33. Secondly, under the impugned Entry 10 of the Notification No.10/2017, the tax liability has been shifted on the 'importer' and not on the 'recipient', which is contrary to the provisions of Section 5(3) of the Act, under which the said Notification has been issued. 34. It is submitted that in Govind Saran Ganga Saran v. CST, AIR 1985 SC 1041 : 1985 Supp (1) SCC 205 (para 6), it has been held that any vagueness of the person on whom the levy is imposed and who is obliged to pay the tax make the levy fatal. Also referred to Mathuram Agrawal v. State of MP, AIR 2000 SC 109 : (1999)8 SCC 667 (para 12). 35. Therefore, the impugned Entry 10 of the Notification No.10/2017 - Integrated Tax (Rate), dated 28.6.2017, is ultra vires to sub-section (3) of Section 5 of the Act, under which the said Notification has been issued, and it also makes a non-taxable supply as taxable supply. Therefore, the same is liable to be quashed. The concept of 'Chapter', 'Section' or 'Heading' 'scheme of classification of services' or 'description of services' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to such chapter, section and heading and such scheme of classification has not been provided under the parent Act at all. Thus, the Notifications are beyond the scope of the Act and do not conform to the provisions of the statute under which these are issued. 40. It is argued that in General Officer Commanding-in-Chief v. Subhash Chandra Yadav (1988)2 SCC 351 (para 14), it was held that rule must conform to the statute and come within rule making power, if either of these two conditions is not fulfilled, the rule so framed would be void. 41. In Union of India v. S.Srinivasan, (2012)7 SCC 683, at page 690 (para 21) held that : '21....If a rule goes beyond the rule-making power conferred by the statute, the same has to be declared ultra vires'. However, the Respondents may justify that the impugned Notifications after their issuance have been placed before the Parliament, which is not tenable in law. 42. The Supreme Court in Hukam Chand v. Union of India, AIR 1972 SC 2427 held that : 'The fact that the rules framed under the Act have to be laid before each House of the Parliament would not confer validity on a rule if it is made not in conformity with Section 40 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy the 'rate', therefore, is totally misconstrued by the Respondents. (b) the said Notification No.8/2017 has also been issued referring to the power under clauses (iii) and (iv) of Section 20 of the IGST Act, 2017, whereas under these provisions, there is no power to issue any such notification but it only incorporate the provisions by reference of the CGST Act, 2017. (c) the said Notification No.8/2017 has also been issued referring to the provisions of Sections 15(5) and 16(1) of the Central Goods and Services Tax Act, 2017 (CGST Act), whereas under these provisions, there is no power to issue any such notification, but only to make the Rules, which have already been framed separately by the Respondents (Valuation Rules, under Section 15(5) and Input Tax Credit Rules, under Section 16(1) of the said Act) under Chapters IV and V of the CGST Rules, 2017, respectively. (d) the said Notification No.8/2017 has also been issued referring to Section 5(1) of the IGST Act, 2017, but it only empower to issue the notification to specify rates and not for any other purpose, whereas the notification is ultra vires to the Act, as already discussed in the preceding paras, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arise in India. The Court also observed that 'in cases such as this, where different severable parts of the composite contract is performed in different places, the principle of apportionment can be applied to determine which fiscal jurisdiction can tax that particular part of the transaction'. (iv) The Supreme Court in the case of Mathuram Agrawal v. State of MP, AIR 2000 SC 109, held that : '12... The statute should clearly and unambiguously convey the three components of the tax law, i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law'. (v) The Supreme Court in the case of Govind Saran Ganga Saran v. CST, AIR 1985 SC 1041, held that : '6... The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, namely, (1) it must conform to the provisions of the statute under which it is framed; and (2) it must also come within the scope and purview of the rule-making power of the authority framing the rule. If either of these two conditions is not fulfilled, the rule so framed would be void'. (xi) The Supreme Court in the case of Union of India v. S.Srinivasan, (2012)7 SCC 683, at page 690 (para 21) held that : '21... If a rule goes beyond the rule-making power conferred by the statute, the same has to be declared ultra vires'. SUBMISSIONS ON BEHALF OF THE UNION OF INDIA : 50. The learned standing counsel appearing for the Union of India have tendered written submissions. The written submissions are as under : 51. It is a settled legal preposition by now that a subordinate/ delegated legislation can be challenged only on the limited grounds as held by the Supreme Court in the case of State of T.N. and others v. P.Krishnamurthy and others, reported in 2006(4) SCC 517. The Supreme Court in paras 15 and 16 of the aforesaid judgment observed as under : "Whether the rule is valid in its entirety ? 15. There is a presumption in favour of constitutionality or valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is foreign shipping lines. In view of the requests from the Indian Shipping Industries and other stakeholders, to provide them the level playing field vis-a-vis the foreign shipping lines, service tax was imposed on the service of inward transportation of goods to enable the Indian shipping lines to use the ITC available with them, which they could not otherwise utilize, as outward transportation of the goods was also exempted from service tax. As per the Place of Provision of Services Rules, 2012, the service of export of goods was not leviable to the service tax as the place of provision of service was outside the taxable territory of India. However, the shipping lines were permitted to avail the ITC of the excise and service tax suffered on the input goods and/or services (i.e. the export of goods/services was zero rated). This ITC could be availed by the shipping lines for paying the service tax on the service of inward transportation of goods. 54. Subsequently, many representations were received from the shipping lines that in view of the levy of the service tax on the inward transport, FOB contracts were being converted to CIF contracts and these were being entered into in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is further submitted that the Supreme Court, relying upon the aspect theory, stated that since the tax was a tax on the event of service and not a levy on passengers and goods and since the service tax could only be imposed under Entry 97, List I, the Centre had the legislative competence to enact the law as the same related to taxation on service. Furthermore, the Supreme Court held that the imposition of tax by the Centre did not tantamount to usurpation of power of the State or a colorabale exercise of power and was not in violation of the doctrine of separation powers. The Parliament has the legislative competence to tax the service aspect even if the legislative competence to tax the other aspects involved in the transaction is vested with the State. The Supreme Court upheld the legislative competence in similar circumstances in a catena of decisions and in that view of the matter, it could be said that the legislative competence is there and therefore the challenge to the notifications is not sustainable in law. 59. The Supreme Court, in All India Federation of Tax Practitioners case cited in 2007 (7) S.T.R. 625 (S.C.), has held as follows :- In the light of what is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislations with respect to the extraterritorial aspects that do not have any direct or indirect, tangible or intangible impact(s) on or effects in or consequences for :- (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians. It stated that the Parliament is indeed limited with respect to the extra-territorial aspects, however, in 'such extraterritorial aspects or causes, only when such extra-territorial aspects or causes have, or are expected to have, some impact on, or effect in, or consequences for : (a) the territory of India; or (b) the interest of, welfare of well-being of or security of inhabitants of India, and Indians', the Parliament may exercise its legislative powers with respect to the extra-territorial aspects or causes which may occur naturally or on account of some human agency and can 'seek to control, modulate, mitigate or transform the effects of such extra-territorial aspects or causes, or in appropriate cases, eliminate or engender such extra-territorial aspects or causes'. "125. It is important for us to state and hold here that the powers of Legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional cost to the importer as the GST paid by the importer on the invert transportation of goods as well as on the import freight services is available to them as the ITC and are not adversely affected by this measure as it does not add to their cost. The impugned provision is aimed at collection of tax with minimum disruption. Since the importer of the goods is the beneficiary on whose behalf the impugned services are being taken by the foreign exporter from the foreign shipping line, both of which are outside the taxable territory of India, the tax on such services can be collected from the end-beneficiary or recipient of such services in accordance with Section 5(3) of the IGST Act, 2017. 66. The Supreme Court, in Gujarat Ambuja Cements Vs UOI 2005(182) ELT33 (SC) = 2005(182) BLT 33 SC, held that, '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 realization and recovery of the tax. Subject to the legislative competence of the Taxing Authority, a duty can be imposed at the stage which the authority finds it to be convenient and the most effective at whatever stages it may be. The Central Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and (c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied." 70. If the definition is read closely, after (c) in the later part of the definition, it is very categorically stated as under : "and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;" 71. The aforesaid portion of the definition indicates that the definition of the recipient is inclusive in nature and includes an agent acting on behalf of the recipient in relation to the goods or service or both, supplied. Now, in view of this, the definition of 'agent' can be seen as defined in Section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a principal supply, shall be treated as a supply of such principal supply; and (b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax." 75. Section 15 of the GST Act which is in respect of the value of taxable supply reads as under : "15. Value of taxable supply.- (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. (2) The value of supply shall include--- (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier; (b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are members of the same family; (b) the term "person" also includes legal persons; (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related." 76. It is submitted that if Sections 8 and 15 are read together, it suggests that, in case of a composite supply comprising of two or more supplies, one can be said to be the principal supply and shall be treated as supply of such principal supply, meaning thereby that if it is claimed that the supply is a principal supply, in that case, in the invoice, every services are required to be mentioned, and out of the services mentioned, one can be determined as a principal supply and the entire supply shall be treated as supply of such principal supply. Meaning thereby, a supply can be said to be a principal supply only in case if in the invoice all the supplies are separately mentioned and one of the supplies is identified as principal supply and not otherwise. In case of CIF, it is only the total value of the cost, insurance and freight are stated in the invoices and therefore, it cannot fall wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he foreign shipping line. Since the exports by the domestic shipping line are already zero rated, the ITC will not be available to Indian shipping lines if the service of inward transportation of goods is not made taxable in India. The domestic shipping lines would be put to disadvantage against the policy objective of 'Make in India'. Thus, there is rational nexus between the levy and its objective. 80. Section 3(7) of the Customs Tariff Act, 1975, provides for the levy of the IGST on the import of goods into India, on the value of the imported goods which shall be determined in accordance with Section 14 of the Customs Act, 1962. The term 'import of goods' [as per Section 2(10) of IGST Act] and 'imported goods' [as per Section 2(25) of the Customs Act] are overlapping. The term imported has been defined in Section 2(26) of the Customs Act as 'importer' in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner, beneficial owner or any person holding himself out to be the importer'. Thus, after a high sea sale, the importer for the purposes of levy of customs duty s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the high sea sales appropriating the contract price paid by the last high sea sales buyer into the customs valuation [see Circular No. 32/2004-Cus., dated 11.5.2004]. Further, in the Circular dated 01.08.2017, it has been stated that 'The council has decided that the IGST on high sea sale(s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation, i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, the value addition accruing in each such high sea sale shall form part of the value on which the IGST is collected at the time of clearance'. Therefore, from the above, it is amply clear that the buyer of the goods on high seas becomes the importer who is responsible for filing the bill of entry and is also the recipient of the service. 84. It is submitted that the supplier of the transportation service has not provided transportation service in piecemeal to the different buyers of goods and is a continuous service, the eventual recipient of the same being the 'importer' of such goods. Hence, the beneficial owner of the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14 of the Constitution. But it is well settled that a legislature in order to tax some need not tax all. It can adopt a reasonable classification of persons and things in imposing tax liabilities. A law of taxation cannot be termed as being discriminatory because different rates of taxation are prescribed in respect of different items, provided it is possible to hold that the said items belong to distinct and separate groups and that there is a reasonable nexus between the classification and the object to be achieved by the imposition of different rates of taxation. The mere fact that a tax falls more heavily on certain goods or persons may not result in its invalidity. As observed by this Court in Khandige Sham Bhat v. The Agricultural Income-tax Officer, (1963) 3 SCR 809: (AIR 1963 SC 591), in respect of taxation laws, the power of legislature to classify goods, things or persons are necessarily wide and flexible so as to enable it to adjust its system of taxation in all proper and reasonable ways. The Courts lean more readily in favour of upholding the constitutionality of a taxing law in view of the complexities involved in the social and economic life of the community. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to those which weighed with this Court in upholding the Mustard Oil Price Control Order, 1977, in Prag Ice and Oil Mills v. Union of India, (1978) 3 SCR 293(AIR 1978 SC 1296), ought to be applied in this case also. Though patent injustice to the operators of stage carriages in fixing lower returns on the tickets issued to passengers should not be encouraged, a reasonable return on investment or a reasonable rate of profits can not be the sine qua non of the validity of the order of the Government fixing the maximum fares which the operators may collect from their passengers. It cannot also be said that merely because a business becomes uneconomical as a consequence of a new levy, the new levy would amount to an unreasonable restriction on the fundamental right to carry on the said business. It is however, open to the State Government to make any modifications in the fares if it feels that there is a need to do so. But the impugned levy cannot be struck down on the ground that the operation of stage carriages has become uneconomical after the introduction of the impugned levy. Moreover the material placed by the petitioners is not also sufficient to decide whether the business has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d fact that there no separate consideration is charged. It is an admitted fact that there is no separate component paid by the purchaser/ importers for transportation of the goods and hence the demand of the department based on the premise that there was service rendered attracting the levy of the IGST is completely baseless and without merit. In support of the same, the writ-applicant further highlighted the provisions of the Customs Act and more specifically Section 14 of the Customs Act read with the Customs Valuation Rules to show that the value of the goods declared by the writ-applicant upon import of the goods is the CIF value and no separate value is declared for any transportation charges. The writ-applicants have discharged leviable customs duty and integrated goods and service tax on the import of the goods and there was no other amounts paid or payable by the writ-applicant. 90. Strong reliance has been placed upon Section 5 of the IGST Act which provides for levy and collection of the integrated tax on inter-state supply. Section 7 of the said Act, thereafter, provides for cases which are covered under the term 'inter-state supply'. Sub-section (4) to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recipient only when he is liable to pay consideration for such services. In the CIF cases, the purchaser/importer of goods does not have any contract or arrangement with the shipping line and therefore, the purchaser/importer can never be said to be the person who has paid the consideration for receipt of any services. Liability of payment of consideration, whether on single container basis, vessel basis or annual basis, is a matter of concern between the seller and the shipping line and it is the foreign seller who pays for the consideration and is de jure recipient of service. In support of the said submission, it was highlighted that the difference between the term 'pay' and 'bear' would have to be appreciated. As an ultimate recipient of the goods, the writ-applicant may have borne the expenses entailed for transportation of the goods in the cumulative price paid for the purchase of goods on CIF basis, but in no circumstances can it be said that the writ-applicant has paid the consideration for receipt of any service. Reference was then made to an identical domestic transaction where the domestic seller undertakes to supply the goods at the premises of the buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. In the present case, the writ-applicant is neither the supplier nor the recipient of the services and hence, levy sought to be imposed on the importer, a third party to the transaction of service of transportation, is clearly illegal and invalid. 95. In such circumstances, it was submitted that the levy of the IGST on Ocean Freight in CIF cases is without jurisdiction. It was further submitted that assuming that such levy was legal and valid, under no circumstances, the importer of the goods can be treated as recipient of services to demand the IGST from such importer. SUMMATION OF SUBMISSIONS CANVASSED ON BEHALF OF THE UNION OF INDIA : 96. The sum and substance of the submissions canvassed on behalf of the Union of India while defending the notifications are that it received many representations from the shipping lines stating that in view of the levy of service tax on the inward transport, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution - GST Council. 102. As constitutional democracies have gained experience, Utopian vision of justice has given way to utilitarian view. Material comfort or upliftment has become the hallmark of good governance. So economic analysis of law substitutes the notion of simple justice with that of economic efficiency and wealth maximisation. True, nations like France successfully embraced GST regimes in the 1950s. Even federal polities like Canada replaced MST (Manufacturer's Sales Tax) with GST (Goods and Services Tax) in the 1980s. India joined the fiscal reform bandwagon a little late. Tentative it was to begin with, but determined it is in this new federal fiscal path. 103. To put the concept in perspective, GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the later stage of value addition. This process makes GST a tax on value addition at each stage. The consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. 104. In other words, the focus was shifted from taxable event to destina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 2016, this Bill became "the Constitution (One Hundred and First Amendment) Act, 2016". 110. The GST Council, constituted in September 2016, is a constitutional institution comprising as its members the Finance Ministers of the Union and the States including Union Territories with Legislatures. It has the authority "to recommend to the Union and the States on various facets of GST, including Model GST laws, principles to determine the place of supply, levy of the tax, design of GST, dispute settlement, special provisions for a special category of States, and so forth". 111. Adopting the recommendation of the GST Council, Parliament has enacted these pieces of legislation: (1) The Central Goods and Services Tax Act, 2017: it levies a tax on intra-State supplies of goods and services in all supplies within a State (2) the Integrated Goods and Goods and Services Tax Act, 2017: it levies a tax on inter-State supplies of goods and services; (3) the Union Territory Goods and Services Tax Act, 2017: it levies a tax on intra-State supplies of goods and service. 112. Tarun Jain's Goods and Services Tax, already copiously quoted, observes that in the constitutional terms, the GS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exceeding Rs. 20 lakh (Rs. 10 Lakh for special category States) would be exempted from GST. For small taxpayers with an aggregate turnover in a financial year up to 50 lakhs, a composition scheme is available. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover in a State during the year without the benefit of Input Tax Credit. This scheme will be optional. (xi) The list of exempted goods and services would be kept to a minimum, and it would be harmonized for the Centre and the States and across States as far as possible. (xii) Exports would be zero-rated supplies. Thus, goods or services that are exported would not suffer input taxes or taxes on finished products. (xiii) The credit of CGST paid on inputs may be used only for paying CGST on the output, and the credit of SGST paid on inputs may be used only for paying SGST. Input Tax Credit (ITC) of CGST cannot be used for payment of SGST and vice versa. In other words, the two streams of Input Tax Credit (ITC) cannot be cross-utilised, except in specified circumstances of inter-state supplies for payment of IGST. (xiv) Accounts would be settled periodically between the Centre and the States to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them in intra-state trade. The Centre, of course, continues to have exclusive power to make GST laws regarding inter-state trade. Both the Union and States in India now have simultaneous powers to make law on the goods and services. 118. Article 269A, inserted through Section 9 of the Act, deals with levy and collection of goods and services tax in the course of inter-State trade or commerce. That is, in case of inter-state trade, the amount collected by the Centre is to be apportioned between the Centre and the States as per the GST Council's recommendations. Under the GST, if the Centre collects the tax, it assigns State's share to the State concerned; on the other hand, if the State collects the tax, it assigns the Centre's share to the Centre. Those proceeds will not form a part of the Consolidated Fund of India, so it avoids having an Appropriation Bill passed every time a deposit is made. 119. Article 279A provides for the constitution of a GST Council, besides prescribing its powers and positions. Earlier, Article 268A dealt with the service tax levied by Union and collected and appropriated by the Union and States. Now, this Article stands repealed. As to the amended con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Goods and Services Tax" means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. After clause (26), clauses (26A) and (26B) were inserted: 'Services' means anything other than goods; 'State' with reference to Articles 246A, 268, 269, 269A and Article 279A includes a Union territory with Legislature. 123. Section 18 of the Amendment Act provides for compensation to States for loss of revenue because of the introduction of goods and services tax. Parliament shall, by law, on the recommendation of the GST Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for five years. 124. The overarching provision for our discussion is Section 19 of the Amendment Act. It reads thus; "Section 19 - Transitional provisions: Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection of goods and services tax during inter-State trade or commerce. The power to levy and collect GST during inter-State trade or commerce is vested with the Government of India. The taxes so collected will be apportioned between the Union & the States in manner prescribed. 270 Taxes levied and distributed between the Union and the States. Amended Now Article 268A an Entry No. 92C of List-I stand omitted; so service tax is subsumed under GST. So in Article 270, a reference to Article 268A has been omitted, and a new reference to Article 269A for levy of GST for Inter-state transactions has been introduced. 271 Surcharge on certain duties and taxes for purposes of the Union Amended Parliament's powers to levy an additional surcharge on Union taxes under Article 271 now stands amended: Parliament can levy no additional surcharge on GST. 279A Not existing Inserted Provision for creating the GST Council, a constitutional body. 286 Restrictions on the imposition of tax on the sale or purchase of goods Amended First, the word "sales" is replaced with "supply" and the word "goods" is replaced with "goods or services or both". States cannot legislate on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , motor spirit (petrol), natural gas, aviation turbine fuel, and alcoholic liquor for human consumption. But excluded is the sale in the course of inter-State trade or commerce. (Now the sale or purchase of goods stands subsume by GST) Entry 55 Taxes on advertisements other than advertisements Omitted Taxes on advertisements other than advertisements broadcast by radio or published in the newspapers and advertisements broadcast by radio or television. television has also been subsumed into GST. Entry 62 Taxes on luxuries, including taxes on entertainments, amusements, betting, and gambling. Amended * Taxes on Luxury betting, and gambling have been subsumed into GST. Right to levy Tax on entertainments and amusements has been restricted to Panchayats, municipalities, Regional Councils, and District Councils. CONCEPT OF GST IN BRIEF : 127. The GST is a multi-tier tax where the ultimate burden of tax falls on the consumer of goods/services. It is called as the value added tax because at every stage, tax is being paid on the value addition. Under the GST scheme, a person liable to pay tax on his output, whether for the provision of service or sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council and in the mean time the taxes on the same shall be governed by the pre-GST regime. The provision related to the GST Council (Article 279A) was made applicable w.e.f. 12th September 2016 vide Notification No.S.O. 2915(E) dated 10th September 2016, and the other provisions of such amendment to the Constitution were made applicable from 16th September 2016 vide the Notification No.S.O. 2986(E) dated 16th September 2016. The Goods and Services Tax Council (GSTC) is a constitutional body constituted under Article 279A of the Constitution of India and plays a pivot role under the GST, which brings uniformity in the law as also a cooperative federalism. 131. The Constitution (One Hundred and First Amendment) Act, 2016, inter alia, provides for - a. Subsuming of various central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly known a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent levy as it was prior to the GST and it go vivisect the transaction of supply to levy more taxes on certain components completely overlooking or forgetting the basic concept of composite supply introduced in the GST legislation and the very idea of levying the GST. Prima facie, it appears that while issuing the impugned notification, the delegated legislature had in mind the provision of the Finance Act, 1994, rather than keeping in mind the object of bringing the GST by making the Constitutional (101st) Amendment Act, 2016 to merge all taxes levied on the goods and services to one tax known as the GST. 133. It appears that despite having levied and collected the integrated tax under the IGST Act, 2017, on import of goods on the entire value which includes the Ocean Freight through the impugned notifications, once again the integrated tax is being levied under an erroneous misconception of law that separate tax can be levied on the services components (freight), which is otherwise impermissible under the scheme of the GST legislation made under the CA Act, 2016. 134. All the learned senior counsel are right in their submission that if such an erroneous impression is not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified supplies, under reverse charge basis from the recipient of supply, where the supplier is not registered under the Act. Sub-section (5) of Section 5 provides for collection of tax, on certain specified supplies, from electronic commerce operator. We are also not concerned with sub-sections (4) and (5) of Section 5 for the present purposes. 140. Thus, the scheme of the Act is that generally the tax shall be payable by the person who is making the supply of goods or services, i.e. supplier. However, in case of certain specified supplies, the recipient of supply can be made liable to pay tax. Thus, a meaningful reading of the charging section would entail that the person who is neither the supplier nor the recipient of the supply cannot be made liable to pay tax under the IGST Act (except for the provisions under sub-section (5) of Section 5 where the electronic commerce operator can be made liable to pay tax if the services are supplied through him). 141. The term 'recipient' is not defined in the IGST Act. However, sub-section (24) of Section 2 of the IGST Act states that the words and expression not defined in the IGST Act but defined in the Central Goods and Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtation of goods in a vessel service as per Section 2(93) of the CGST Act. 146. We are construing the provisions of taxing statute and that too the charging section of a taxing statute. It is a settled principle of construction of tax laws that there is no room for any intendment or presumption in tax statutes and one has to look only at the language used. 147. The principle of construction in tax statutes is that if the person sought to be taxed comes within the letter of the law he must be taxed. In a taxing Act one has to merely look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. 148. In our opinion, the writ-applicant cannot be made liable to pay tax on some supposed theory that the importer is directly or indirectly recipient of the service. The term 'recipient' has to be read in the sense in which it has been defined under the Act. There is no room for any interference or logic in the tax laws. 149. If the definition of the term 'recipient' is overlooked or ignored, then the wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply nor an intra-state supply. Thus, no tax can be levied and collected from the writ-applicant. 154. We now proceed to deal with the second part of the submission canvassed on behalf of the writ-applicants that the supply of service of transportation of goods by a person in a non-taxable territory to another person in a non-taxable territory from a place outside India upto the customs station of clearance in India is neither inter-state supply nor an intra-state supply. In such circumstances, no tax can be levied and collected from the writ-applicants. 155. As stated above, Section 5 of the IGST Act is the charging section and it levies tax on all the inter-state supplies of goods or services or both. Section 7 of the IGST Act defines what is an inter-state supply. The said section is extracted as under : "7. Inter-State supply.- (1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in-- (a) two different States; (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of goods in the course of inter-State trade or commerce. (2) Supply of good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices is an intra-state supply. Both sub-sections apply only where the location of the supplier and the place of supply are in the same State or Union Territory. Here, the State or the Union Territory means a State or Union Territory in India. Thus, for Section 8 to apply, both the location of the supplier and the place of supply should be in India. In the present case, the location of the supplier, i.e. the foreign shipping line is outside India. Thus, the impugned transaction is not an intra-state supply under Section 8 of the IGST Act. 158. The third submission canvassed on behalf of the writ-applicants is that sub-sections (1), (2) and (3) of Section 7 are not applicable to the cases on hand. 159. Now, Section 7 provides for what is an inter-state supply. Sub-sections (1) and (2) of section 7 deal with the supply of goods and are not relevant for the present purpose. Sub-section (3) provides that where the location of the supplier and the place of supply are in two different States or two different Union Territories or in a State and a Union Territory, the supply shall be treated as an inter-state supply. Thus, the provisions of sub-section (3) only applies when both the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory', not being an intra-state supply and not covered elsewhere in Section 7, shall be treated as inter-state supply. The phrase 'supply of goods at services or both in the taxable territory' is nowhere defined in the Act. 167. At the outset, the phrase 'supply of goods or services or both in the taxable territory' cannot be equated with 'place of supply' in India. If the intention of the legislature was to cover all the supplies where the 'place of supply' is in India within the ambit of the IGST Act by virtue of clause (c) of sub-section (5) of Section 7, nothing prevented the legislature from expressing its intention in clear words as used elsewhere in Section 7 and Section 8. Further, it is submitted that the provisions relating to the 'place of supply' under Sections 10 to 13 of the IGST Act does not determine where the supply takes place in its ordinary sense. They are artificial provisions enacted for fixing the situs of supply to determine the nature of supply as inter-state or intra-state and has to be used only where provided by the Act, i.e. under Sections 7(1), 7(2), 7(5)(a) and Section 8. The said provisions cannot be applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in clause (a) of sub-section (5) of Section 7 of the IGST Act. As per the said clause, when the supplier is located in India and the place of supply is outside India, such supply is an inter-state supply. This is to enable exports of goods and service so that they can be made zero-rated, i.e. practically no tax on outward supply and refund of taxes paid at input stage. Section 2(6) of the IGST Act defines the term 'export of service' and the following conditions are required to be fulfilled inter alia for a supply of service to be an export of service: (i) The supplier of service is located in India; (ii) The recipient of service is located outside India; (iii) The place of supply of service is outside India. 173. As seen above, Section 13 is applicable to sub-sections (4) and (5) of Section 7, where either the supplier of service or the recipient of service has to be in India. If both the supplier and the recipient are outside India, Section 13 does not apply. 174. Hence, the scheme of the IGST Act only contemplates transactions of intra-state supply, inter-state supply and exports & imports. 175. It is submitted that the phrase 'supply of goods or services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nimum, the Government has granted exemption to such supplies. However, the exemption entry provides that the 'services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India received by persons specified in the entry' will not be covered by the exemption. 181. It is submitted that the said exception has been carved out under mis-belief that the ocean freight services would be otherwise taxable. It is submitted that the supply of ocean freight service is not covered either by Section 7 (inter-state supply) or Section 8 (intra-state supply) of the IGST and thus not leviable to tax. Hence, since the supply is not leviable to tax under the Act, the granting of exemption from payment of tax does not arise. 182. Thus, the impugned notifications are liable to be struck down as ultra vires the IGST Act. 183. The sixth submission we need to deal is that the scheme of the IGST does not contemplate levy and collection of tax from a person who is neither the supplier nor the recipient of supply. 184. Apart from the above submission that the supply of services by a person located in a non-taxable territory to a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able under the reverse charge basis is the earliest of the date of payment entered in the books of accounts of the recipient or the date of debit in the bank account or sixty days from the date of issue of invoice by the supplier. Thus, a person other than a recipient of supply cannot determine the time of supply as per the provisions of Section 13(3) of the IGST Act. 188. The seventh submission canvassed on behalf of the writ-applicant is that the value of the ocean freight service cannot be determined by the importer of goods. 189. Section 15 of the CGST Act provides for the determination of the value of supply. Sub-section (1) of Section 15 reads as under : "15(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply." 190. Thus, the value of supply is the price actually paid or payable for the said supply and where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . credit shall be available at each stage and the burden of tax shall only be on the customer. 198. The ninth submission we need to deal with is that the provisions relating to the filing of returns apply only to the outward and inward supplies. 199. The provisions relating to the filing of returns apply only to the inward and outward supplies made by a registered person. Section 2(67) of the CGST Act defines the term 'inward supply' as 'inward supply in relation to a person, shall mean recipient of goods or services or both whether by purchase, acquisition or any other means with or without consideration'. Section 2(83) of the CGST Act defines the term 'outward supply' as 'outward supply in relation to a taxable person means supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business'. The supply in the present case is neither an inward supply nor an outward supply for the writ-applicant. 200. Thus, even the provisions relating to the returns apply where either the person is a supplier or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for levy and collection of such tax. 207. The next submission we need to deal with is that the IGST is leviable on a transaction treated as an import of goods under the IGST Act read with the Customs Tariff Act, 1975. Once the freight has already suffered the IGST as a part of the value of the goods being imported, the dual levy of the IGST cannot be imposed on the same freight amount by treating it as supply of service. 208. Section 5 of the IGST Act provides for levy and collection of integrated tax on inter-state supply of goods or services or both. The proviso to sub-section (1) of Section 5 provides that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of Section 3 of the Customs Tariff Act, 1975, on the value as determined under the said Act at the point when the duties of customs are levied on the said goods under Section 12 of the Customs Act, 1962. The relevant portion of Section 5 of the IGST Act is extracted as under : "5(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both; except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of delegated legislation, when the statute does not expressly provide, is not permissible. 214. In the case of United Shippers Ltd. v. CCE, 2015(37) STR 1043(T), the Tribunal held that there can be no levy of service tax on barge charges and the handling charges which is part of the import transaction into India and form an integral part of the transaction value on which the customs duty is leviable. The judgment of the Tribunal has been affirmed by the Supreme Court in the case of CCE v. United Shippers, 2015(39) STR J369 (SC). 215. Thus, having paid the IGST on the amount of freight which is included in the value of the imported goods, the impugned notifications levying tax again as a supply of service, without any express sanction by the statute, are illegal and liable to be struck down. 216. It was also argued that the purpose/object for which the tax is levied will not validate an ultra vires or unconstitutional tax. 217. Prior to 01.06.2016, the services of transportation of goods in a vessel from a place outside India up to the customs station of clearance in India were exempted from service tax. As a result, the Indian Shipping Lines were unable to avail the input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of international transportation was not leviable to service tax. 220. With effect from 1.7.2012, the negative list regime was introduced for levy of service tax and all services were made taxable except those provided under the negative list of service. Section 66D of the Finance Act, 1994, provided such negative list of services. The relevant extract of clause (p) of Section 66D (before its amendment by the Finance Act, 2016) is reproduced hereunder for ready reference: "66D. The negative list shall comprise of the following services, namely: (p) services by way of transportation of goods-- ... ii) by an aircraft or a vessel from a place outside India up to the customs station of clearance;" 221. Thus, the service of inward international transportation was put under the negative list and thus it was not leviable to service tax. The place of provision of transportation of goods (other than by way of mail or courier) is the place of destination of goods as per Rule 10 of the Place of Provision of Service Rules, 2012. Thus, even though the place of such service was in India, the same was expressly made not leviable to tax by including a specific entry in the negative l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esence in Australia." 225. In the United Kingdom, the Value Added Tax Act, 1994 provides that the services of transportation relating to the import and export is zero-rated (i.e. no tax is payable on the outward supply and the tax paid on the inward supplies can be claimed as refund). The relevant extract from VAT Notice 744B - Freight transport and associated services is as under: "5.3 VAT liability of import, export and non-EU freight transport Where the place of supply is the UK, zero rating applies to: the supply of transport of goods from a place within to a place outside the EU and vice versa." 226. Thus, the services of transportation relating to export and import are governed by the international considerations and all countries treat the same as zero-rated or GST-free. Amendment vide Finance Act, 2016 and thereafter. 227. Vide Finance Act, 2016, the sub-clause (ii) of clause (p) of Section 66D of the Finance Act, 1994, which provided that the service of transportation of goods from a place outside India upto the customs station of clearance is not leviable to service tax, was omitted. 228. Notification No.9/2016-ST dated 1.3.2016 effective from 1.4.2016 was is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de Notification No.16/2017-ST dated 13.4.2017, an alternative mechanism for paying the service tax at the rate of 1.4% of the CIF (Cost, Insurance and Freight) value of the goods. 235. Further, vide Notification No.10/2017-C.E. (N.T.) dated 13.4.2017 effective from 23.4.2017, the importer of the goods has been allowed to avail the Cenvat Credit on the basis of the challan of payment of service tax by the said importer. Power to levy tax on the ocean freight service by the sub-ordinate legislation under the erstwhile service tax regime and under the present GST regime. 236. Under the erstwhile service tax regime, Section 66B of the Finance Act, 1994 was the charging section which levied the tax on the value of all the services, other than those specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another. Section 68 provided for collection of tax. Sub-section (1) of Section 68 provided that every person providing taxable service shall pay the service tax. Further, sub-section (2) of Section 68 provided that, in respect of such taxable services as may be notified by the Central Government, the service tax shall be payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e legislation which has no sanction of law, however, laudable may have been the object to introduce it. 241. The legislature, while enacting the IGST Act, was aware of the wide provisions under the Finance Act, 1994, which provide the Government the power to collect tax under the reverse charge basis only from the recipient of the service but from any other person as may be prescribed. However, while enacting the IGST Act, the legislature consciously curtailed the power of the Government to collect tax under the reverse charge basis from any person and restricted it only to the recipient of the supply. 242. If the intention of the Government was to allow the credit of the taxes paid on the goods and services used for providing the supply of the inward transportation, the same could have been made a zero-rated supply. A zero-rated supply is provided under Section 16 of the IGST Act, wherein it is provided that zero-rated supply can be made either without the payment of tax or with payment of tax along with an option to claim refund of tax later. Further, the person making the zero-rated supply will be eligible to avail the input tax credit and claim refund if the same remains unut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject-matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the Court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field. 24. Undisputedly, Chapter V of the Finance Tax Act, 1994 was enacted with reference to the residuary power defined in Entry 97 of List I. But as has been held in International Tourist Corporation v. State of Haryana (1981) 2 SCC 319: "Before exclusive legislative competence can be claimed for Parliament by resort to the residuary power, the legislative incompetence of the State legislature must be clearly established. Entry 97 itself is specific in that a matter can be brought under that Entry only if it is not enumerated in List II or List III and in the case of a tax if it is not mentioned in either of those Lists." 25. In that case Section 3( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passengers which or who can be subjected to tax under the Entry. The ambit and purport of the entry has been dealt with in Rai Ramakrishna and others v. State of Bihar 1963 (1) SCR 897) where it was said in language which we cannot better:- "Entry 56 of the Second List refers to taxes on goods and passengers carried by road or on inland waterways. It is clear that the State Legislatures are authorized to levy taxes on goods and passengers by this entry. It is not on all goods and passengers that taxes can be imposed under this entry; it is on goods and passengers carried by road or on inland waterways that taxes can be imposed. The expression "carried by road or on inland waterways" is an adjectival clause qualifying goods and passengers, that is to say, it is goods and passengers of the said description that have to be taxed under this entry. Nevertheless, it is obvious that the goods as such cannot pay taxes, and so taxes levied on goods have to be recovered from some persons, and these persons must have an intimate or direct connection or nexus with the goods before they can be called upon to pay the taxes in respect of the carried goods. Similarly, passengers who are carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said to be in any way related to goods or passengers carried by road or waterways. For example, Section 65(41) (g) provides for service rendered to a client by a consulting engineer, Section 65(41)(k) refers to service to a client by a manpower recruitment agency, Section 65(41)(o) refers to service by pandal or shamiana contractors and so on. The rate of service tax has been fixed under Section 66. Section 67 provides for valuation of taxable service for the purposes of charging tax. The provision for valuation of service rendered by collecting and forwarding agents has been dealt with under sub-clause (j) and service provided by goods transport operators has been provided under clause (j). (subsequently renumbered as clause (m-a). These clauses read respectively as under :- "67.(j) in relation to service provided by a clearing and forwarding agent to a client, shall be the gross amount charged by such agent from the client for services of clearing and forwarding operations in any manner." "67.(m-a) in relation to service provided by goods transport operator to a customer, shall be the gross amount charged by such operator for services in relation to carrying goods by ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislative competence of Parliament to levy service tax was negatived in Tamil Nadu Kalyana Mandapam Assn. v. Union of India, 2004 (167) ELT 3 (SC) which was a case where the levy of service tax was challenged by owners of Kalayan Mandapam/Mandap Keepers. By virtue of the 1997 amendment service provided to a client by Mandap keepers including the services if any rendered as a caterer was treated as a taxable service. The challenge, inter alia, was that service tax on Mandap Keepers was colourable legislation as the said tax was not on service but was in pith and substance only a tax on the sale of goods and/or a tax on land. The writ petition filed before the Madras High Court was rejected and the constitutionality of the levy was upheld. It was then urged before this Court by the appellants that Entries 18, 14 and 54 of List II covered the levy in question and, therefore, resort could not be had to Entry 97 in List I of the Seventh Schedule of the Constitution. It was held by this Court that although certain items of the service might have been referable to any other entry, the service element was the "more weighty, visible and predominant". Therefore, the nature and character of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision in Dwarka Prasad v. Dwarka Das Saraf, 1976 (1) SCC 128, contended that the amendment to section 68 by the introduction of a proviso in 2003, was invalid. It is submitted that as the body of the section did not cover the subject matter, there was no question of creating an exception in respect thereto by a proviso. According to the writ petitioners, the proviso cannot expand the body by creating a separate charge. It is submitted that by merely amending the definition of the word "assessee" it could not be understood to mean that thereby all customers of the services in question were liable. 38. The submission is misconceived for several reasons. Section 68 is a machinery section in that it provides for the incidence of taxation and is not the charging section which is Section 66. The amendments to Section 66 brought about in 2000 changed the point of collection of tax from the provider of the service to 'such manner as may be prescribed'. Section 68(1A) as it stood in 1997 provided for the collection and recovery of service tax in respect of the services referred in clauses (g) to (r) of Section 65(41), which included both the services with which we are concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eria that go into the formulation of a fiscal policy legislature enjoys a wide latitude in the matter of selection of persons, subject matter, events etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions. A legislature does not, as an old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory . Decisions of this Court on the matter have permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes." 42. In the case before us the discrimination is not, even according to the writ petitioners, by reason of the subject matter of tax. It is also not the writ petitioners' case that within the separate classes of services covered by the different clauses in Section 65(41), there is any discrimination or that the law operates unequa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt heard an appeal filed by the All India Federation of Tax Practitioners against a Division Bench judgment of the Bombay High Court upholding the legislative competence of the Parliament to levy service tax vide the Finance Act, 1994, and the Finance Act, 1998. The Bombay High Court took the view that the service tax would fall in Entry 97 of List I of the 7th Schedule to the Constitution. The issue before the Supreme Court was one concerning the constitutional status of levy of service tax and the legislative competence of the Parliament to impose service tax under Article 246(1) read with Entry 97 of List I of the 7th Schedule to the Constitution. 250. The issue that arose in the appeal before the Supreme Court questioned the competence of the Parliament to levy service tax on the practicing Chartered Accountants and Architects having regard to Entry 56 of List II of the 7th Schedule to the Constitution and Article 276 of the Constitution of India. The challenge was rejected by the Supreme Court relying upon the aspect theory and it was held that the Parliament has the competence to impose tax on the services rendered by the professionals. The ratio of this decision is also o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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