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TMI Blog2021 (1) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Seventh Schedule of the Constitution, within the definitions therein was considered by the Tribunal in ARVAL INDIA PRIVATE LIMITED VERSUS PRINCIPAL COMMISSIONER OF SERVICE TAX IV AND (VICE-VERSA) MR CJ MATHEW, MEMBER (TECHNICAL) [ 2020 (9) TMI 125 - CESTAT MUMBAI] that decided the appeal against the demands for the earlier periods with the core of the dispute and, drawing upon the judgement of the Hon ble Supreme Court on the constitutional constraints in taxing that part of works contract transaction deemed to be sale, to hold that the jurisdiction enabled by articulation of legislative intent specifically to tax service component - not deemed as sale - in works contract could not be appropriated by applying a non-specific description in Finance Act, 1994 to transactions that were taxed entirely as sale . As decided in earlier decision of the appellant, Agreements/contracts of lease are, acknowledgedly, taxable as deemed sale ; it is not the case of Revenue that any portion of the consideration for lease is not deemed sale . As the entire rental is subject to tax as deemed sale , there is no scope for any portion thereof to be leviable to tax by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now impugned before us was no different from the earlier one that did not find favour with the Tribunal, went on to submit that the adjudicating authority had rendered clear findings on the coverage of the impugned transactions within the definition of service in Finance Act, 1994. 3. It is not in dispute that the tax liability confirmed in the impugned order were demanded in statements issued, under section 73(1A) of Finance Act, 1994, by reference to facts, and evidence, elaborated in the first show cause notice for the period from 1st April 2008 to 30th September 2012 which straddles the service enumerated in section 65(105)(o) of Finance Act, 1994 and the successor negative list regime. The disputed tax in the present appeal pertains to leviability in the negative list regime as provider of service relating to lease of motor vehicles and on the entire consideration received as rentals from customers. 4. The fitment for taxability under Finance Act, 1994, ignoring the scheme of distribution of exclusive tax jurisdictions in the lists of the Seventh Schedule of the Constitution, within the definitions therein was considered by the Tribunal in re Arval India P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paras, a bifurcation has to be made by the charging Section itself so that the cost of establishment of the contractor is bifurcated into what is relatable to supply of labour and services. Similarly, all other expenses have also to be bifurcated insofar as they are relatable to supply of labour and services, and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractor s accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and service element of it. This judgment, therefore, clearly and unmistakably holds that unless the splitting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. As was said in Larsen Toubro v. Union of India [(1993) 1 SCC 364]: (SCC p. 395, para 47): - The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. For the same reason the Centre cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. As was held by us in Gujarat Ambuja Cements Ltd. v. Union of India [(2005) 4 SCC 214], SCC at p. 228, para 23: - This mutual exclusivity which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions for assessment of taxes and fees recoverable under a taxing statute. In one of the earlier decisions on the subject a Constitution Bench of this Court in K.T. Moopil Nair v. State of Kerala [AIR 1961 SC 552] examined the constitutional validity of the TravancoreCochin Land Tax Act (15 of 1955). While recognising what is now well-settled principle of law that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Article 14, this Court found that the enactment in question was violative of Article 14 of the Constitution for inequality was writ large on the Act and inherent in the very provisions under the taxing section thereof. Having said so, this Court also noticed that the Act was silent as to the machinery and the procedure to be followed in making the assessment. It was left to the executive to evolve the requisite machinery and procedure thereby making the whole thing, from beginning to end, purely administrative in character completely ignoring the legal position that the assessment of a tax on person or property is a quasi judicial exercise. Speaking for the majority Sinha, C.J. said: (K.T. Moopil case [AIR 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct did not make a specific provision about the machinery for assessment or recovery of tax, this Court held: (AIR pp. 1570-71, para 17) 17. if a taxing statute makes no specific provision about the machinery to recover tax and the procedure to make the assessment of the tax and leaves it entirely to the executive to devise such machinery as it thinks fit and to prescribe such procedure as appears to it to be fair, an occasion may arise for the courts to consider whether the failure to provide for a machinery and to prescribe a procedure does not tend to make the imposition of the tax an unreasonable restriction within the meaning of Article 19(5). An imposition of tax which in the absence of a prescribed machinery and the prescribed procedure would partake of the character of a purely administrative affair can, in a proper sense, be challenged as contravening Article 19(1)(f). (emphasis supplied) In State of A.P. v. Nalla Raja Reddy [AIR 1967 SC 1458] this Court was examining the constitutional validity of the Andhra Pradesh Land Revenue (Additional Assessment) and Cess Revision Act, 1962 (22 of 1962) as amended by the Amendment Act (23 of 1962) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, is open to challenge before a writ court in appropriate proceedings. Whether or not the enactment levying the tax makes a machinery provision either by itself or in terms of the Rules that may be framed under it is, however, a matter that would have to be examined in each case. (at paras 15-21) to hold that the jurisdiction enabled by articulation of legislative intent specifically to tax service component - not deemed as sale - in works contract could not be appropriated by applying a non-specific description in Finance Act, 1994 to transactions that were taxed entirely as sale , with the finding that 12. Impliedly, neither did the taxing powers vested in the Union extend either to sale or deemed sale nor did all of the several deemed sales incorporated in the constitutional amendment include some component that was not deemed sale outside the pale of taxation in List II in the Constitution of India. The impugned order has erred in presuming so. In works contracts , there is an aspect that is beyond the taxing powers of the states which could, under Parliamentary sanction, be taxed by the Union. In both sales and services , the taxable even ..... X X X X Extracts X X X X X X X X Extracts X X X X
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