Secy. Federn. of Bus-operators Assn. of T.N. vs Union of India (UOI)

V.S. Sirpurkar, J.—This judgment shall dispose of the writ petitions mentioned above. In the said writ petitions, the petitioners have

challenged the notices sent to them by the Deputy Commissioner of Central Excise, Service Tax Cell. Practically, in all the petitions such notices

have been challenged.

By the said notice, the concerned authority has treated the no-ticees as the ""tour operators"" and requested them to register themselves with the

office and follow the procedures prescribed in the Finance Act, 1994 and the rules framed thereunder with effect from 1-4-2000. In all these writ

petitions, the contention of the petitioners is that the petitioners do not come within the mischief of the Finance Act, 1994 imposing the ""service tax

vide Section 66 read with Section 65(38) and Section 65(52) and the notice itself is without jurisdiction.

The petitioners in these petitions can be classified in the following categories:

(I) Petitioners who are ""Stage Carriage Operators"" owning a ""spare bus"" covered under a ""spare bus permit"" as per Section 72(2)(xvii) of the

Motor Vehicles Act, 1988.

(II) Petitioners who are ""Contract Carriage Operators"", owning the vehicles covered u/s 74 of the Motor Vehicles Act, 1988.

(III) Petitioners who are the owners of the ""Maxi Cabs or Taxis"" and having a permit u/s 74 of the Motor Vehicles Act, 1988.

Though we are disposing of all the writ petitions, where the petitioners are treated as ""tour operators"" u/s 65(52) of the Finance Act and/or

rent-a-cab scheme operators"" u/s 65(38) of the Finance Act, we would be dealing with the petitions under each category separately. Common

arguments were addressed by number of learned Counsel in each category.

Following is the legal background and the concerned provisions of the Finance Act, 1994 which would be necessary for appreciating the

contentions raised in these writ petitions :

5.1 Tax on ""services"" came to be introduced for the first time in the Budget presented in February, 1994. To begin with, this was to be a tax on

services provided by the Stock Brokers, Non-Life Insurance Agents and Non-telephone bills. The provisions came into effect from 1-7-1994.

The need for levying of this tax was felt as, according to the Finance Minister, ""services"" constituted about 40% of our Gross Domestic Product

(GDP) and they so far had gone tax-free in comparison to the ""goods manufactured"" which alone were taxed. It was further felt that in taxing all the

services may imply discrimination against the goods in favour of the services and perhaps, therefore, the provisions of the service tax came to be

introduced in the Central Excise Act, 1944. This tax-net was later on widened vide Finance (No. 2) Act, 1996 by including ""Advertising Agency"",

Courier Agencies"" and ""Pager Services"". Further widening was effected by including 12 additional services in Finance Act, 1997. Ultimately, in

Finance (No. 2) Act, 1998, 12 more ""services"" were defined u/s 65(48) of the Finance (No. 2) Act, 1994 under the head ""Taxable Services"".

Sub-sections (a) to (za) cover the ""taxable services"" under the provisions of the Service Tax.

5.2 For the purposes of the present controversy, the following provisions of the Finance Act are relevant. They are :

Definitions

(48) ""taxable service"" means any service provided,

(a)...

(b) ...

(n) to any person, by a tour operator in relation to a tour;

(o) to any person, by a rent-a-cab scheme operator in relation to the renting of a cab;

...

5.3 Though these two services were included in the definition of ""taxable service"", they were exempted up to 31-3-2000. However, thereafter,

they have been brought into tax-net as per Section 66(3) of the Finance Act. Section 66(3), therefore, is the ""charging section"" for these services.

5.4 It will be worthwhile to see the other relevant provisions of the Finance Act. Section 65(50) of the Finance Act, defines the term ""tour"" as

under :

(50) ""tour"" means a journey form one place to another irrespective of the distance between such places.

Section 65(51) defines the term ""tourist vehicle"", which reads as under :

tourist vehicle"" has the meaning assigned to it in clause (43) of Section 2 of the Motor Vehicles Act, 1988.

Section 65 defines the term ""tour operator"" as under :

tour operator"" means any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Central

Motor Vehicles Act, 1988 or the rules made thereunder.

The term ""cab"", ""maxi cab"", ""motor cab"" and ""rent-a-cab scheme operator"" are defined in Section 65 of the Finance Act as follows :

65(9) ""cab"" means a motor cab or maxi cab.

65(26) ""maxi cab"" has the meaning assigned to it in Clause (22) of Section 2 of the Motor Vehicles Act, 1988.

65(28) ""motor cab"" has the meaning assigned to it in clause (25) of Section 2 of the Motor Vehicles Act, 1988.

65(38) ""rent-a-cab scheme operator"" means any person engaged in the business of renting of cabs.

Section 67 of the Finance Act, 1994 provides the principles for the valuation of the ""taxable services"" Section 67(m) and (n) are as under :

67(m) in relation to service provided by a tour operator to a client shall be the gross amount charged by such operator from the client for services

in relation to a tour and includes the charges for any accommodation, food or any other facilities provided in relation to such tour;

67(n) in relation to the services provided by a rent-a-cab scheme operator to any person shall be gross amount charged by such operator from

such person for services in relation to the renting of cab and includes such rental;

These provisions which we have quoted in paragraph 5.2 above, are the provisions of the present Act, which has come on the anvil by Finance

(No. 2) Act, 1998 with effect from 16-10-1998. The earlier provisions would also be relevant to know and realize the changes effected as also for

the true interpretation of the present provisions. We must clarify before we begin the exercise of considering the various petitions that in number of

petitions, the notices have been given on the ""unamended provisions"" of the Act. i.e. under the old Section 65 before it was amended by Finance

(No. 2) Act, 1998. In some of the petitions, however, we find that the notices under the amended provisions have been given. We would be

dealing with this aspect of the notices under the unamended provisions of the Finance Act and the notices given under the amended provisions of

the Finance Act in the later part of our judgment.

On the backdrop of these provisions, let us now consider the various challenges categorywise.

I. Stage Carriage Operations :

To begin with, we will first consider the petitions filed by category (I) in paragraph 3, i.e. the petitioners who are the ""stage carriage operators

having a spare bus covered under ""spare bus permit"".

It will be seen that these vehicles under this category are particularly covered by Section 72 of the Motor Vehicles Act. In all the petitions in this

category, the concerned petitioners hold the ""stage carriage permits"" in respect of the buses owned by them. ""Stage Carriage"" is defined u/s 2(40)

of the Motor Vehicles Act, which reads as under :

Stage Carriage"" means a motor vehicle constructed or adapted to carry more than six passengers including the driver for hire or reward on

separate fares paid by or for individual passengers either for the whole journey or for the stages of the journey.

It must be clarified that in all these petitions, we are not concerned with the main vehicles, which are covered under the ""Stage carriage permit"",

an application for which has to be made u/s 70 of the Motor Vehicles Act and the procedure for grant of such permit is laid down in Section 71 of

the Motor Vehicles Act. In these petitions what we are concerned with mainly is the provisions u/s 72(2)(xvii) of the Motor Vehicles Act. We

would quote the section as that would be helpful.

Grant of Stage carriage permits. - (1) Subject to the provisions of Section 71, a Regional Transport Authority may, on an application made to

it u/s 70, grant a stage carriage permit in accordance with the application or with such modifications as it deems fit or refuse to grant such a permit:

Provided that no such permit shall be granted in respect of any route or area not specified in the application.

(2) The Regional Transport Authority, if it decides to grant a stage carriage permit, may grant the permit for a stage carriage of a specified

description and may, subject to any rules that may be made under this Act, attach to the permit any one or more of the following conditions,

namely: -

(i) ...

(ii) ...

(xvii) the vehicles to be kept as reserve by the holder of the permit to maintain the operation and to provide for special occasions;

All the petitioners in this category are the owners of the vehicles covered u/s 72(2)(xvii), which vehicles are kept as ""reserve vehicles"" for

maintaining the operation of the stage carriage and to provide for special occasion. It is obvious from the plain language of the section that such

reserve vehicle would also be covered by the stage carriage permit granted u/s 72 of the Motor Vehicles Act and it can be used by the owner

thereof ""to provide for special occasions"". Further, it is to be seen that Rule 176(7) of the Tamil Nadu Motor Vehicles Rules provides for the

maximum number of such spare buses which a permit-holder of a stage carriage can own. In all these petitions, the case of the petitioners is that

they own only one spare bus.

The first contention of the petitioners is that in order to attract the provisions of Section 65(48)(n) of the Finance Act, a person must first be a

tour operator"" and none of them is a ""tour operator"" within the meaning of Section 65(52) of the Finance Act inasmuch as the vehicles owned by

them is not a ""tourist vehicle"" and secondly, their vehicle also does not have a ""tourist permit"". In support of their contention, the learned Counsel

pointed out that as per the definition of ""tourist vehicle"" given in Section 65(51) of the Finance Act, the definition of that term in Section 2(43) of

the Motor Vehicles Act is wholly adapted.

The learned Counsel invited our attention to Section 2(43) of the Motor Vehicles Act, which reads as under :

tourist vehicle"" means a contract carriage constructed or adapted and equipped or maintained in accordance with such specifications as may be

prescribed in this behalf.

The basic contention is that the bus, which is having stage carriage permit u/s 2(40) of the Motor Vehicles Act can never be termed as a ""tourist

vehicle"" because under the very definition of the term ""tourist vehicle"", it is imperative that such vehicle should be a ""contract carriage"". The learned

Counsel vehemently argued that the term ""stage carriage"", which is defined in Section 2(40) of the Motor Vehicles Act is mutually exclusive with

the term ""contract carriage"", which is defined in Section 2(7) of the Motor Vehicles Act. The learned Counsel pointed out that a stage carriage can

never be a contract carriage and, therefore, the petitioners, vehicles, which are covered u/s 72(2)(xvii) of the Motor Vehicles Act can never have a

character of a ""tourist vehicle"".

At mis juncture, it will be seen that as per Section 2(43) of the Motor Vehicles Act, the Motor Vehicles Rules specifically provide the

conditions for a vehicle being recognised as a ""tourist vehicle"" u/s 2(43). We can conveniently refer to Rule 128 of the Motor Vehicles Rules,

which provides the conditions for a tourist vehicle other than motor cabs, maxi-cab, camper''s van, house trailer which a tourist vehicle shall

conform to. Number of specifications are given in that rule in respect of dimension, structure, door arrangement, ventilation, luggage space, seating

arrangement, painting and furnishing, lighting, fitting and accessories, etc. In short, Rule 128 specifies the standard of comforts which are required

to be there in a vehicle for being recognised as the ""tourist vehicle"" under the Central Motor Vehicles Rules. We have, therefore, no hesitation first

to hold that the first and foremost condition for a person to be held as a ""tour operator"" within the meaning of Section 65(52) of the Finance Act is

that he must be engaged in the business of operating tours in a ""tourist vehicle"" in terms of Section 2(43) of the Motor Vehicles Act and in no other

type of vehicle and, therefore, necessarily such vehicle must conform to the conditions prescribed under Rule 128 of the Central Motor Vehicles

Rules.

However, the matter does not stop there. A ""tourist vehicle"" must be a ""contract carriage"" and not a ""stage carriage"". The contention is that the

spare bus, which the petitioners own is a stage carriage and, therefore, it can never be a contract carriage and as such, it can never be a ""tourist

vehicle"". We have already seen the definition of ""stage carriage"" which means a motor vehicle constructed or adapted to carry more than six

passengers for hire or reward at separate fares paid by or for individual passengers either for the whole journey or for the stages of the journey.

It will be interesting on this backdrop to see what a ""contract carriage"" means. The definition of ""contract carriage"" is to be seen in Section 2(7)

of the Motor Vehicles Act, which reads as under :

contract carriage"" means a motor vehicle which carries a passenger or passengers for hire or reward and is engaged under a contract, whether

expressed or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a

holder of a permit in relation to such vehicle or any person authorised by him in this behalf on a fixed or an agreed rate or sum -

(a) on a time basis, whether or not with reference to any route or distance; or

(b) from one point to another, and in either case, without stopping to pick up or set down passengers not included in the contract anywhere during

the journey, and include -

(i) a maxi-cab: and

(ii) a motor cab notwithstanding that separate fares are charged for its passengers.

A glance at the definition of the ""contract carriage"" and ""stage carriage"" would suggest that both are the motor vehicles, which are used for

different purposes. While the ""stage carriage"" is meant for more than six passengers where the fares are to be paid by the individual passengers for

the whole journey or for the stages of the journey, the ""contract carriage"" would mean a motor vehicle, which would carry the passengers for

consideration and is covered under a contract for the use of such vehicle for the carriage of passengers which contract has been entered into by a

person who holds a permit in relation to that vehicle or any other person authorised by him. Such contract could be on the ""time basis"" with or

without reference to the route or distance or it could be from one point to another and again in contract carriage the passengers not included in the

contract would not be able to board into or get down from the bus anywhere in the midway. In case of ""stage carriage"" vehicle and more

particularly the ""reserve vehicle"" covered u/s 72(2)(xvii), the permit can be issued for the user of such spare vehicle u/s 88(8) of the Motor

Vehicles Act, which runs as under :

Validation of permits for use outside region in which granted. -

(1) ...

(2) ...

(8) Notwithstanding anything contained in Sub-section (1), but subject to any rules that may be made under this Act by the Central Government,

the Regional Transport Authority of any one region or, as the case may be, the State Transport Authority, may, for the convenience of the public,

grant a special permit to any public service vehicle including any vehicle covered by a permit issued u/s 72 (including a reserve stage carriage) or

u/s 74 or under Sub-section (9) of this section for carrying a passenger or passengers for hire or reward under a contract, express or implied, for

the use of the vehicle as a whole without stopping to pick up or set down along the line of route passengers not included in the contract, and in

every case where such special permit is granted, the Regional Transport Authority shall assign to the vehicle, for display thereon, a special

distinguishing mark in the form and manner specified by the Central Government and such special permit shall be valid in any other region or State

without the countersignature of the Regional Transport Authority of the other region or of the State Transport Authority of the other State, as the

case may be.

(emphasis supplied).

According to the learned Counsel appearing for the petitioners, the ""spare buses"" or ""reserve vehicles"", as they can be called, covered u/s 72(2)

(xvii) of the Motor Vehicles Act can be used only u/s 88(8) of the Motor Vehicles Act and that such permit will be only a ""special permit"". Their

basic argument is that when a vehicle which is covered under the stage carriage permit is run under the special permit u/s 88(8), it cannot be said

that it takes the character of the ""contract carriage"". Their further argument, therefore, is that it then clearly remains out of the definition of the

tourist vehicle"" u/s 2(43) of the Motor Vehicles Act which makes it essential that a ""tourist vehicle"" must be a ""contract carriage"".

When we look at the impugned notice, it is clear that it is perhaps only because of this provision u/s 88(8) of the Motors Vehicles Act that the

authorities have taken a view that a vehicle covered u/s 72(2)(xvii) of the Motor Vehicles Act is also capable of being used as a ""tourist vehicle"" as

contemplated u/s 2(43) of the Motor Vehicles Act and, therefore, covered u/s 65(51) of the Finance Act. The first contention of the petitioners,

therefore, is that their vehicles, which are stage carriage, can never be a contract carriage even if they can be used under a special permit u/s 88(8)

because they will never lose their character as ""stage carriage"" even while they are being used under a ""special permit"" covered u/s 88(8) of the

Motor Vehicles Act. Though the contention is attractive, it lacks substance. It will be seen that even u/s 72, which provides for the grant of stage

carriage permit, Clause (xviii) of Sub-section (2) thereof provides as under :

(xviii) the conditions subject to which the vehicles may be used as a contract carriage.

The provision clearly provides that u/s 72 itself, under which the Regional Transport Authority gets a power to grant a stage carriage permit,

the said authority can make the stage carriage permit conditional. If under that very section, Sub-section (2) (xviii) provides the conditions subject

to which the said vehicle may be used as a ""contract carriage"" then it is obvious that there is nothing like a watertight compartment between the

stage carriage"" and ""contract carriage"". It is to be seen that under Clause (xvii) the Regional Transport Authority can provide for keeping the

reserve vehicle for maintaining the stage carriage operations as also to provide for special occasions. Immediately thereafter follows Clause (xviii)

under which, the vehicle can be allowed to be used as a contract carriage. When we read these two conditions along with Section 88(8) of the

Motor Vehicles Act, it becomes clear that though the reserve vehicle is ordinarily a stage carriage and is covered by a permit for stage carriage, it

can be allowed to be used as a contract carriage and Section 88(8) is nothing but a special kind of permission. The language of Section 88(8) of

the Motor Vehicles Act and more particularly the following words would clearly bring out the position that when a vehicle is used u/s 88(8), it is

nothing but a ""contract carriage"".

The words, on which we rely for this interpretation, are :

the State Transport Authority may, for the convenience of the public, grant a special permit to any public service vehicle including any vehicle

covered by a permit issued u/s 72 (including a reserve stage carriage) or u/s 74 or under Sub-section (9) of this section for carrying a passenger or

passengers for hire or reward under a contract, express or implied, for the use of the vehicle as a whole without stopping to pick up or set down

along the line of route passengers not included in the contract, . . .

(emphasis supplied).

If we turn to the definition of the ""contract carriage"", which is defined in Section 2(7) of the Motor Vehicles Act, it becomes clear that there is

identical language used therein (with emphasized words). Therefore, it cannot be said that the said vehicle which is covered u/s 72(2)(xvii) can

never become a ""tourist vehicle"". We hasten to add, however, that before any such vehicle is treated as a ""tourist vehicle"", it will have to conform

to the conditions laid down for the tourist vehicle in Rule 128 of the Motor Vehicles Rules. That would by far be the only condition.

Now turning back to Section 65(52), which defines ""tour operators"", it merely mentions ""user of a tourist vehicle"" covered by a permit granted

under Central Motor Vehicles Act, 1988 or the rules framed thereunder by a person engaged in the business of operating tours. It, therefore,

cannot be countenanced that a reserve vehicle under the stage carriage permit cannot acquire the character of contract carriage and can, therefore,

never be terrrted as a ""tourist vehicle"" and therefore the owners of such vehicles cannot be covered under the Finance Act and more particularly

u/s 66(52) thereof.

Learned Counsel Mr. Palani, drew our attention to the Apex Court ruling reported in Achyut Shivram Gokhale Vs. Regional Transport Officer

and Others, . After carefully considering the said ruling, we are of the opinion that it does not apply to the present controversy at all. In the first

place, in that case the Supreme Court was considering the question of the right of some petitioners to get a permit u/s 63(6) of the old Motor

Vehicles Act, which is comparable to Section 88(8) of the present Act. In that case, State of Maharastra had floated a scheme u/s 68(d) of the old

Act providing for exclusive operation of contact carriages on the said routes by the State Transport Corporation to the complete exclusion of all

other persons including the petitioners in that case. There were, however, seven exceptions carved out. The petitioner, who was not covered under

any of those exceptions applied for a special permit u/s 63(6) of the Act in relation to his motor vehicle on one particular route for a period of five

days. His application was rejected on the ground that the said route, under the scheme, exclusively belonged to the State Transport Corporation

and in the absence of No Objection Certificate from the Corporation, the said petitioner could not be permitted to operate on that route. His

application was, therefore, rejected by the Regional Transport Authority. An appeal came to be filed against it before the Tribunal who allowed the

appeal of the said petitioner on the ground that the special permit issued u/s 63(6) of the Act was not a contract carriage permit and under the

scheme the exclusive rights were only in respect of the contact carriages in favour of the State Transport Corporation. Since the special permit u/s

63(6) was not a contract carriage, the permit was liable to be given. The judgment of the Tribunal so holding was challenged by the Corporation

by a writ petition. The High Court took the view that the permit u/s 63(6) could also be called as a contract carriage and, therefore, allowed the

petition. The Supreme Court took the view that the permit u/s 63(6) could not be said to be a contact carriage permit as contemplated under the

scheme and the contrary view taken by the High Court was incorrect.

This judgment is very heavily relied upon by Mr. Palani as also by Mrs. Gopalan and they contend that the permit u/s 88(8) of the Motor

Vehicles Act, which is pari materia of Section 63(6) of the old Motor Vehicles Act, cannot be viewed as a contract carriage permit under any

circumstances and, therefore, it would always remain outside the purview of Section 2(7) of the Motor Vehicles Act and a vehicle covered under

such permit can never be said to be a tourist vehicle. The learned Counsel very heavily relied upon paragraph 4, which is as under :

It is no doubt true that the special permit issued under Sub-section (6) of Section 63 of the Act has some of the features of a contract carriage

permit but it is not the same as a contract carriage permit. The distinguishing features of these two types of permits are these: (1) A permit for

which an application is made u/s 49 of the Act and which is granted u/s 51 of the Act is called a contract carriage permit. A permit issued u/s 63(6)

of the Act is called a special permit. (2) While a contract carriage permit issued by the Regional Transport Authority of any one region is not valid

in any other region unless the permit has been countersigned by the Regional Transport Authority of the other region as provided u/s 63(3) of the

Act. A special permit issued by the Regional Transport Authority u/s 63(6) of the Act is valid in any other region or State without the countersig-

nature of the Regional Transport Authority of the other region or the other State as the case may be. (3) While the duration of a contract carriage

permit is as prescribed u/s 58(1) of the Act, a special permit can be issued only for a specific period which may be for a few days only as in the

present case in accordance with the rules prescribed for that purpose. (4) A contract carriage permit is renewable u/s 58(2) of the Act, but there is

no corresponding provision providing for renewal of a special permit. Thus it is seen that a contract carriage permit and a special permit are not

one and the same. A special permit is ordinarily taken to meet a need that exists for a few days like carrying a marriage party or persons going on a

pilgrimage etc.

From this, the learned Counsel pointed out that the two kind of permits are entirely different. We have absolutely nothing to say about the

proposition. There can be a least doubt that a special permit u/s 88(8) and a contract carriage permit are two different things.

However, it must be remembered that in the present case, we are not concerned with the two kind of permits. The question posed before us is

whether a vehicle covered u/s 72(2)(xvii) of the Motor Vehicles Act can be viewed as a tourist vehicle. The question is not as to whether a permit

u/s 88(8) would ipso facto become a permit covering a contract carriage. It has to be borne in mind that a tourist vehicle as defined u/s 2(43) of

the Motor Vehicles Act which definition has been picked up as it is by the Finance Act, means a contract carriage constructed or adapted and

equipped or maintained in accordance with such specifications as may be prescribed more particularly the specifications prescribed under Rule

128 of the Motor Vehicles Rules. Therefore, this ruling will not help the petitioners to suggest that a vehicle covered u/s 72(2)(xvii) merely for that

reason or merely because it is having permit u/s 88(8) of the Motor Vehicles Act for its occasional use can never become a tourist vehicle. A plain

reading of the provisions of the Motor Vehicles Act says that any such vehicle which answers the description of the tourist vehicle under Rule 128

and which would run under a contract would become a tourist vehicle and once it becomes a tourist vehicle so long as it is being used under any

permit under the Motor Vehicles Act, by a person who is engaged in the business of operating the tours then, the requirement of the Finance Act

would be complete.

It must be remembered that in the aforementioned decision, the Apex Court was considering the question as to whether the petitioner was

excluded because of the scheme and whether the petitioner''s special permit could be said to be a contract carriage ""as contemplated under the

scheme"" In fact, in the beginning of paragraph 4 the Supreme Court itself says that a special permit has some of the features of the contract

carriage permit. It also says that a special permit is ordinarily taken to meet a need that exists for a few days like taking a marriage party or persons

going on a pilgrimage, etc. A spare bus, which answers the description of ""tourist vehicle"" as per Section 2(43) of the Motor Vehicles Act, if used

for taking a marriage party or taking persons on a pilgrimage would undoubtedly be a ""contract carriage under the special permit"" though the

permit under which it would be operating would not be a contract carriage permit. Once the vehicle is operating under the special permit as a

contract carriage, i.e. within the meaning of Section 2(7) of the Motor Vehicles Act, the provisions of Section 65(50) to (52) of the Finance Act

would be attracted. We do not think, therefore, that the decision is any manner helpful to the petitioners. The first contention to the. effect that a

spare bus operating under a permit u/s 88(8) of the Motor Vehicles Act can never be a contract carriage and, therefore, can never become a

tourist vehicle"" is rejected.

(emphasis supplied)

The learned Counsel thereafter contended that the permit contemplated u/s 65(52) of the Finance Act is essentially a ""tourist permit"" and since

the spare bus owned by the petitioners could be operated only u/s 88(8) of the Motor Vehicles Act by way of a special permit and not on the

basis of the tourist permit as contemplated u/s 88(9) of the Motor Vehicles Act, the provisions of Section 65(52) of the Finance Act would not be

applicable and the petitioners plying their spare buses under the special permit could not be treated as the ""tour operators"". It will be better to

firstly see what is contemplated by a ""tourist permit"".

Section 88(9) read with Section 88(11) of the Motor Vehicles Act would be the relevant provisions. They are as under :

Validation of permits for use outside region in which granted. -

...

(9) Notwithstanding anything contained in Sub-section (1) but subject to any rules that may be made by the Central Government under Sub-

section (14), any State Transport Authority may, for the purpose of promoting tourism, grant permits in respect of tourist vehicles valid for the

whole of India, or in such contiguous States not being less than three in number including the State in which the permit is issued as may be specified

in such permit in accordance with the choice indicated in the application and the provisions of the Sections 73, 74, 80, 81, 82, 83, 84, 85, 86,

Clause (d) of Sub-section 1 of Section 87 and 89 shall, as far as may be, apply in relation to such permits.

...

(11) The following shall be conditions of every permit granted under Sub-Section (9), namely:

(i) every motor vehicle in respect of which such permit is granted shall conform to such description, requirement regarding the searing capacity,

standards of comforts, amenities and other matters, as the Central Government may specify in this behalf;

(ii) every such motor vehicle shall be driven by a person having such qualifications and satisfying such conditions as may be specified by the Central

Government; and

(iii) such other conditions as may be prescribed by the Central Government.

(emphasis supplied).

The learned Counsel contend that this ""tourist permit"" is independent of and totally distinct from ""special permit"" u/s 88(8) of the Motor

Vehicles Act. Our attention is also invited by Mrs. Gopalan to the rules and more particularly to Rules 82 to 85 of the Motor Vehicles Rules. Both

the learned Counsel, viz. Mrs Gopalan and Mr. Palani pointed out that there exists a concept of ""tourist permit"" and, therefore it is obvious that any

tour operator must have a ""tourist permit"" and it is only such operators who have the ""tourist permits"" who could be recognised as the ""tour

operators"". They point out that the petitioners do not take any tourist permits as contemplated under Rules 82 to 85 and, therefore, there would be

no question of the petitioners being treated as ""tour operators"". Mrs. Gopalan also invited our attention to the Motor Vehicles Permit for All India

Tours Rules, 1993 (hereinafter referred to as the ""1993 Rules"") and pointed out that under these rules also the permits are granted and that these

rules have also been framed in exercise of the powers conferred by Sections 88(9) and (14) of the Motor Vehicles Act. In short, their contention is

that in order that a person could be termed as a ""tour operator"" within the meaning of Section 65(52) of the Finance Act, he must have a permit

either u/s 88(9) or under 1993 Rules or Rules 82 to 85 of the Motor Vehicles Rules. Unless he has such a permit and operates on the basis of

these permits, he can never come under the mischief of the Finance Act via Section 65(52).

The acceptance of this argument would cause violence to the language of Section 65(52) of the Finance Act. When we consider the language

of Section 65(52) what will be seen very prominently would be that the section does not speak of a ""tourist permit"". It only speaks of a ""tourist

vehicle"" covered by a permit granted under the Act or the rules framed thereunder. The thrust is not on the nomenclature or the classification of the

permit but it is on the user of a tourist vehicle by a ""tour operator"" and the only other condition is that such a tourist vehicle should be covered by a

permit granted under the Central Motor Vehicles Act, 1988 or the rules framed thereunder. It, therefore, cannot be said that the permit

contemplated u/s 65(52) of the Finance Act is a tourist permit alone contemplated under the Motor Vehicles Act or the rules framed thereunder.

The argument is obviously based on the faulty logic that in Section 65(51) and (52) of the Finance Act the term ""tourist vehicle"" is used and the

Motor Vehicles Act provides for the ""tourist permit"" u/s 88(9) read with Rules 82 to 85 or under 1993 Rules only for ""tourist vehicles"" and

therefore, any ""tourist vehicle"" must have a ""tourist permit"". The logic is obviously incorrect because even under the Motor Vehicles Act a ""tourist

vehicle"" does not necessarily need a ""tourist permit"". All that is contemplated u/s 2(43) of the Motor Vehicles Act while defining the ""tourist

vehicle"" is that it should be a ""contract carriage"" and should have been constructed or adapted and equipped or maintained in accordance with the

specifications prescribed. We have already pointed out that those specifications are provided in Rule 128 of the Motor Vehicles Rules in case of

vehicles other than motor cabs. Therefore, even if the Motor Vehicles Act and the Rules framed thereunder contemplate the tourist permit, it is not

necessary that every tourist vehicle must have a ""tourist permit"". Again, it is to be seen that we would be bound by the language of Section 65(50)

to (52) alone in interpreting those provisions. Merely because the Motor Vehicles Act provides for ""tourist permit"", it would not mean that Section

65(52) of the Finance Act also contemplates only a ""tourist permit"". We cannot do violence to the language of the provisions by holding that a

tourist vehicle"" contemplated under the Finance Act must be a vehicle having only ""tourist permit"" as contemplated u/s 88(9) of the Motor Vehicles

Act read with Rules 82 to 85 or under the 1993 Rules and merely because the petitioners do not have those ""tourist permits"" under the

abovementioned provisions the petitioners are outside the ambit of the Finance Act. All that would be required is that a ""tour operator"" must have

taken a tour as contemplated u/s 65(50) of the Motor Vehicles Act in a ""tourist vehicle"" and the said ""tourist vehicle"" must have been covered by a

permit granted under the Central Motor Vehicles Act that would complete the requirements.

In this behalf there is one more reason, which would support our aforementioned deductions. Prior to its amendment by Finance (No. 2) Act

of 1998 with effect from 16-10-1998, ""tour operator"" was defined by Section 65(44) and it was as under :

65(44) ""tour operator"" means a person who holds a tourist permit granted under the rules made under the Motor Vehicles Act, 1988 (59 of

1988)"".

The learned Senior Counsel for the Department, Mr. Chandrasekaran, points out that the language of the unamended section very certainly

provided that a ""tour operator"" must hold only a ""tourist permit"" contemplated under the Rules made under the Motor Vehicles Act. However, the

amended provision now in vogue does not contemplate a ""tourist permit"" granted under the rules but contemplates ""a permit granted under the

Central Motor Vehicles Act or the Rules made thereunder"" covering the ""tourist vehicles"" used by the ""tour operator"".

The contention is undoubtedly correct. While in the unamended provision, there is no reference to a ""tourist vehicle"" at all, the concept of

tourist vehicle"" is now introduced in Section 65(51) and a subtle change has been introduced contemplating only a permit granted under the Act

and the Rules in contradistinction to a tourist permit granted under the rules- made under the unamended Section 65. It will be seen that under the

Motor Vehicles Act, the term ""tourist permit"" did not occur. It occurred only in Rules 82 to 85. Perhaps, therefore, the language of the old Section

65(44) contemplated a ""tourist permit"" granted under the rules. By the amendment, the whole concept has been changed and what is now

contemplated is only ""a permit granted under the Act and the Rules"". Even at the cost of repetition, we may show that a tourist permit is not

granted under the Motor Vehicles Act. It is not even contemplated therein. The terminology of ""tourist permit"" is not to be found even in Section

88(9) of the Motor Vehicles Act. It is to be found only under the Rules 82 to 85. Therefore, it is obvious that the ""tourist permit"" is not required for

attracting the provisions of Section 65(52) of the Finance Act as contended by the learned Counsel.

On the backdrop of what we have found, it would not be necessary for us to consider the three rulings cited by Mr. Palani. They being State

of Punjab Vs. Jullunder Vegetables Syndicate, ; Commissioner of Income Tax, Patiala and Others Vs. Shahzada Nand and Sons and Others, and

Ashutosh Swain and Others Vs. State Transport Authority and Others, . The last mentioned reported decision is not apposite to the present

controversy and pertains to entirely different situation. The two judgments reported in AIR 1966 Supreme Court speak about the principles of

interpretations of fiscal statutes. There can be no difficulty about these rulings and the principles laid down therein. The rulings are being pressed

into service by Mr. Palani on the backdrop of his contention that this being a taxing statutes, we must employ a very ""strict construction"" while

interpreting Sections 65(51) and (52) of the Finance Act. According to him, Section 65(52) covers only the ""tourist permits"" which are must in the

user of a ""tourist vehicle"" under the Motor Vehicles Act. We have already pointed out that such is not the case here and that even under the Motor

Vehicles Act, the term ""tourist vehicle"" has no unseverable bond with the term ""tourist permit"" contemplated under Rules 82 to 85 of the rules

framed under the Motor Vehicles Act.

Lastly, it was contended by Mr. Palani that even under the circular issued, under paragraph 2.2 thereof, it is contemplated that a ""tourist

permit"" is granted only for a ""tourist vehicle"". He relies on the following sentences, viz.

The term ""tour operator"" covers any person who holds a ""tourist permit"" in respect of any vehicle. The service tax on tour operators is on

operators who run/operate a tour on a motor vehicle provided that the tour operator holds a tourist permit under the Motor Vehicles Act, 1988 in

respect of any motor vehicle.

The learned Counsel very heavily realised on this circular, which is dated 22-8-1997. We have already pointed out that such is not the

requirement any more because of the substitution of the old provisions of Section 65 by the new provisions by Finance (No. 2) Act, 1998 with

effect from 16-10-1998. This is apart from the fact that the circulars will not govern the main provisions of the Act. The argument is, therefore,

rejected.

We have, therefore, no hesitation in dismissing the petitions of the petitioners who are the holders of the ""State Carriage Permits"" and are the

owners of the spare buses, covered under ""spare bus permits"" as per Section 72(2)(xvii) of the Motor Vehicles Act, 1988. Even if the notices to

these petitioners were given under the unamended provisions, yet the amendments would not invalidate the notices. The notices would still hold

good as by those notices the petitioners are treated as ""tour operators"" and asked to register themselves. Therefore, the notices given under the

amended or unamended provisions would not make any difference.

At this stage, all the learned Counsel pointed out that the petitioners'' spare buses may not be the ""tourist vehicles"" within the meaning of

Section 2(43) of the Motor Vehicles Act and, therefore, they are not liable. Indeed, if the vehicles owned by the petitioners are not the ""tourist

vehicles"" within the meanings of Section 2(43) of the Motor Vehicles Act read with Rule 128 of the rules framed thereunder then, such petitioner

would not be required to be registered under the Finance Act. The learned Senior Counsel for the Department very fairly accepted this position.

However, he pointed out that it would be for the petitioners to raise their objections before the concerned authorities under the Finance Act and

their objections would be decided upon. Therefore, the petitioners are permitted to raise the objections before the concerned authorities issuing the

notices and the authorities will decide as to whether the petitioners'' vehicles are the ""tourist vehicles"" as contemplated u/s 2(43) of the Motor

Vehicles Act, which is sine qua non for the application of the Finance Act. Needless to mention that if they are not the ""tourist vehicles"", the

provisions of the Finance Act would not apply and more particularly the provisions of Section 65(51) and the other allied sections like Section

66(3), etc.

No other point was argued before us in respect of the ""stage carriage operators"".

We would have ordinarily disposed of all these petitions here. However, in the connected group of writ petitions filed by the ""rent-a-cab

scheme operators"", the question of ""legislative competence"" was raised, which can be made applicable to the present category of writ petitions.

Therefore, we would pass the final orders on these writ petitions only after considering the challenge of ""legislative competence"".

II. ""Contract Carriage Operators"":

We are now concerned with the second category of petitioners, viz. petitioners who are ""contract carriage operators"", owning the vehicles

covered u/s 74 of the Motor Vehicles Act, 1988.

The only contention raised by Mrs. Gopalan is akin to what she had raised in respect of the ""State Carriage Operators"", i.e. the permit granted

u/s 74 of the Motor Vehicles Act for contract carriage operators would not attract the provisions of Section 65(52) of the Finance Act unless it is

a ""tourist permit"".

We have already rejected that argument holding that a permit contemplated u/s 65(52) of the Finance Act need not necessarily be a ""tourist

permit"". We have also clarified therein that the only condition is that the vehicle should be a ""tourist vehicle"" u/s 2(43) of the Motor Vehicles Act; it

should be used by the concerned tour operator for the purposes of a ""tour"" and the said ""tourist vehicle"" should have been covered by any permit

granted under the Motor Vehicles Act and/or the Rules framed there under. We do not see as to how the cases of the holders of contract carriage

permits would be in any manner different from the holders of the stage carriage permits and the owners of the spare buses thereunder. The same

rationale would apply even to the contact carriage vehicles covered by the permit u/s 74 of the Motor Vehicles Act. In fact, the most of the

petitioners, who are having the contract carriage, are having the permits u/s 88(9) of the Motor Vehicles Act read with Section 82, which are

nothing but ""tourist permits"", issued for the purpose of promoting the tourism and obviously issued to the tourist vehicles as contemplated under

that section. Therefore, there will be no question of entertaining their objections and they will straightaway be covered u/s 65(52) of the Finance

Act. Such petitions, where the permits are u/s 88(9) of the Motor Vehicles Act, would be straightaway liable to be dismissed and are dismissed as

such.

Even if the petitioners permits are only u/s 74 of the Motor Vehicles Act for contact carriage, that would not save the petitioners because what

is required is not a ""tourist permit"" but a ""user of a tourist vehicle"" by the tour operator in his business and further such ""tourist vehicle"" should have

been covered under a permit granted under the Motor Vehicles Act and/or the rules framed thereunder. There would be, therefore, no question of

treating the holders of the permits u/s 74 of the Act for the contract carriage in any different manner.

No other point was argued before us in respect of ""contract carriage operators"".

We would have ordinarily disposed of these petitions here with the rider as mentioned in paragraph 36 supra. However, the challenge of

legislative competence"" was raised in the connected category of ""rent-a-cab scheme operators"", which can be made applicable to the present

situation. Therefore, we would pass the final orders only after considering those challenges.

III. Maxi Cabs/Motors Cabs:

We will now consider the writ petitions in case of the persons or organisations that are ""motor cab owners"" or ""maxi cab operators"".

Common arguments were addressed by Mrs. Nalini Chidambaram, learned Senior Counsel, Mrs. Radha Gopalan and Mr. D. Palani, learned

Counsel in respect of this category. The permit for plying the motor cab is also covered u/s 74 of the Motor Vehicles Act, which is the provision

for grant of ""contract carriage permit"". The provisions of Sub-sections (v), (vii) and (viii) of Section 74 of the Motor Vehicles Act speak about the

motor cab permits"". The term ""cab"" is already defined vide Section 65(9) of the Finance Act meaning a ""''motor cab"" or a ""maxi cab"". While the

definition of ""maxi cab"" has been literally lifted from Section 2(22) of the Motor Vehicles Act so also the definition of ""motor cab"" has been lifted

from Section 2(25) of the Motor Vehicles Act.

The most important provision in this behalf is Section 35(38) of the Finance Act which suggests that ""rent-a-cab scheme operator"" means any

person engaged in the business of renting of cabs. This definition is extremely general and wide. Any person who is in the business of renting the

cabs, meaning ""motor cab"" and ""maxi cab"", would be deemed to be a ""rent-a-cab scheme operator"" as per this section. Immediately thereafter, it

would be worthwhile to see that u/s 65(48)(o) of the Finance Act, the services provided to any person by a rent-a-cab scheme operator in relation

to renting of a cab has been declared to be a ""taxable service"" and this service is made taxable u/s 66(3) as amended. The only other provision

which would be worth seeing would be Section 67(n) under which, the taxable service provided by a rent-a-cab scheme operator shall be the

gross amount charged by such operator from such persons for services in relation to the renting of a cab and includes such rental. It will, therefore,

be seen that the Finance Act takes into its sweep the services provided to any person by any person engaged in the business of renting of motor

cabs or maxi cabs. Section 2(22) of the Motor Vehicles Act provides ""maxi cab"" means any motor vehicle constructed or adapted to carry more

than six passengers but not more than twelve passengers excluding the driver for hire or reward. Similarly, Section 2(25) of the Motor Vehicles

Act provides ""motor cab"" means any motor vehicle constructed or adapted to carry not more than six passengers excluding the driver for hire or

reward.

There can be no doubt that such motor cabs or maxi cabs are plied as ""contract carriages"" and/or u/s 88(9) of the Motor Vehicles Act read

with Rules 82 to 85 of the Motor Vehicles Act. It would, therefore, be clear that the moment a vehicle which carries the permit as a ""motor cab"" or

maxi cab"" is rented by a person, who is engaged in the business of renting cabs, such person who is so engaged in the business of renting cabs

would be in the tax dragnet of service tax.

The main argument by some of the learned Counsel was that a person who owns a motor cab or maxi cab is not a ""tour operator"" within the

meaning of Section 65(52) of the Finance Act as the permit granted to ply the motor cab or maxi cab is not necessarily a ""tourist permit"" nor could

such vehicles be called ""tourist vehicles"". The learned Counsel addressed us in relation to Section 65(50), (51) and (52) of the Finance Act.

We have already shown that every ""motor cab"" or ""maxi cab"" is a ""contract carriage"" and would certainly come under the definition of Section

2(43) of ""tourist vehicle"" as it is required to be constructed, adapted and maintained under the Motor Vehicles Act and the Rules framed

thereunder as a ""tourist vehicle"". If any person uses such a vehicle in the business of operating tours then, certainly, such a person would be a ""tour

operator"" and would come under the dragnet of the Finance Act u/s 65(52).

However, in our opinion, the provisions of Section 65(48)(o) read with Section 66(3) of the Finance Act are extremely relevant and under any

circumstances would cover the persons like petitioners. Under those provisions, there is no necessity whatsoever of having any ""tourist permit"" as

such and it is enough if a person is engaged in the business of renting of motor cabs or maxi cabs.

It was further tried to be argued that number of petitioners did not have a licence or a permit under Rent-a-cab Scheme, 1989 under the

Motor Vehicles Act. The argument is clearly erroneous. That was a requirement only under the unamended provisions of Section 65 and more

particularly under the definition clause which then was Section 65(32). It ran as under :

rent-a-cab scheme operator"" means a person who is a holder of a licence under the Rent-a-Cab Scheme, 1989 framed by the Central

Government under Motor Vehicles Act, 1988 (59 of 1988).

We have already pointed out that the scope of amended provision, which is as per Section 65(38), has been widened by deleting the

requirement of holding a licence under Rent-a-Cab Scheme, 1989. Under the amended provision any person engaged in business of renting of

cabs becomes a rent-a-cab scheme operator.

We have, therefore, no hesitation in holding that if the petitioners are plying the motor cabs or maxi cabs and the services are provided by them

to any person in relation to the renting of the cabs, such service becomes a ""taxable service"" and, therefore, comes within the ambit of Section

66(3) of the Finance Act. In view of these provisions, it is not at all necessary to rely exclusively on Section 65(50), (51) and (52) which deal with

the services offered by the ""tour operators"". That subject is entirely distinct and separate from the subject of the services provided by a rent-a-cab

scheme operator though relevant as we have already shown in paragraph 50 while dealing with the petitions of ""tour operators"". We have already

pointed out that the only requirement is the user by a person of the ""tourist vehicles"" for the ""tour"" and being engaged in that business. We have no

doubts that a cab-owner who engages in that business for the purposes of renting a cab could also be held to be a ""tour operator"" and would be

covered u/s 65(50), (51) and (52) of the Finance Act.

We have, therefore, no hesitation in holding that if the petitioners are plying the maxi cabs or motor cabs and giving the services in relation to

the renting of a motor cab or maxi cab then, they would be in the tax-net and cannot complain that they are not covered by the Finance Act.

As it is, majority of the petitioners are having the ""tourist permits"" u/s 88(9) of the Motor Vehicles Act read with Rules 82 to 85 of the rules

framed thereunder. Such persons can never contend that the Act is not applicable to them but, even others who are simply engaged in the business

of renting the cabs would come in the taxnet.

Mr. A.E. Chelliah, learned Senior Counsel has argued about the total ""unreasonableness"" of this tax. The learned Senior Counsel addressed us

on behalf of an association of taxi-owners and pointed out various difficulties that an individual taxi-owner has to face in the business and the

tremendous expenditure, which a cab-owner has to incur simply to ply his cabs. The tone of the learned Senior Counsel argument was that such a

tax is not affordable to the ordinary cab-owner and should, therefore, be viewed as ""unreasonable"".

We are afraid such argument cannot be appreciated. Whether the services provided by rent-a-cab scheme operator should be made taxable

or not is a subject of ""legislative wisdom"". We cannot tread on that dangerous territory. That will not be our task. Again we cannot also go into the

correctness or otherwise of the calculations made in the writ petition W.P. No. whereby it has been tried to be shown that the imposition of such a

tax would completely push out the small cab-owners who more often than not are the self-employed youth. It would be for the petitioners to

persuade the authorities for ""exemption"". It is not for us to grant those exemptions. It would be open for the petitioners to make such efforts as they

are entitled within the four corners of law.

Mr. V. Prakash, learned Counsel appeared for the petitioners in W.P. No. 14724 of 2000, which has been filed by sixty-nine petitioners, all of

who deal in ""taxi business"". Some of them have purchased the cabs or have leased them under the hire purchase scheme. The business of these

persons is of leasing the cabs to the tourist taxi suppliers. All of them were brought into the service tax-net, with effect from 16-7-1997 and 1-9-

1997 respectively under Notifications of Government of India No. 27/97 dated 11-7-1997 and 37/97, dated 22-8-1997 respectively. Their

further case is that the services rendered by them were under exemption from 1-3-1999 to 31-3-2000 under Notification No. 3/99, dated 28-2-

1999. It is their case that since the said exemption has not been extended beyond 31-3-2000, the respondents have started demanding the

compliance of the service tax requirements from the petitioners.

It is claimed in these petitions that a notice came to be sent dated 30-3-2000 by the Assistant Commissioner of Central Excise, the copy of

which was sent also to the Chennai Tourist Taxi Owners Association, the members of which are supplied the cars by the petitioners. In that notice,

it is stated that the petitioners would be covered by the definition of ""rent-a-cab operators"" and their services would be liable to be taxed. Along

with this notice, dated 30-3-2000, it seems that a complete brochure is given including Annex-ure-A and Annexure-B. By Annexure-A all the

relevant ""amended definitions"" were provided while, Annexure-B provided the procedure for registration, payment of service tax, etc, giving the

clear idea regarding the interests on belated payment as also penalty for failure to pay the service-tax. Annexure-B also gives the idea as to how

the returns are to be filled in and the penalty for failure to furnish the prescribed returns. It is also provides the records which are to be maintained

by the assessees under the Act.

The learned Counsel, on the basis of the representations sent by the Chennai Tourist Taxi Operators Association, which are annexed in the

writ petition, very haltingly tried to contend that there had to be a ""tourist permit"" in case of ""motor cab"" or ""maxi cab"" owners and since there was

no ""tourist permit"", they could not be held to be ""tour operators"" as contemplated u/s 65(52) of the Finance Act. We have already shown earlier

that, in fact, the permit of the petitioners would be ""tourist permit"" and even otherwise it will not be necessary to have a ""tourist permit"" if the

petitioners or any one of them is engaged in the business of renting the cab. That by itself is a ""service"" covered under the Finance Act.

The learned Counsel then raised a question of ""legislative competence"". It was contended by the learned Counsel that Section 65(50) and

(52), Section 65(48)(n) and (o) as also Section 66(3) of the Finance Act in so far as it related to the ""tour operators"" or ""rent -a-cab scheme

operators"" like the petitioners in this category were beyond the ""legislative competence"" of the Central Government. It was pointed out this subject

of legislation would be squarely covered under Entry 56 of List-II of the VII Schedule to the Constitution of India. It was then pointed out that

since there is no specific entry in List-I covering the subject of the impugned legislation, the Central Government would have to fall back upon the

residuary entry under Entry 97 in List-I. If that is so then, it would have to be first established that the concerned legislation did not fall under any of

the State Legislation entries.

Entry 56 of List-II of VII Schedule to Constitution of India is as under:

Tax on goods and passengers carried by road or on inland waterways"". The learned Counsel reiterated that this tax was nothing but the tax on

passengers who were carried by road. According to the learned Counsel, the tax was charged because a passenger was carried in the motor cab

or maxi cab and, therefore, that fact was the integral part of the service tax levied against a ""tour operator"" or as the case may be, ""rent-a-cab

scheme operator"" because both these persons were bound to pay the tax on account of their carrying the passengers by road in ""tourist vehicles"".

The learned Counsel also argued relying on the ""doctrine of pith and substance"" that in reality though the tax was nomenclatured as ""service

tax"" and was being purported to be charged on the so-called services provided by the ""tour operators"" or as the case may be ""rent-a-cab scheme

operators"" in reality, it was a tax on the passengers because of the carrying of the passengers is an integral part and sine qua non before the ""cab

was hired or the ""tourist vehicle"" was used. The learned Counsel also reiterates that after all a ""cab"" is meant only for carrying the passengers so

also any ""tourist vehicle"" will really not remain a ""tourist vehicle"" were it not to carry passengers. Therefore, according to the learned Counsel,

carriage of the passengers in a tourist vehicle and/or a motor cab or maxi cab as the case may be, was a must before the tax could be attracted

and, therefore, it would not be in reality a tax on service but would be clearly covered under Entry 56 of List-II of VII Schedule to the

Constitution.

We shall consider the question of ""legislative competence"" a little later but, first we will consider the contentions raised in W.P. No. 9644 of

2000, which was filed on behalf of Chennai Tourtist Taxi Owners Association and argued by Mr. R. Thiagarajan, learned Senior Counsel.

In that writ petition, the learned Senior Counsel addressed on behalf of Chennai Tourist Taxi Owners Association. The learned Senior Counsel

tried to contend initially that the definition of ""rent-a-cab scheme operator"" cannot be read in isolation and it would have to be held that the

legislature meant only those cab-owners who were the holders of permit under ""Rent-a-cab Scheme, 1989"" floated under the Motor Vehicles Act.

It will be seen that under that scheme, the licence could be issued only to an operator who holds a permit under the Motor Vehicles Act for at least

fifty cabs. Learned Senior Counsel tried to urge that none of the individual members had the permit under ""Rent-a-cab Scheme, 1989"" framed

under the Motor Vehicles Act, 1988 and as such, those persons could not be brought into the dragnet of the Finance Act by reason of their being

rent-a-cab scheme operators"".

We have already pointed out that in view of the amendments made to the term ""rent-a-cab scheme operator"" as also to the other terms which

we have already referred earlier in the judgment, it is not at all necessary that any such person engaged in the business of renting the cabs should

have a licence under ""Rent-a cab Scheme, 1989"". That undoubtedly was the requirement but, that is not necessary any more in view of the clearest

possible language of the amended provisions like Section 65(38) of the Finance Act, which we have already shown earlier. The argument,

therefore, that the provisions of the Finance Act do not apply to the petitioners or the members of the association in the absence of a permit under

the ""Rent-a-cab Scheme, 1989"" floated under the Motor Vehicles Act, 1988 cannot be accepted.

The learned Senior Counsel also argued the question of these operators not having a ""tourist permit"". We have already discussed that subject

earlier and rejected the contention. The learned Senior Counsel, however, thereafter raised the question of ""legislatives competence"" in respect of

the provisions of the Finance Act. We have, in paragraphs 61 and 62, mentioned the challenge to the ""legislative competence"" raised by Mr.

Prakash, according to whom, the subject covered by this legislation was, in fact, covered under Entry 56 of List-II of VII Schedule to the

Constitution of India.

Shri R. Thiagarajan, however, did not rely on Entry 56 of List-II but, chose to rely on Entry 60 of List-I of VII Schedule to the Constitution of

India and contended that engaging a cab or making it available to the customers or renting a cab was nothing but a business as covered by that

entry and, therefore, it would be squarely covered in the Entry-60 of List-II and as such, it would be a ""State Subject"" and clearly beyond the

legislative competence of the Central Government, which relying on Article 248 and Entry 97 of List-I which is the ""residuary entry"".

Entry 60 of List-II of VII Schedule to the Constitution of India is as under:

Taxes on professions, trades, callings and employments.

The learned Senior Counsel says that this is nothing but a tax on profession, business, trade or calling. The learned Counsel relied on the celebrated

judgment reported in International Tourist Corporation and Others Vs. State of Haryana and Others, and more particularly on the observations

made in paragraphs 2 and 7. A reference was also made to a judgment of the Bombay High Court reported in Kisan Supdu Ingale Vs. Bhusawal

Borough Municipality, Bhusawal and Another, . We shall now deal with the arguments separately in respect of these two entries, viz. Entry 56 and

Entry 60 of List-II and examine as to whether the challenged legislation is covered by those entries, which fall under the ""State Subjects"".

There can be no dispute regarding the established position that if the Central legislature falls back upon the ""residuary entry"" under Article 248

then, it would have to be first shown that the challenged legislation is not covered under any of the entries in the List-II of VII Schedule.

Both the learned Counsel relied on the following observations in the celebrated decision in International Tourist Corporation case, cited supra.

The observations are as under :

Before exclusive legislative competence can be claimed for Parliament by resort to the residuary power, the legislative incompetence of the State

legislative must be clearly established. Entry 97 of List-I in the Seventh Schedule itself is specific that a matter can be brought under that entry only

if it is not enumerated in List-II or List-Ill and in the case of a tax if it is not mentioned in either of those lists. Where the competing entries are an

entry in List-II and Entry 97 of List-I, the entry in the State List must be given a broad and plentiful interpretation. Entry 56 of List-II refers to

taxes and goods on passengers carried by road or on inland waterways. It does not except National Highways and National Waterways, so

declared by law made pursuant to Entry 23 and Entry 24 of List-I. The omission of reference to National Highways in Entry 30 and Entry 89

indicates that the subject of passengers and goods carried on National Highways is reserved for inclusion in the State List. Taxes on passengers

and goods carried on National Highways also fall directly and squarely within and are included in Entry 56 of List-II. The Haryana Passengers and

Goods Taxation Act is a law made pursuant to the power given to the State Legislature by Entry 56 of List-II. The power exercisable under Entry

56 of List-II is the power to impose taxes which are in the nature of regulatory and compensatory measures. But to say that the nature of a tax is of

a compensatory and regulatory nature is not to say that the measure of the tax should be proportionate to the expenditure incurred on the

regulation provided and the services rendered. If the tax were to be proportionate to the expenditure on regulation and service it would not be a

tax but a fee. The State of Haryana incurs considerable expenditure for the maintenance of roads and providing facilities for the transport of goods

and passengers within the State of Haryana. The maintenance of highways other than the National Highways is exclusively the responsibility of the

State Government. But the State Government is not altogether devoid of responsibility in the matter of development and maintenance of a national

highway, though the primary responsibility is that of the Union Government. Since the development and maintenance of that part of the highway

which is within a municipal area is equally important for the smooth flow of passengers and goods along the national highway it has to be said that

in developing and maintaining the highway which is within a municipal area, the State Government is surely facilitating the flow of passengers and

goods along the national highway. Apart from this, other facilities provided by the State Government along all highways including national highways;

such as lighting, traffic control, amenities for passengers, halting places for buses and trucks are available for use by everyone including those

travelling along the national highways. It cannot, therefore, be said that the State Government confers no benefits and renders no service in

connection with traffic moving along national highways and is, therefore, not entitled to levy a compensatory and regulatory tax on passengers and

goods carried on national highways. There is sufficient nexus between the tax and passengers and goods carried on national highways to justify the

imposition. Section 3(3) of the Punjab Act is intra vires"".

Our attention was also drawn to the earlier decision reported in Union of India v. Harbhajan Singh Dhillon, (1972) 83 ITR 582 (SC) and more

particularly to the observations in paragraphs 20 and 59 to the same effect. The following observations in paragraph 20 are extremely apposite :

It seems to us that the function of Article 246(1) read with Entries 1-96, List-I, is to give positive power to Parliament to legislate in respect of

these entries. Object is not to debar Parliament from legislating on a matter, even if other provisions of the Constitution enable it to do so.

Accordingly we do not interpret the words ""any other matter"" occurring in Entry 97, List-I to mean a topic mentioned by way of exclusion. These

words really refer to the matter contained in each of the Entries-1 to 96. The words ""any other matter"" has to be used because Entry 97, List-I,

follows Entries 1-96, List-I. It is true that the field of legislation is demarcated by Entries 1-96, List-I, but demarcation does not mean that if Entry

97 List-I confers additional powers, we should refuse to give effect to it. At any rate, whatever doubt there may be on the interpretation of Entry

97, List-I is removed by the wide 18/134/3 terms of Article 248. It is framed in the widest possible terms. On its terms the only question to be

asked is: Is the matter sought to be legislated included in List-II or in List-Ill: No question has to be asked about List-I. If the answer is in negative

then it follows that Parliament has power to make laws with respect to that matter or tax.

These two decisions, therefore, clearly bring out a position that in this case where the competing entries are Entry 97 of List-I and Entries 56

and 60 of List-II. We will have to enquire as to whether the impugned legislation could be covered by Entry 56 or as the case may be Entry 60.

The learned Counsel, Mr. Prakash, earnestly argued that while deciding as to whether the impugned legislation falls under Entry 56 of List-II,

we would have to give the widest scope to Entry 56 and we will have to also examine the ""pith and substance"" of the impugned provisions to see

whether in reality the said provisions are covered under the said entry after a full scope is given to the said entry 56. The learned Counsel urged

that the tax which was being sought to be recovered against the petitioners, who were the ""motor cab owners"" or the ""maxi cab owners"" and were

covered in the definition of ""rent-a-cab scheme operators"" or as the case may be ""tour operators"" was in fact the tax on passengers carried by

road. As earlier stated, the learned Counsel argued that unless the passengers were carried, there could be no question of plying the ""motor

cab/maxi cab"" or for that matter any ""tourist vehicle"". According to the learned Counsel, under the said circumstances, the basic reason why the tax

was being recovered was on account of the passengers being carried and, therefore, this was nothing but a tax on passengers who were carried by

road.

The learned Counsel appearing on behalf of the respondents, however, very firmly repelled this argument by saying that in reality the tax was

on ""service sector"". He pointed out that hitherto the service sector had remained untapped for recovery of the taxes and this service sector was

being brought from 1994 and from time to time, the services were being made ""taxable services"". The learned Counsel, therefore, argued that a tax

on passengers has got nothing to do with the tax which was covered in the present provisions of Section 65(48)(n) and (o). The learned Counsel

was at pains to point out that the tax was being charged on the ""taxable service"" provided by the ""tour operator"" in relation to a ""tour"" as also the

taxable service"" provided by the ""rent-a-cab scheme operator"" in relation to the renting of a cab.

When we consider the provisions of Section 65(48)(n) and (o) the language thereof has to be appreciated independently and with its natural

meaning along with the language of Section 65(38) and Section 65(62). Considering both these provisions, it cannot be said that this amounts to a

tax on the passengers carried by road. The whole concept of the service tax is unique and could not be said to be a part of Entry 56 even if we

give broadest possible scope to that entry as is contended by the learned Counsel. The incidence of tax is the service provided by the ""tour

operator"" or the ""rent-a-cab scheme operator"" and it need not be always a service provided to a passenger at least in case of a ""rent-a-cab

scheme operator"" though the carrying of passengers may be a part of the exercise. We wish to clarify that the tax under Entry 56 is because a

passenger is carried by road while this challenged service tax is because of the service provided in locating or making available by engaging a taxi.

The tax under Entry 56 will not be payable by a person who does not own or ply a vehicle while such would not be a necessity in case of a person

who is merely in the business of engaging a cab for that, such person need not also own any taxi. It is enough if he is in the business of engaging

taxis for his customers and giving them this service.

It was the contention of the learned Senior Counsel, Mr. R. Thiagarajan, that in pith and substance, the impugned provisions amounted to a tax

on profession, trade and calling and is covered under Entry 60 of List-I of the VII Schedule to the Constitution. Learned Counsel especially relies

on the words ""trades and callings"" and contends that to run the motor cab/maxi cab and doing the business of engaging taxis for customers and

giving them this service was nothing but a ""trade or calling"" and, therefore, the Parliament could not have provided for such a tax and the provisions

are beyond the legislative competence of the Parliament. In fact, the same logic applies to this argument which is applicable to the argument that it

is covered under Entry 56 of List-II. If we see the concerned entry, it is clear that the said tax is in reality levied with the aid of Articles 246 and

The tax under this entry on profession, trade and calling is specifically limited by Articles 276(2) of the Constitution. The impost of this tax is

on a person who carries on a profession, trade, and calling or is in employment himself. Unlike the present tax, such tax cannot be transferred to

someone else. The tax on profession, trade, calling or employment is in reality on account of the fact that such a person carries on his profession,

trade or calling in that particular State. The factum of carrying on of the profession, trade, calling or being in employment is the only relevant

circumstance while the present service tax is clearly for the services in relation to renting of a cab or in relation to a tour. What we have said in

paragraphs 75 and 76 applies here also. It cannot be said that merely because a ""tour operator"" or ""rent-a-cab scheme operator"" carries on the

trade or calling of conducting tours or engaging cabs, tax on services provided by these persons would amount to a tax on trade or calling. We

have already pointed out earlier that the thrust is not on the factum of carrying on a trade or calling in the State which is the import of Entry 60 even

after giving the broadest possible scope to the language of that entry but the same is of the ""service"" provided by a ""tour operator"" or ""rent-a-cab

scheme operator"" in relation to the tour or as the case may be engaging a cab. Provision of a service is a distinct and separate aspect from the

aspect of a profession, trade and calling. There may appear to be some overlapping inasmuch as when a service is provided by a ""tour operator

or ""rent-a-cab scheme operator"", he certainly does it in pursuance of his trade or calling but that by itself would not confer the tax on service or

would not give a colour to that tax. All taxes on profession, trade or calling are covered by Entry 60 of List II. The aspect of service provided is

distinct and separate aspect from the aspect of the fact of carrying on a profession, trade or calling in a particular State and it can never be said that

the two aspects are identical and amount to one and the same thing and that both the Parliament as well as the State Legislatures are taxing on the

same aspects.

This aspect and more particularly as to what is precisely meant by the ""professional tax"" has been considered by the Supreme Court in The

Western India Theatres Ltd. Vs. The Cantonment Board, Poona, Cantonment, . In fact, in this case, the Supreme Court was considering the

entries under the Government of India Act, 1935 u/s 100. However, the observations made regarding the ""professional tax"" would be extremely

telling. They are :

The entry, as we have said, contemplates a law with respect to these matters regarded as objects and a law which imposes tax on the act of

entertaining is within the entry whether it falls on the giver or the receiver of that entertainment. Nor is the impugned tax a tax imposed for the

privilege of carrying on any trade or calling. It is a tax imposed on every show, that is to say, on every instance of the exercise of the particular

trade, calling or employment. If there is no show, there is no tax. A lawyer has to pay a tax or fee to take out a licence irrespective of whether or

not he actually practices. That tax is a tax for the privilege of having the right to exercise the profession if and when the person taking out the

licence chooses to do so. The impugned tax is a tax on the act of entertainment resulting in a show. In our opinion, therefore, Section 73 is a law

with respect to matters enumerated in entry 50 and not entry 46 and the Bombay legislature had ample power to enact this law.

This suggests that a ""professional tax"" or a ""tax on trade, calling or employment"" is for the privilege of carrying on a profession; trade or calling and

the aspect of ""service"" would be totally different aspect.

Some observations in the decision reported in MR. KAMTA PRASAD AGGARWAL ETC. Vs. EXECUTIVE OFFICER, BALLABGARH

and Another, are also apposite. The Apex Court while considering the challenge to a tax imposed on the ground that it amounted to a tax on

income and therefore beyond the legislative competence of the State Legislature observed as follows :

Tax on income can be imposed if there is income. A tax on profession can be imposed if a person carries on a profession. Such tax on a

profession is irrespectively of the question of income.

In our opinion, the observations would be helpful even to appreciate the principles that ""tax on service"" would be ""distinct and separate"" and

independent"" of the tax on profession, trade or calling as per the contention of the learned Counsel.

Mr. Chandrasekaran, learned Senior Counsel for the respondents contended and in our opinion rightly that from the language of entry 56,

which entry was being pressed into service by Mr. Prakash, learned Counsel appearing on behalf of the petitioners, the tax had to be directly on

the passengers carried by the road. In the present case, such is not the position. Learned Counsel pointed out that the petitioners were trying to fix

the nature of the tax on the basis of its ""measure"". Mr. Chandrasekaran argues that in reality the argument in respect of entry 56 is based on the

language of Section 67(m) and (n). He points out that as the ""gross amount"" charged from the customers or passengers is the value of the ""taxable

service"" according to these sections. Therefore, it is being urged by the petitioners that in reality it is a tax on passengers. The learned Counsel

argues that a basic error is being committed in this and that is the ""nature of the tax"" is being decided on the basis of the ""measure of the tax"". He

points out that provisions in Section 67(m) and (n) are the measures of the tax and the ""measure of the tax"" could never be used for deciding the

nature of the tax. The learned Counsel relies on the celebrated decision reported in Sainik Motors, Jodhpur and Others Vs. The State of

Rajasthan, , cited supra, and points out that the principle in that case has been followed throughout right up to the decision in Federation of Hotels

and Restaurants case, cited supra, wherein in paragraph 17, the Supreme Court held as under:

The subject of a tax different from the measure of the levy. The measure of the tax is not determinative of its essential character or of the

competence of the Legislature. In Sainik Motors, Jodhpur and Others Vs. The State of Rajasthan, the provisions of a State law levying a tax on

passengers and goods under entry 56 of List were assailed on the ground that the State was, in the guise of taxing passengers and goods, in

substance and reality taxing the income of the stage carriage operators or, at any rate, was taxing the ""fares and freights"", both outside of its

powers. It was pointed out that the operators were required to pay the tax calculated at a rate related to the value of the fare and freight. Repelling

the contention, Hidayatullah, J., speaking for the Court, said (at p. 1484 of AIR 1961 S.C):

..we do not agree that the Act, in its pith and substance, lays the tax upon income and not upon passengers and goods. Section 3, in terms,

speaks of the charge of the tax ""in respect of all passengers carried and goods transported by motor vehicles"", and though the measure of the tax is

furnished by the amount of fare and freight charged, it does not cease to be a tax on passengers and goods ..

The learned Senior Counsel also invited our attention to the decision reported in A.S. Karthikeyan and Others Vs. State of Kerala and Another,

where the decision of Sainik Motors case was followed to explain the ""nature of entry 56"". From the observations of the Supreme Court in

paragraph 28 of Karthikeyan case, it is clear that the present tax, which is a tax on service, is entirely ""distinct and independent"" and cannot be

covered by entry 56.

We have already held that this tax, in so far as it pertains to the ""rent-a-cab scheme operators"" or ""tour operators"", cannot come under

profession, trade or calling"". In that behalf, we rely on the celebrated decision of the Apex Court in Federation of Hotels and Restaurants case,

cited supra.

In Federation of Hotels and Restaurants case, cited supra, the Apex Court was considering the ""legality"" and ""legislative competence"" of the

tax levied by the Parliament on the ""expenditure"". The impugned Act was ""Expenditure Tax Act, 1987"" which envisaged a tax at 10% ad valorem

on the chargeable expenditure incurred in the class of hetels wherein the room charges for any unit of residential accommodation are four hundred

rupees or more per day per individual. The term ""chargeable expenditure"" was defined by Section 5 of that Act and included the expenditure

incurred in or payments made in such class of hotels in connection with the provisions of any accommodation, residential or otherwise; or food or

drink by the hotel, whether at the hotel or outside, or by any other person at the hotel; or any accommodation in such hotel on hire or lease; or any

other services envisaged in that section. The challenge was on the ground that this tax, which was being imposed under Entry 97 of List-I under

Article 248 of the Constitution of India was beyond the legislative competence as in fact, this expenditure tax was squarely covered under Entry 62

of List-II which pertained to the taxes on luxuries, including taxes on entertainments, amusements, betting and gambling and also could be covered

under entry 54 of List-II as the transaction in question also amounted to ""sale of food stuff (goods)"" to the customers. The Supreme Court upheld

the validity of the levy of the tax. The Supreme Court accepted that the said tax could have and had ""distinct aspects"".

The Apex Court recognised the said ""distinct aspect"", viz., the ""expenditure aspect"" of the transaction and held the same to be falling within the

Union Power"". It held that that aspect had to be distinguished from the aspect of luxury or sale of goods. The following observations in paragraph

19 are apposite :

The submissions of the learned Attorney General that the tax is essentially a tax on expenditure and not on luxuries or sale of goods falling within

the State power, must, in our opinion, be accepted. As contended by the learned Attorney General, the distinct aspect namely, the expenditure

aspect of the transaction falling within the Union power must be distinguished and the legislative competence to impose a tax thereon sustained....

The decision in Federation of Hotels and Restaurants case is clear that even if the tax is on account of the business or calling or trade of the

taxpayer, i.e. of running a cab agency or conducting tours by using tourist vehicles or taxis, the tax is on the distinct aspect of service provided by

him and, therefore, the argument that this falls under entry 60 of List-II is clearly incorrect and has to be rejected. This challenge by the ""rent-a-cab

scheme operators"", which also is applicable to the ""tour operators"" viz. ""state carriage operators"", ""contract carriages operators"", ""cab/maxi cab

operators"" has absolutely no basis and would have to be rejected.

We have already found that the argument regarding the non-applicability of the provisions of the Finance Act to the stage carriage operators,

contract carriage operators, cab/maxi cab operators, is absolutely incorrect. We have already indicated in the judgment earlier that all those

petitions, which were argued only on the applicability of the Finance Act, would have to be dismissed. However, since later on during the course of

arguments, the question of ""legislative competence"" was also raised, we did not dismiss the matters then at the conclusion since all these petitions

were argued as a ""group matter"". We now make it clear that all the writ petitions filed by the ""stage carriage operators"", ""contract carriage

operators"", ""cab/ maxi cab operators"" and ""rent-a-cab scheme-operators"" would be liable to be dismissed and are accordingly dismissed subject

to the rider which we have spoken of in paragraph 36.

For the reasons stated above, all the above writ petitions are dismissed. No costs. Connected W.M.P. Nos. 28726 of 1997; 155, 264, 5292,

5293 of 16630 to 16633 of 1988; 9413,13773,13918,14527,15229,15236,15436, 16067,16603,16605,16912, 17372 to

17378,18715,18716,19782,19817,19987, 19988, 20701, 21247, 21788, 24355, 24540, 24846, 27970, 27973, 14043, 22928, 16820,

22836, 22837,16642,19585 to 19587 of 2000 and 650 of 2001 are closed. No costs.

We, however, wish to record our appreciation for the learned Counsel who appeared on behalf of the petitioner as well as the respondent for

their valuable assistance to the Court.