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TMI Blog2009 (6) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... Entry 92C of List I operate on different areas - Service Tax is leviable - 4119 of 2003 and others - - - Dated:- 9-6-2009 - A. KULASEKARAN and B. RAJENDRAN, JJ. M/s. Madras Hire Purchase Association Versus Union of India Association of Leasing and Financial Services Companies Versus Union of India M/s. South India Hire Purchase Association Versus Union of India M/s. Madras Hire Purchase Association Versus Union of India The Equipment Leasing Association ( India ) Versus Union of India T.T. Srinivasaraghavan Versus Union of India Writ Appeal No. 4119 of 2003 and W.P. Nos. 14905, 15327, 15328, 15559 and 15560 of 2001 and W.A.M.P. No. 6814 of 2003 Mrs. Meera Gupta, M/s. Surana Surana for Appellants in WA No. 4119 of 2003. Mr. Aravind P. Datar Senior Counsel for Mr. V.S. Jayakumar for Petitioner in WP No. 14905 of 2001. Mr. Chandran Karuppiah for Petitioner in WP Nos. 15327 15328 of 2001. Mr. Satish Parasaran for Petitioner in WP Nos. 15559 15560 of 2001. Mr. M. Ravindran Additional Solicitor General assisted by Mr. S. Yashwant Senior Panel Counsel for Respondents in W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) K. Damodarasamy Naidu Bros. v. State of Tamil Nadu 2000 (1) SCC Page No.521 in which Para Nos. 12, 13 and 23 are relevant, which are extracted below:- 12. It was not disputed by learned counsel for the State of Maharashtra that the tax on food and drink could be imposed only upon that component of the composite charge for lodging and boarding at a residential hotel as related to the supply of food and drink. But, in his submission, no rules in this behalf were necessary; the Sales Tax Officers would make assessments depending upon the facts of each individual case. 13. There are several hundred residential hotels in the State of Maharashtra. They provide lodging and boarding to several thousands of customers in every assessment year. It is in practical terms impossible for the Sales Tax Authorities to make assessments upon the basis of the facts relevant to each individual customer in each individual hotel. Generalisations are, therefore, inevitable and there is every likelihood that the basis of the generalisation made by one Sales Tax Officer would differ from the basis of the generalisation made by another, leading to unacceptable arbitrariness. Rules that indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmitted to be so split. For example, the sub-clauses of Article 366(29-A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the Sales Tax Authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking, with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. 45. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. It is obvious that it must have connection with a service and, there must be some value addition by that service. If there is no value addition, then there is no service. With this in mind, it would be instructive to analyse the provisions of Section 65 (105) (zzzz). It has reference to a service provided or to be provided to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce . The wordings of the provision are so structured as to entail a service provided or to be provided to A by B in relation to C is the subject matter. As pointed out above by Mr. Ganesh, the expression 'in relation to' may be of widest amplitude, but it has been used in the said Act as per its context. Sometimes, 'in relation to' would include the subject matter following it and on other occasions it would not. As in the case of the service of dry cleaning, the expression 'in relation to dry cleaning' also has reference to the very service of dry cleaning. On the other hand, the service referred to in Section 65 (105) (v), which refers to a service provided by a real estate agent 'in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax under residuary Entry 97 to List I of VII Schedule to the Constitution in the decisions reported in ( Tamil Nadu Kalyana Mandapam Association vs. Union of India ) (2004) 167 ELT 3 (SC); ( C.K. Jidheesh vs. Union of India ) (2008) (1) STR 3 (SC) and ( Gujarat Ambuja Cements vs. Union of India ) (2005) 4 SCC 214 and constitutional amendment to Entry 92-C to List I of VII Schedule under Article 268-A are introduced giving authority to the parliament to legislate on service tax ; that Section 65(12) of the Finance Act, 1994 defines Banking and other financial services' as financial leasing services including equipment leasing and hire-purchases . The learned Additional Solicitor General further submitted that Section 65 (14) of the Finance Act defines body corporate, which has the same meaning assigned to it in Clause 7 of Section (2) of the Companies Act, 1956. Section 65 (105) defines taxable service, which means any services provided or to be provided. Section 65 (zm) means any person, by banking or a financial institution, including a non-banking company, or any other body corporate or commercial concern, in relation to banking and other financial services. The charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it is borne by the client. 33. Applying the above tests laid down in the aforestated judgments to the facts of the present case, we find that Entry 60 of List II, mentions 'taxes on professions, trades, callings and employments'. Entry 60 is a taxing entry. It is not a general entry. Therefore, we hold that tax on professions, etc. has to be read as a levy on professions, trades, callings, etc., as such. Therefore, Entry 60 which refers to professions cannot be extended to include services. This is what is called as an Aspect Theory. If the argument of the appellants is accepted, then there would be no difference between interpretation of a general entry and interpretation of a taxing entry in List I and List II of the Seventh Schedule to the Constitution. Therefore, 'professions' will not include services under Entry 60. For the above reasons, we hold that Parliament had absolute jurisdiction and legislative competence to levy tax on services. While interpreting the legislative heads under List II, we have to go by schematic interpretation of the three Lists in the Seventh Schedule to the Constitution and not by dictionary meaning of the words 'profession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... weighty, visible and predominant'. Therefore, the nature and character of the levy of the service tax was distinct from a tax on the sale or hire-purchase of goods and from a tax on land. 35. The point at which the collection of the tax is to be made is a question of legislative convenience and part of the machinery for realisation and recovery of the tax. The manner of the collection has been described as an accident of administration; it is not of the essence of the duty. It will not change and does not affect the essential nature of the tax. Subject to the legislative competence of the taxing authority a duty can be imposed at the stage which the authority finds to be convenient and the most effective, whatever stage it may be. The Central Government is therefore legally competent to evolve a suitable machinery for collection of the service tax subject to the maintenance of a rational connection between the tax and the person on whom it is imposed. By Sections 116 and 117 of the Finance Act, 2000, the tax is sought to be levied on the recipients of the services. They cannot claim that they are not connected with the service since the service is rendered to them. iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the appellant on this aspect is not well founded. 46. It is well settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that service tax is levied as a percentage of the gross charges for catering cannot alter or affect the legislative competence of Parliament in the matter. 47. The legislative competence of Parliament also does not depend upon whether in fact any services are made available by the mandap-keepers within the definition of taxable service contained in the Finance Act. Whether in the given case taxable services are rendered or not is a matter of interpretation of the statute and for adjudication under the provisions of the statute and does not affect the vires of the legislation and/or the legislative competence of Parliament. In fact, a wide range of services is included in the definition of taxable services as far as mandap-keepers are concerned. The said definition includes services provided 'in relation to use of mandap in any manner' and includes 'the facilities provided to the client in relation to such use' and also the services 'rendered as a caterer'. The phrase 'in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y person equality before the law or the equal protection of the laws within the territory of India. Article 19: Right to Freedom (1) All citizens shall have the right-- ............. (g) to practise any profession, or to carry on any occupation, trade or business. Article 265: No tax shall be levied or collected except by authority of law. Article 268A: (1) Taxes on services shall be levied by the Government of India and such tax shall be collected and appropriated by the Government of India and the States in the manner provided in clause (2). (2) The proceeds in any financial year of any such tax levied in accordance with the provisions of clause (1) shall be-- (a) collected by the Government of India and the States; (b) appropriated by the Government of India and the States, in accordance with such principles of collection and appropriation as may be formulated by Parliament by law. Article 366 (29A) 'tax on the sale or purchase of goods' includes ............ (c) a tax on the delivery of goods on hire purchase or any system of payment by instalments: (d) a tax on the transfer of the right to use any goods for any purpose (whether or no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior counsel for the petitioners has advanced arguments that they have not charged any amount towards service charges, as no service element is involved. However, the petitioner/appellant have admitted that they collect 1% service charge for preparation of documents and other incidental activities. The specific contention of the petitioners/ appellants is that the particular impost under the impugned law, having regard to its nature and incidents, is really not a service tax at all and in pith and substance, really one imposing a tax on the price paid for the sale of goods. 8. Service tax is evolved on account of service industry becoming a major contributor to the GDP of an economy. Union derive its authority from the residuary entry 97 of the Union list for levying tax on services. Article 268-A of the Constitution of India empowers the Union to levy tax on service. Entry 92 (c) was also introduced in the Union list for the levy of service tax. 9. In the amended Act 32 of 1994 in the Finance Act, 1994, Section 65 (12) (a) (i) defines finance leasing service including equipment leasing and hire purchase 10. The subsequent amendments made in the Finance Act, 1994, S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 246 read with seventh schedule thereof is in question, the Court may have to take recourse to various theories including aspect theory. 15. It is trite that the true nature and character of the legislation must be determined with reference to a question of the power of the legislature. The consequences and effects of the legislation are not the same thing as the legislative subject matter. 16. In (Governor General in Council vs. Province of Madras) AIR 1945 PC 98 it was held that ....The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separated and distinct imposts. If in fact they overlap, that may be because of taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable articles leaves the factory or workshop for the first time on the occasion of its sale . 17. In Larsen Toubro vs. Union of India, it has expressly been laid down that the effect of amendment by introduction of clause 29-A in Article 366 is that by legal fiction, certain i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field. 19. The respondents submitted that notification No.4/2006-ST dated 01.03.2006 was issued granting exemption on 90% representing interest income. The petitioners/appellant argued to the extent that granting such exemption would not save legislative competence, if there is no competence, the provision has to be struck down. Both sides not furnished any details relating to the exemption or consequences to the exemption. In view of the said position, this Court not go into the details of the said notification. 20. In ( Tamil Nadu Kalyana Mandapam Association vs. Union of India ) (2004) 167 ELT 3 (SC); ( Gujarat Ambuja Cements vs. Union of India ) (2005) 4 SCC 214; All-India Federation of Tax Practitioners v. Union of India , 2007 (7) SCC 527and ( C.K. Jidheesh vs. Union of India ) (2008) (1) STR 3 (SC) the Honourable Supreme Court upheld the legislative competence of the parliament to levy service tax under a residuary entry 92 to List I of VII Schedule of the Constitution and necessary constitutional amendments were made and Entry 92 (c) was introduc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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