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Dipak Misra, J.—The question of law being essentially common, this batch of writ petitions was heard analogously and is disposed of by this common order. For the sake of clarity and convenience, the facts in Writ Petition No. 181 of 2003 are adumbrated herein.
The petitioners Nos. 1, 2 and 4 are bidi manufacturers and hire the services of transport operators for transport of raw materials, etc., for them and also for despatch of the finished goods to their customers. The transport charges for the services of the transport operators are paid by petitioners Nos. 1 and 3 on the transport of raw materials to their places, whereas the transport charges for goods sold by them are not paid by them but are paid by the customers, i.e., the consignees. It is urged that the petitioners do not avail the services of clearing and forwarding agents and are not making any payment to them.
In the year 1994, the Central Government imposed levy of service tax on various services by Finance Act of 1994. Provisions were made for levy, collection and other related matters of service tax. It is put forth, like any other indirect tax, person responsible for collecting the service tax, i.e., the person rendering the service, was allowed to pass the burden of this tax to its customers. In the year 1997, the services on goods transport operators were also brought under the purview of service tax legislation and the Union Government decided to levy and recover service tax at the rate of five per cent of the value of taxable service from goods transport operators. As a result of the said decision, there was a nation-wide strike and eventually an assurance was given that the recovery of service tax would not be made from the transporters and the transporters would not be made to follow the procedure of obtaining a registration, maintaining registers and filing returns for such service tax.
According to the writ petitioners, as a result of the aforesaid development and the assurance given to the transporters by the Union of India, the Service Tax Rules of 1997 came to be framed making persons liable than transport operators. The customers were charged to pay the tax. It is put forth that Rule 2(d)(xii) of the Rules of 1997 came to be challenged before High Courts including this Court by the persons who were availing services of transporters and clearing and forwarding agents. Eventually, the apex court in the case of Laghu Udyog Bharati and Another Vs. Union of India and Others, , held that the provisions of Rule 2(d)(xii) and (xvii) of the Rules as amended in 1997 are ultra vires the Finance Act, 1994 as far as they made persons other than clearing and forwarding agents responsible for collecting the service tax or the goods transport operators are responsible for collecting service tax. It is put forth that so far as the petitioners are concerned, they are not paid any amount of service tax on the transport service availed by the petitioners during the relevant period. Thereafter, while declaring financial budget 2000-01 it was proposed to amend the service tax legislation retrospectively by providing that Rule 2(d)(xii) and (xvii) of the Rules of 1994, as they stood immediately before the commencement of the Service Tax (Amendment) Rules, 1998, to be valid as if the said Sub-clauses had been in force at all material times notwithstanding anything contained in any judgment, decree or order of any court, Tribunal or other authority. By providing validation in the Finance Act, 2000, Section 116 of the said Act, the Government has also amended the definition of the term "assessee". It has been provided u/s 117 of the Act that any service tax refunded in pursuance of any judgment, decree or order of any court striking down Sub-clauses (xii) and (xvii) of Clause (d) of Rule 2(1) of the Rules of 1994 before the date the Finance Act, 2000 received the assent of the President would be recoverable within 30 days and in addition, interest of 20 per cent per annum.
The petitioners received letters/notices from the respondent No. 2 for payment of service tax for the above period in respect of the tax relating to clearing and forwarding agents. Identical notices were issued to the petitioners. Specimen copy of notice is annexure P2 on record. The petitioners objected to the demand of service tax on the ground that retrospective amendment and the validation Act did not shift the burden to the petitioners and the demand of tax was unjustified. The claim put forth was that the preliminary objection should be decided first before proceeding on merits. After lapse of about a year, the respondent No. 2 issued notices dated December 18, 2002 demanding service tax for the period November 16, 1997 to June 1, 1998 on payment to goods transporters asking for certain information. The Commissioner of Central Excise, Madhurai had issued a notice No. 83/99 dated September 10, 1999 giving guidelines for convenience of general trade in respect of the tax relating to clearing and forwarding agents and the goods transport operators pursuant to the decision of the apex court in the aforesaid case of Laghu Udyog Bharati and Another Vs. Union of India and Others, The said guidelines noted that the liability imposed on these two services by Finance Act, 1997 has been set at naught by the Supreme Court. It is also held that levy of tax and the amount of tax be refunded. However, it was directed that the refund will be subject to the provisions of Section 11B of the Central Excise Act, 1944 which regulates all the refund claims relating to the service tax matters. It is urged that the petitioner had not collected service tax from the operators for the service availed by them. During the relevant time as the liability of service tax on the transport operators remained in dispute all along before the courts.
It is averred in the petition that Sections 116 and 117 of the Finance Act, 2000 in so far as they seek to validate levy and recovery of service tax on the customers of goods transport operators is illegal and ultra vires the provisions of the Finance Act of 1994 and also ultra vires Articles 14, 19(1)(g) and 265 of the Constitution of India. The language employed in Sections 116 and 117 of the Finance Act, 2000 by which an action has been taken to validate the recovery of the service tax from the goods transport operators is arbitrary, per se illegal and inasmuch as only a declaration has been made. u/s 94, which enjoins power to make Rules, service tax cannot be made payable by the person other than on whom the liability has been created by the Act. Reference has been made to Sections 66 and 67 and the amended provisions thereof. It is put forth that the words used in the said provisions may prescribe such manner but in the realm of procedure of collection of the tax, it cannot by itself create a charge on the person prescribed in the Rules as the charge can only be created by the charging section itself. It is also averred that Section 66 does not provide that the tax should be charged from the person availing service of goods transport operators or from the person who pays or was liable to pay freight either himself or through his agent. There is no amendment in Section 66 or Section 68 which would change the judgment of the apex court rendered in the case of Laghu Udyog Bharati and Another Vs. Union of India and Others, It is also put forth that after amendment made by the Finance Act, 2000, Rule 2(d) which defines "Person liable for paying service tax" did not include customers of goods transport operators. This rule was substituted by Service Tax (Amendment) Rules, 1998 with effect from October 16, 1998. In this backdrop, it has been submitted that no liability has been cast to pay service tax on the customers even after the amendment or validation of amendment of 2000. It is contended that the law laid down in the case of Laghu Udyog Bharati and Another Vs. Union of India and Others, has not been altered by virtue of amendment and validating Act, i.e., Sections 116 and 117 of the Finance Act, 2000 and, therefore, the defect which was found by the apex court remains as it is. And the Legislature has no authority to overrule a decision by mere declaration. As the defect has not been removed and the base has not been taken away, the judgment of the apex court is applicable. It is also highlighted that the Legislature has sought to charge and collect service tax from the customers of the goods transport operators whereas for all other services except the service of clearing and forwarding agent, the person rendering service is the person chargeable to tax and responsible for collecting service tax. For services of goods transport operators, the persons rendering service are the persons chargeable to tax and responsible for collecting service tax and hence, the validating Act which seeks to render the person availing the services and paying freight as person chargeable to service tax, on face of it offends Article 14 of the Constitution of India. It is also put forth that the demand of tax is barred by limitation inasmuch as it is not a case of escaped assessment. It is also contended that as the petitioner has neither collected the tax nor got the refund of tax pursuant to the order of the apex court, the basic concept as enunciated u/s 11B of the Excise Act is not applicable. In this factual backdrop, prayer has been made to declare Sections 116 and 117 of the Finance Act, 2000 as ultra vires Sections 66 and 68 of the Finance Act of 1998 and ultra vires of Articles 14, 19(1)(g) and 265 of the Constitution of India and to further issue a writ of certiorari for striking down the said provisions and to quash notice of demand contained in annexure P5.
A counter-affidavit has been filed by the respondents stating inter alia that trade notice No. 83/99 dated September 10, 1999 issued by the Commissioner of Central Excise, Madhurai relating to guidelines issued in respect of clearing and forwarding agents and goods transport operators is irrelevant as the said trade notice was issued with reference to the judgment of the apex court in the case of Laghu Udyog Bharati and Another Vs. Union of India and Others, before the validation of the provisions of service tax was made vide amendment of Sections 116 and 117 of the Finance Act, 2000. It is put forth that the imposition of tax and its mode of collection have been validated by the sovereign act of Parliament and, therefore, there is no illegality in the same. It is also urged that Sections 116 and 117 of the Finance Act of 2000 do not suffer from any hostile discrimination and no way offends Article 19(1)(g). It is further put forth that under the provisions of Sections 116 and 117 of the Finance Act, 2000, the provisions of service tax on goods transport operators were validated as legal and the due procedure is being adopted. It is urged that the petitioners were first asked to submit vide letter dated December 18, 2002 the value of service on which the service tax was due to be paid and in case the service tax has already been paid, their payment particulars. The petitioners neither submitted the value of service nor the value of services availed on transportation of goods, i.e., raw material as well as the final product, nor did they give the details of service tax paid and hence a show-cause notice dated January 9, 2003 was issued and the same is pending for adjudication. It is also put forth that the Parliament has the jurisdiction to rectify the defects and validate the provisions, which has been done. It has also been asseverated that the decision in the case of Laghu Udyog Bharati and Another Vs. Union of India and Others, no longer puts a bar and the tax is leviable on the users of the service in respect of service as per Rule 2(d)(xvii) of the Service Tax Rules, 1994. A reference has been made to Laghu Udyog Bharati and Another Vs. Union of India and Others, judgment to highlight that in the said decision, it has been held that Rule 2(d)(xii) and (xvii) is to seek to make customer or the clients as the assessee on a particular date. The legislation can change the character of the tax or duty from impermissible to permissible tax but the tax or levy should answer such character and the Legislature is competent to recover the invalid tax validating such a tax or removing the invalid base for recovery from the State ineffectual. It is also highlighted that it is competent for the Legislature to enact the law with retrospective effect and authorise its agencies to levy and collect the tax on that basis.
According to the respondents, the amendment made by Sections 116 and 117 sought to remove infirmity in Sections 65 and 66 with regard to levy and collection of service tax in respect of service rendered by clearing and forwarding agents and the goods transport operators for the users of such services. Once the defect has been removed, the challenge is unsustainable. A reference has been made to the amendments made under Sections 116 and 117 and insertion of Section 71A in Finance Act, 1994 for the period July 16, 1997 to October 16, 1998 and by Clause 150 of the Finance Bill, 2003, which has made the position clear that the petitioners are liable to pay service tax during the period under reference. It is also put forth that by amending the provisions, the Parliament has changed the entire scenario and it is made to fulfill the legal obligations as contemplated under Sections 69 and 70. It is also put forth that the show-cause notice issued by the respondents is within limitation as it is a case of escapement of tax.
We have heard Mr. H.S. Shrivastava, learned senior counsel with Mr. S.K. Jain, advocate appearing for the petitioners and Mr. R.S. Patel, learned Senior Standing Counsel for the respondents.
The core question that arises for consideration is whether by virtue of the amendment of the Finance Act, the petitioners can be held liable for payment of service tax. Chapter V of the Finance Act, 1994 has been amended by Finance Act of 2001. The Central Government in the official gazette has fixed the appointed date to be July 1, 1994 as the date from which service tax would be leviable. It has been stated therein that all taxable services as defined in Section 65(48) could attract the provisions of the said chapter on and from the said date. Section 67 deals with valuation of taxable service for charging service tax. Section 68 deals with payment of service tax. Section 72 deals with taxable services. Various aspects are covered u/s 72. Clause (16) of Section 65 defines "clearing and forwarding agent". It reads as under:
(16) ''clearing and forwarding agent'' means any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent.
The question that falls for consideration is whether by such amendment, the base of the judgment of Laghu Udyog Bharati and Another Vs. Union of India and Others, has been taken away.
In this context we may refer with profit to the ratio laid down in the case of Laghu Udyog Bharati and Another Vs. Union of India and Others, . In the aforesaid case the apex court referred to Sections 65, 66, 67 and 68 and in paragraphs 9 See para 11 at page 623 of [1999] 115 STC and 10 See para 13 at page 624 of [1999] 115 STC held as under:
Section 68(1A) cannot, to our mind, regard a customer or a client of the clearing and forwarding agent or of the goods transport operator being treated as an assessee who will become liable to file a return and be subjected to the levy of service tax and if he does not file the return, would render himself to penalty and other proceedings. In this connection we may refer to Sections 70 and 71 which read as under:
Person responsible for collecting service tax to furnish prescribed return.--(1) Every person responsible for collecting the service tax shall furnish or cause to be furnished to the Central Excise Officer in the prescribed form and verified in the prescribed manner, a quarterly return, within fifteen days of the end of the preceding quarter, showing--
(a) the aggregate of payments received in respect of the value of taxable services;
(b) the amount of service tax collected;
(c) the amount of service tax paid to the credit of the Central Government; and
(d) such other particulars as may be prescribed.
(2) In the case of any person who, in the opinion of the Central Excise Officer, is responsible for collecting service tax under this Chapter but who has not furnished a return under Sub-section (1), the Central Excise Officer, may, before the expiry of the quarter in which the return is to be furnished, issue a notice to such person and serve it upon him, requiring him to furnish within thirty days from the date of service of the notice the return in the prescribed form and verified in the prescribed manner setting forth the prescribed particulars.
(3) Any person responsible for collecting the service tax who has not furnished the return within the time allowed under Sub-section (1) or Sub-section (2) or having furnished a return under Sub-section (1) or Sub-section (2) discovers any omission or wrong statement therein, may furnish a return or a revised return, as the case may be, at any time before the assessment is made.
Assessment.--(1) For the purposes of making an assessment under this chapter, the Central Excise Officer may serve on any person, who has furnished a return u/s 70 or upon whom a notice has been served under Sub-section (2) of Section 70 (whether a return has been furnished or not), a notice requiring him on a date therein to be specified, to produce or cause to be produced such accounts or documents or other evidence as the Central Excise Officer may require for the purposes of this chapter and may, from time to time, serve further notices requiring the production of such further accounts or documents or other evidence as he may require.
(2) The Central Excise Officer, after considering such accounts, documents or other evidence, if any, as he has obtained under subsection (1) and after taking into account any relevant material which he has gathered, shall by an order in writing, assess the value of taxable service and the amount of service tax payable on the basis of such assessment.
These sections clearly show that the return which has to be filed pertains to the payments which are received by the person rendering the service in respect of the value of the taxable services. Surely, this is a type of information which cannot under any circumstances, be supplied by the customer. Moreover the operative part of Sub-section (1) of Section 70 clearly stipulates that it is a person responsible for collecting the service tax who is to furnish the return. By rules which are framed, the person who is receiving the services cannot be made responsible for filing the return and paying the tax. Such a position is certainly not contemplated by the Act.
Section 94 gives the Central Government power to make the Rules. These Rules are to be made for carrying out the provisions of the Chapter. The Chapter relates to taxing the services which are provided. The tax is on the value of the services and it is only the person who is providing the service can be regarded as an assessee. The rules, therefore, cannot be so framed which do not carry out the purpose of the chapter and cannot be in conflict with the same.
Eventually in paragraphs 13 See para 16 at page 625 of [1999] 115 STC 14 See para 17 at page 625 of [1999] 115 STC 625 the view was expressed as under:
For the aforesaid reasons the transferred cases and the writ petitions except W.P. (C) Nos. 5, 228 and 262 of 1998 are allowed and any tax which has been paid by customers or clients of the clearing and forwarding agents or of the goods transport operators shall be refunded within twelve weeks on their making a demand for refund.
All the intervention applications are dismissed except those which were allowed earlier.
At this juncture, it is thought apposite to reproduce Sections 116 and 117:
116 Amendment of Act 32 of 1994.--During the period commencing on and from the July 16, 1997 and ending with the October 16, 1998, the provisions of Chapter V of the Finance Act, 1994 shall be deemed to have had effect subject to the following modifications, namely:
(a) in Section 65,--
(i) for Clause (6), the following clause had been substituted, namely:
(6) ''assessee'' means a person liable for collecting the service tax and include--
(i) his agent; or
(ii) in relation to services provided by a clearing and forwarding agent, every person who engages a clearing and forwarding agent and by whom remuneration or commission (by whatever name called) is paid for such services to the said agent; or
(iii) in relation to services provided by a goods transport operator, every person who pays or is liable to pay the freight either himself or through his agent for the transportation of goods by road in a goods carriage;
(ii) after Clause (18), the following clauses had been substituted, namely :--
(18A) ''goods carriage'' has the meaning assigned to it in Clause (14) of Section 2 of the Motor Vehicles Act, 1988 (59 of 1988);
(18B) ''goods transport operator'' means any commercial concern engaged in the transportation of goods but does not include a courier agency;
(iii) in Clause (48), after Sub-clause (m), the following Sub-clause had been inserted, namely:
(ma) to a customer, by a goods transport operator in relation to carriage of goods by road in a goods carriage;
(b) in Section 66, for Sub-section (3), the following Sub-section had been substituted, namely:
(3) on and from the July 16, 1997, there shall be levied a tax at the rate of five per cent of the value of taxable services referred to in Sub-clauses (g), (h), (i), (j), (k), (l), (m), (ma), (n), and (o) of Clause (48) of Section 65 and collected in such manner as may be prescribed.
(c) in Section 67, after Clause (k), the following clause had been inserted, namely:
(Ka) 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 road in a goods carriage and includes the freight charges but does not include any insurance charges:
Validation of certain action taken under Service Tax Rules.--Notwithstanding anything contained in any judgment, decree or order of any court, Tribunal or other authority, Sub-clause (xii) and (xvii) of Clause (d) of Sub-rule (1) of Rule 2 of the Service Tax Rules, 1994, as they stood immediately before the commencement of the Service Tax (Amendment) Rules, 1998, shall be deemed to be valid and to have always been valid as if the said Sub-clauses had been in force at all material times and accordingly,--
(i) any action taken or anything done or purported to have been taken or done at any time during the period commencing on and from the July 16, 1997 and ending with the day, the Finance Act, 2000, receives the assent of the President shall be deemed to be valid and always to have been valid for all purposes, as validly and effectively taken or done;
(ii) any service tax refunded in pursuance of any judgment, decree or order of any court striking down Sub-clauses (xii) and (xvii) of Clause (d) of Sub-rule (1) of Rule 2 of the Service Tax Rules, 1994 before the date on which the Finance Act, 2000 receives the assent of the President, shall be recoverable within a period of thirty days from the date on which the Finance Act, 2000 receives the assent of the President, and in the event of non-payment of such service tax refunded within this period, in addition to the amount of service tax recoverable, interest at the rate of twenty-four per cent per annum shall be payable, from the date immediately after the expiry of the said period of thirty days, till the date of payment.
Explanation.--For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force.
It is well-settled in law that by the legislative amendment the base of a judgment can be taken away. In this context we may usefully refer to the decision rendered in the case of I.N. Saksena v. State of Madhya Pradesh AIR 1976 SC 2250, wherein the apex court expressed the view that Legislature cannot by bare declaration, without more, directly over rule, reverse or override a judicial decision. It may, at any time in exercise of the plenary powers conferred on it by Articles 245 and 246 of the Constitution render a judicial decision ineffective by enacting a valid law on a topic within its legislative field fundamentally altering or changing with retrospective, curative or neutralizing effect the conditions on which such decision is based. In the case of Shri Prithvi Cotton Mills Ltd. and Another Vs. Broach Borough Municipality and Others, it has been clearly held that a court''s decision always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. A mere declaration by the Legislature that the decision of a court could not be binding or would not be given effect to, tantamounts to reversal of the said decision which is impermissible. In this regard we may refer with profit to the decision rendered in the case of Utkal Contractors and Joinery (P) Ltd. and Others Vs. State of Orissa, . Similar view has been expressed in the decision rendered in the case of Bhubaneshwar Singh and Bimla Devi Poddar and Others Vs. Union of India (UOI) and Others, wherein their Lordships ruled that the Legislature can make judgment and order of competent court ineffective if it removes the statutory vices which had led to those judgments or the base of invalidity of the provisions. In this regard, it is appropriate to refer to the Constitution Bench judgment rendered in the case of State of Tamil Nadu Vs. M/s. Arooran Sugars Ltd., . In the aforesaid case the apex court referred to the decision rendered in the case of West Ramnad Electric Distribution Co. Ltd. Vs. State of Madras, , Udai Ram Sharma v. Union of India AIR 1968 SC 1138, Hindustan Gum and Chemicals Ltd. Vs. State of Haryana and Others, and eventually expressed the view as under:
It is open to the Legislature to remove the defect pointed out by the court or to amend the definition or any other provision of the Act in question retrospectively. In this process it cannot be said that there has been an encroachment by the Legislature over the power of the judiciary. A court''s directive must always bind unless the conditions on which it is based are so fundamentally altered that under altered circumstances such decision could not have been given. This will include removal of the defect in a statute pointed out in the judgment in question, as well as alteration or substitution of provisions of the enactment on which such judgment is based, with retrospective effect.
The thrust of the matter is whether by amending Sections 65, 66 and 67, the defect has been removed. At this juncture we may refer with profit to the decision rendered in the case of Tamil Nadu Kalyana Mandapmam am Assn. Vs. Union of India (UOI) and Others, . In the aforesaid case the judgment by the High Court of Madras passed in Writ Petition No. 1617 of 1998 upholding the constitutional validity of Sections 66 and 67(o) of the Finance Act, 1994 and Rule 2(1)(d)(ix) of the Service Tax Rules, 1994 and other provisions related to Kalyana Mandapams and Mandap Keepers as intra vires was called in question. In the said decision their Lordships in paragraphs 46 to 48 (48 to 50 of 135 STC) have expressed the view thus:
The phrase ''including'' has also been construed to expand the definition as held by this Court in Regional Director, Employees'' State Insurance Corporation Vs. High Land Coffee Works of P.F.X. Saldanha and Sons and Another, observed as under (page 620):
The word "include" in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction. The word "include" is very generally. used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include.
Taxable services, therefore, could include the mere providing of premises on a temporary basis for organizing any official, social or business functions, but would also include other facilities supplied in relation thereto. There is no distinction from restaurants, hotels, etc., which provide limited access to property for specific purpose.
It may be noted that in recent times the service sector has grown phenomenally all over the world and, therefore, it was recommended by the Dr. Raja Chelliah Committee in the early 90''s that it should be taxed. Pursuant thereto, service tax was first levied in 1994 by way of the Finance Act. The power to levy such tax can be traced to serial No. 97 of List I of the Seventh Schedule and this Court in Laghu Udyog Bharati and Another Vs. Union of India and Others, , found no lack of legislative competence as far as the levy of service tax was concerned.
We have referred to the aforesaid judgment to indicate that the services made were put under a wider tax-net. In the case of H.M. Brothers (Pvt.) Ltd. Vs. Union of India (UOI), the apex court has expressed the view that Rule 2(d)(xii) to (xvii) insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires. It was also expressed that these rules are to be made for carrying out the provisions of the Chapter and the Chapter related to taxing the services which are provided. The tax is on the value of the services and it is only the person who is providing the service can be regarded as an assessee. It has also been expressed by their Lordships that the Rules which have been framed cannot be so framed which do not carry out the purpose of the Chapter and cannot be in conflict with the same. It was stated that the person who is receiving the services cannot be made responsible for filing the return and paying the tax and such a position is certainly not contemplated or covered by the Act. After amending the definition of "assessee" there has been a change in relation to service provided by a clearing and forwarding agent, every person who engages a clearing and forwarding agent and by whom remuneration or commission by whatever name called is paid for such services to the said agent or in relation to services provided by a goods transport operator, every person who pays or is liable to pay the freight either himself or through his agent for the transportation of goods by road in goods carriage, is liable.
In view of the aforesaid amendment we have no hesitation in holding that impact and effect of Laghu Udyog Bharati and Another Vs. Union of India and Others, has been diluted. As far as challenge of the constitutional validity of the amended provision is concerned, the same cannot be held to be ultra vires Articles 14 and 19(1)(g) of the Constitution. In this context, we may again refer with profit to the decision rendered in the case of Tamil Nadu Kalyana Mandapmam am Assn. Vs. Union of India (UOI) and Others, wherein in paragraphs 56 to 58 their Lordships have held as under : (page 501 of 135 STC : page 200 of 1 VST)
A tax on services rendered by mandap keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire purchase activities. Section 65, Clause (41) Sub-clause (p) of the Finance Act, 1994, defines the taxable service (which is the subject-matter of levy of service tax) as any service provided to a customer by a mandap keeper in relation to use of a mandap in any manner including the facilities provided to a customer in relation to such use also the services, if any, rendered as a caterer. The nature and character of this service tax is evident from the fact that the transaction between a mandap keeper and his customer is definitely not in the nature of a sale or hire purchase of goods. It is essentially that of providing a service. In fact, as pointed out earlier, the manner of service provided assumes predominance over the providing of food in such situations which is a definite indicator of the supremacy of the service aspect. The Legislature in its wisdom noticed the said supremacy and identified the same as a potential region to collect indirect taxes. Moreover, it has been a well-established judicial principle that so long as the legislation is in substance, on a matter assigned to a Legislature enacting that statute, it must be held valid in its entirety even though it may trench upon matters beyond its competence. Incidental encroachment does not invalidate such a statute on the grounds that it is beyond the competence of the Legislature (Prafulla Kumar Mukherjee v. Bank of Commerce AIR 1947 PC 60). Article 246(1) of the Constitution specifies that the Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution. As per Article 246(3), the State Government has exclusive powers to make laws with respect to the matters enumerated in List II (State List). In respect of the matters enumerated in List III (Concurrent List) both Parliament and State Government have powers to make laws. The service tax is made by Parliament under the above residuary powers.
The impugned Act was challenged on the ground that it infringed on the State''s power to levy tax on luxury vide entry 62 of the State List.
It would be appropriate to quote Mr. Justice Venkatchelliah who ruled that ''the law with respect to a subject might incidentally affect another subject in some way, but that is not the same thing as the law being on the latter subject. There might be overlapping, but the overlapping must be in law. The transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. The consequences and facts of the legislation are not the same thing as legislative subject-matter.
In view of the aforesaid we have no trace of doubt that Parliament by retrospective amendment has rectified the mistakes that formed the foundation of the case of Laghu Udyog Bharati and Another Vs. Union of India and Others, and further the amendment can be retrospectively made making the legislation valid and the challenge to the constitutional validity on the anvil and touchstone of the Articles 14 and 19(1)(g) is untenable and unacceptable. Ex Consequenti, we uphold the provisions as valid, sound and constitutional.
Presently we shall proceed to the challenge of the constitutional validity of inclusion of chartered accountants in the tax net. In this regard we may refer with profit to a Division Bench judgment of the Kerala High Court rendered in the case of All Kerala Chartered Accountants'' Association v. Union of India [2002] 258 ITR 679 : [2002] 176 CTR 268 wherein the Division Bench speaking through B.N. Srikrishna, C.J. (as his Lordship then was ) has held as under (page 689 of ITR):
In interpreting a taxing statute, the doctrine of ''aspect legislation'' must be kept in mind. In Federation of Hotel and Restaurant Association of India, etc., Vs. Union of India (UOI) and Others, , the tax was levied on chargeable expenditure incurred in the class of hotels wherein room charges were more than Rs. 400 per day per individual or more. Its constitutional validity was challenged on the ground that, in pith and substance, it was a tax on ''luxuries'' falling within entry 62 of List II of the Seventh Schedule, or a tax on the consideration paid for the purchase of goods constituting an impost of the nature envisaged in entry 54 of List II, and, therefore, outside the legislative competence of Parliament. The Constitutional Bench of the Supreme Court rejected the challenge, elaborating the theory of ''aspects legislation''. The Supreme Court observed:
In Lefroy''s "Canada''s Federal System", the learned author referring to the "aspects of legislation" under Sections 91 and 92 of the Canadian Constitution, i.e., British North America Act, 1867, observes that "one of the most interesting and important principles which have been evolved by judicial decisions in connection with the distribution of legislative power is that subjects which in one aspect and for one purpose fall within the power of a particular Legislature may in another aspect and for another purpose, fall within another legislative power". Learned author says:
...that by ''aspect'' must be understood the aspect or point of view of the legislator in legislating the object, purpose, and scope of the legislation that the word is used subjectively of the legislator, rather than objectively of the matter legislated upon.
In Union Colliery Company of British Columbia Limited v. Bryden [1899] AC 580 (PC) 587, Lord Haldane said:
It is remarkable the way this Board has reconciled the provisions of Section 91 and Section 92, by recognizing that the subjects which fall within Section 91 in one aspect, may, under another aspect, fall u/s 92.
In the aforesaid case again their Lordships came to hold as under (page 694 of 258 ITR):
Applying the law laid down by the Supreme Court in the judgments referred to above, we are of the view that the service tax levied on practising chartered accountants cannot be said to relate, in pith and substance, to entry 60 in List II of Schedule VII to the Constitution, keeping in mind the ''aspects legislation'' theory. The practice of profession of chartered accountants involves the giving of service as a professional and earning of income as a professional, apart from being registered as a professional under some applicable law. Each one of these aspects is capable of being identified by the Legislature as a subject of taxation. Upon the privilege of belonging to a profession, tax may be levied by the State Legislature in exercise of its power arising from entry 60 in List II of Schedule VII (State List). On the income arising from the practice of profession, Parliament is competent to tax it by reason of a law made in exercise of its powers relatable to entry 82 in List I (Union List). The value of the service rendered by a professional practising the profession is not the subject-matter of ''tax on profession'', within the meaning of entry 60 in the State List, as held by the Supreme Court in The Western India Theatres Ltd. Vs. The Cantonment Board, Poona, Cantonment, . The tax on profession is really a tax on the privilege of being engaged in a profession, and not with regard to any other aspect of the profession. The aspect of value of service rendered in the profession is not related to any entry in List II. Consequently, it is perfectly permissible for Parliament to legislate for a tax thereupon. The contention of Mr. Paikeday, must therefore, fail.
Their Lordships thereafter held that tax and charged amount is not hit by Article 14 of the Constitution. The Bench expressed the view as under (page 709 of 258 ITR):
The judgment of the Gujarat High Court in the case of Consultancy Engineers in Special Civil Applications Nos. 469 and 7220 of 1999 (Chartered Accountants'' Association and Gujarat Institute of Civil Engineers and Architects v. Union of India [2001] 252 ITR 53, dated December 27, 2000) was cited before us. This judgment also upholds the validity of the tax and takes the view that we are inclined to take. We are in respectful agreement with the views expressed therein. The judgment of the Madras High Court in Writ Petition No. 8539 of 2000--Indian Institute of Architects v. Union of India [2002] 258 ITR 209 (Mad) and connected matters (judgment dated October 12, 2001, per V.S. Sirpurkar and A. Kulasekaran JJ.) was also cited before us. We respect fully agree with the view taken by the Madras High Court, for upholding the constitutional validity of service tax, so far as practising chartered accountants are concerned.
In view of the aforesaid enunciation of law we have no hesitation in holding that the aforesaid provisions are not unconstitutional.
Though we have held that the provisions are not unconstitutional, we may proceed to state that if there is any other individual grievance relating to any other aspect or spectrum it is open to the petitioner to agitate the same by filing proper show cause before the competent authorities and putting forth such pleas that are available to them. We say so as we have not dwelled upon the said aspects.
Accordingly the writ petitions are disposed of without any order as to costs.