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Judgment
V.S. Sirpukar, J.—This judgment shall dispose of W. P. Nos. 1617 of 1998, etc., since all the writ petitions involve a common question
regarding the ""constitutional validity"" of the ""service tax"" levied on the ""taxable service"" provided to a client by a ""mandap-keeper"" in relation to the
use of a ""man-dap"" for social, official or business functions and also the other allied services.
The petitioners herein are the owners of the premises which are rented out for holding various functions like marriage, business conference, etc.
In al! these writ petitions, the constitutional validity of and Section 116 of the amendment Act 32 of 1994 is being challenged.
By the Finance Act, 1994, the ""service sector"" was brought under the taxnet for the first time. The said Act was amended-from time to time to
include the various services which were brought under the taxnet. Under the scheme of the Act, the impost of the tax was against the persons who
provided the services and they had to collect and pay the same. Thus, this tax could be legitimately passed on to the customers and more
particularly to the persons to whom the services were being offered.
The ""services"" offered by ""mandap-keepers"" were included for the first time by Chapter VI of the Finance Act, 1997. Some of the relevant
provisions in that Chapter are as follows :
(19) ''mandap'' means any immovable property as defined in Section 3 of the Transfer of Property Act, 1882 (4 of 1882), and includes any
furniture, fixtures, light fittings and floor coverings therein let out for consideration for organising any official, social or business function.
(20) ''mandap keeper'' means a person who allows temporary occupation of a mandap for consideration for organising any official, social or
business function.
(41) ''taxable service'' means any service provided,--
(p) to a client, by a mandap keeper in relation to the use of a mandap in any manner including the facilities provided to the client in relation to such
use and also the services, if any, rendered as a caterer.
Section 65 underwent a change and by the Finance (No. 2) Act of 1998, which became effective from October 16,1998, Section 65(19) was
renumbered as Section 65(22) while Section 65(20) was renumbered as Section 65(23). So also, the Section relating to ""taxable service"" was
renumbered as Section 65(48)(m). The numbers alone changed under the amended Act but, the language of the provisions remained the same.
It will be better to see Section 66(3), which provides that from 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-clause (1) of clause (48) of Section 65. The valuation of taxable services for charging service tax is provided
in Section 67. The relevant portion is as under :
Valuation of taxable services for charging service to.--For the purposes of this Chapter, the value of taxable services,--
(1) in relation to service provided by a mandap keeper to a client, shall be the gross amount charged by such keeper from the client for the use of
mandap including the facilities provided to the client in relation to such use and also the charges for catering, if any.
These provisions are challenged by the petitioners on various grounds.
The leading arguments were addressed by Mr. Venkatachalapathy, learned senior counsel, and Mr. Mohan Parasaran, learned counsel, and
their arguments were adopted by the other learned counsel.
For the sake of convenience, we will take the facts in W. P. No. 1617 of 1998, which writ petition is filed by the Tamil Nadu Kalyana
Mandapam Owners'' Association, represented by its President, Muktha V. Srinivasan. This is an association, registered under the Societies
Registration Act and is an association of about 310 members who are all kalyana mandap owners. The word ""kalyana mandap"" means ""marriage
hall"". It is a common case that the members of the petitioner association rent out their premises owned or possessed by them for holding
ceremonies like marriages, etc., or other social, official or business functions.
After the aforementioned provisions were introduced providing for levying the tax on the ""services"" provided by the mandap keepers, two
representations came to be made by the letters dated March 29, 1997, and June 9, 1997, respectively. In the first representation, it was pointed
out that the tax would be ""onerous"" and the customers would not be ready to pay the tax. By the second representation, it was pointed out that the
tax could not be remitted immediately after every marriage or function when the mandap was rented out and, therefore, reasonable time should be
granted from the date of rendering the services to make the payment of tax.
Shortly stated, the case of the petitioners before us is that this tax and the provisions therefore in Sections 65, 66 and 67 of the Finance Act
are firstly beyond the ""legislative competence"" of the Union of India as, in fact, in pith and substance, this tax amounts to a ""tax on land and
buildings"", which is covered by entry 49 of the State List (List II) of the Seventh Schedule to the Constitution of India. Learned counsel argued that
presumably this legislation is under the ""residuary entry"", i.e., entry 97 of the Union List (List I), and, therefore, it could have been so legislated only
if the subject of legislation was not covered by any of the entries in the State List (List II) or the Concurrent List (List III). Learned counsel further
argue that in order to test as to whether the challenged provisions fall under entry 49 of the State List (List II) or any other entry of that List, the
pith and substance"" of the legislation will have to be found and for that purpose such entry of the State List (List II) will have to be given the
widest possible interpretation"".
As a second limb of the above argument on ""legislative competence"", learned counsel points out that u/s 65(48) of the Finance Act, in addition
to the services offered in relation to the use of a mandap, the services rendered as a ""caterer"" are also included. It is then pointed out that where
the mandap keeper also provides the services as ""caterer"", the tax leviable on such mandap keeper as is in excess of the amount of service tax
calculated at 60 per cent, of the gross amount charged would be exempted by Notification dated June 26, 1997. Learned counsel submit that in
this tax, there would be an element of ""tax on sale of goods"" as covered by Article 366(29A)(f), which reads as follows :
Definitions.--In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively
assigned to them, that is to say-- . . .
(29A) ''tax on the sale or purchase of goods'' includes-- . . .
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other Article for human
consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable
consideration,
and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or
supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.
Learned counsel explain that once this is held to be a ""tax on the sale of goods"", it will also be covered under entry 54 of the State List (List
II), which reads as under :
Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I.
Learned counsel also suggest that since the definition of ""mandap"" means an immovable property described u/s 3 of the Transfer of Property
Act, the tax for the ""user of such a land"" would be a tax on land itself and would also be covered by entry 18 of the State List (List II), which reads
as follows :
Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents ; transfer and
alienation of agricultural land; land improvement and agricultural loans; colonization.
Learned counsel suggest that this would be a ""tax on land"" and, therefore, would be integrally connected with the ""tax on collection of rents
and for this reason also, the provisions are beyond the ""legislative competence"" of the Union because of the positive language of Article 248(1)
pertaining to the ""residuary powers"" enjoyed by Parliament.
In so far as the other challenge is concerned, learned counsel argue that the definition of ""mandap"" suggests that an immovable property should
have been let out for consideration for organising any official, social or business function. Learned counsel point out that there are absolutely no
guidelines in the Finance Act or the Rules to suggest as to what is meant by ""official, social or business function"". According to learned counsel, the
provision is vague and, therefore, it would be left to the ""wild discretion"" of the tax authorities to decide as to whether a particular function was a
social, official or business function"" and as such taxable. Learned counsel argue that in the absence of any guidelines as to what was precisely
meant by an ""official function"", ""social function"" or ""business function"", an untrammelled discretion would lie in the taxing authority to classify any
function as the above function named in Section 65(22) or (23). Learned counsel pointed out that there is no yardstick to measure the taxable
amount on account of ""service"" or the taxable amount on account of ""catering"". Therefore, the whole provision of Section 67(m) is totally arbitrary
when it is read with Section 65(48)(m).
As against this, learned senior counsel for the Department strongly relied on the provisions and contended that they were perfectly within the
legislative competence"" of Parliament. According to learned counsel, the service tax cannot be deemed to be a tax on land and cannot be covered
under entry 18 of List II. He further points out that it cannot also come under entry 49 of the State List (List II) as the tax covered under that entry
has got nothing to do with the tax on the ""user of the land and building"". According to learned counsel, there could be different aspects to the
taxation even if it prima facie appears to be the tax connected with the lands and buildings. Learned counsel further contended that this could not
be a tax on ""sale of goods"" and as such, was not coverable under entry 54. As regards the challenge in relation to article 366(29A)(f) is
concerned, according to learned counsel, because of the language of Sub-clause (f), this could not be viewed to be a tax on ""sale of goods"".
Learned counsel then pointed out that the term ""service"" in clause (f) has a different connotation than the word ""service"" used in the Finance Act.
As regards the challenge to the constitutionality of the impugned legislation on the grounds of ""unreasonableness"" and ""arbitrariness"", learned
counsel contended that the terms themselves are more than clear and needed no guidance. According to learned counsel, these terms were to be
understood in their common parlance and so understood, there could be no occasion for any confusion. In short, the contention of learned counsel
was that there was no ""vice"" attached to the challenged provisions either regarding the ""lack of legislative competence"" or regarding ""arbitrariness
and ""unreasonableness"".
Learned counsel appearing on behalf of the petitioners to begin with tried to argue that in pith and substance this tax was a ""tax on land and
building"". Learned counsel argue that the tax depends on the very existence of the land and/or building and is, therefore, integrally connected with
that subject. It was argued that even if a playground is rented out for any social, official or business function even then, the service tax liability
would arise. From this learned counsel argue that the impost of the tax is entirely depended upon the existence of the immovable property which
may include the land and/or building and it is only for the ""user of such land and/or building"" that the tax is charged. Learned counsel argue that for
the same reason even entry 18 of List II can be brought into service and, therefore, further argues that once the tax is found to be under any of
these entries in List II, Parliament would have no power to legislate with the help of entry 97 of List I because of the positive language of Article
248.
There could be no dispute about the proposition that Parliament would have no right to legislate under entry 97 of List I if in pith and substance
the subject covered by the impugned legislation is covered under any of the entries of List II or List III. Time and again, the apex court has
reiterated that position. It is also the consistent view of the apex court that for this purpose the courts have to give the widest possible scope to the
interpretation of the entries which are claimed by the petitioners to be connected with or to be covering the impugned legislation.
Let us first consider the argument regarding entry 18 and entry 49 of list II. The thrust of the argument is that the ""mandap"" is defined in the
Finance Act as an immovable property as defined in Section 3 of the Transfer of Property Act and includes any furniture, fixture, light fittings and
floor coverings therein, which property is let out for consideration for organising any official, social or business function. It was, therefore, pointed
out that even any piece of open land could be such immovable property when such piece of land was ""let out"" for any official, social and business
function. Learned counsel, therefore, argue that this legislation would be in respect of the land, which will be totally covered by entry 18 of List II,
which reads as follows :
Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents ; transfer and
alienation of agricultural land ; land improvement and agricultural loans, colonization.
Even a plain reading of this entry would suggest that the present tax, which is purely on account of the ""services"" offered by a ""mandap
keeper"", would be outside the topics mentioned in entry 18. The legislation is not in respect of the lands nor is it concerned with the land tenure.
Again, there is no question of the present tax depending upon the relationship of ""landlord and tenant"". It was tried to be suggested that the words
let out"" used in Section 65(22) signify the ""rent"" of the land. It is then pointed out that the language of Section 67(m) suggests that the valuation of
services"" provided by the ""mandap keeper"" would be the ""gross amount"" charged by such keeper from the client for the use of the ""mandap"" and
also the other facilities and also included the charges for ""catering services"". From this, teamed counsel argue that it was obvious that what was
being charged was the rent earned by the landlord over the piece of land which was let out for the user of the client by way of holding a social.,
official or business function. The argument is clearly an incorrect. Here the basic fallacy in the argument is that the nature of the tax is being judged
from the ""measure of the tax"". Merely because the tax is charged on the amount charged by the ""mandap keeper"" on account of his having let out
the premises, it would not mean that the tax is wholly and integrally connected with such charges and, therefore, amounts to a tax regarding the rent
of such a land or pertains to the collection of rents of that land. That would be dearly an incorrect approach which has been shunned by the
Supreme Court in the decision reported in Sainik Motors, Jodhpur and Others Vs. The State of Rajasthan, . There, the Supreme Court was
considering as to whether the State in the guise of taxing passengers and goods under entry 56 of List II was in pith and substance and in reality tax
on the income of the stage carriage operators or at any rate was taxing the fares and freights, both of which were outside its powers. It was argued
that operators were required to pay the tax calculated at the rate related to the value of the fare and freight. The apex court observed (page 1484)
:
We do not agree that the Act in its pith and substance, lays the tax upon the income and not upon the 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 Supreme Court also observed in the decision reported in Federation of Hotel and Restaurant Association of India, etc., Vs. Union of India
(UOI) and Others, as follows (headnote) :
The subject of a tax is 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.
The Supreme Court then went on to approve the aforementioned decision of Sainik Motors, Jodhpur and Others Vs. The State of Rajasthan, .
It is, therefore, clear that what is being argued that the lack of legislative competence is on the basis of the measure of tax and, therefore, such
challenge would not be available in respect of entry 18.
We then proceed to consider the argument that the service tax is in pith and substance a tax on land and/or building as covered in entry 49 of
List II. We have already pointed out that this tax could not be said to be a tax on land and/or building while considering the language of entry 18. It
is essentially a tax not on the land and/or building but, a service offered with the use of the land and/or building. The impost of the tax is on a
person who provides that service. The tax is charged in entirely virgin sector. It is that element of service alone which is the subject of tax and even
applying the theory of pith and substance it cannot be said that it would amount to a tax on land and/or building. There could be no dispute that the
tax is integrally connected with the land and/or building but, it does not mean that it is a tax on land and/or building. In our opinion, the tax on land
and/or building is charged because such land and/or building exist irrespective of the fact whether they are used or not. Their very existence is
taxable whereas, it is the ""user of the immovable property in a particular manner which amounts to a service given which has been made taxable
under the present provisions"". These two are entirely different aspects. Therefore, when we apply the theory of pith and substance to the present
tax, it does not in any way come near the barred borderline of entry 18 or entry 49 of List II let apart its entry into that barred territory.
It will be seen that impost of the tax under entry 49 of List II would essentially be vis-a-vis the land and/or building as the case may be
whereby such tax under entry 49 would be essentially connected with the proprietary or ownership rights in the said land and/or building. The
following observations of Hidayatullah J., in the decision reported in Secretary to Government of Home Department, Tamil Nadu v. Salem
Dharmapuri Omnibus Association, (1975) 4 SCC 175 , are extremely relevant in this behalf. They are (page 718) :
Since entry 49 of the State List contemplates a tax directly levied by reason of the general ownership of lands and buildings, it cannot include the
gift-tax as levied by Parliament.
(emphasis '' supplied)
When we consider the definition of ""mandap keeper"" on whom alone is the impost of service tax, it is obvious that such person need not be
having any proprietary or ownership rights in respect of the immovable property. Any person allowing the user of the immovable property for the
purposes mentioned in Section 65(22) or (23) whether he is the owner or not when provides a service for consideration, the tax is attracted. This
is again an essential feature which gives a totally different colour to this tax than the one under entry 49 of List II.
It will be better at this juncture to refer to the celebrated decision reported in Union of India v. Harbhajan Singh Dhillon, (1972) 83 ITR 582
(SC) , wherein, the aforementioned decision was approved by a larger Bench of the apex court. There, while explaining the requisites of tax under
entry 49 of List II, the apex court, in paragraph 65, observed as follows (page 612) :
The requisites of a tax under entry 49, List II, may be summarised thus :
(1) It must be a tax on units, that is lands and buildings separately as units.
(2) The tax cannot be a tax on totality, i.e., it is not a composite tax on the value of all lands and buildings.
(3) The tax is not concerned with the division of interest in the building or land. In other words, it is not concerned whether one person owns or
occupies it or two or more persons own or occupy it.
In short, the tax under entry 49, List II, is not a personal tax but a tax on property.
Even the following observations in the decision reported in Sudhir Chandra Nawn Vs. Wealth-tax Officer, Calcutta and Others, , came to be
approved in this decision. They are (page 900) :
Again entry 49, List If, of the Seventh Schedule, contemplates the levy of tax on lands and buildings or both as units. It is normally not concerned
with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings is directly imposed
on lands and buildings and bears a definite relation to it.
To similar effect were the observations by the apex court in the decision reported in The Assistant Commissioner of Urban Land Tax and
Others Vs. The Buckingham and Carnatic Co. Ltd., etc., , which also came to be approved.
The real import of entry 49 of List II is aptly decided in Union of India v. Harbhajan Singh Dhillon, (1972) 83 ITR 582 (SC) , where the
earlier decisions in respect of that entry have been considered and approved as shown by us above. Once we see the real import of entry 49 of
List II, it is clear that the present challenged legislation cannot and does not come within the scope of that entry. The present legislation is clearly in
respect of the ""services"" which area was totally untapped till the advent of the ""service tax"".
We have already referred to the background of the ""service tax"". In this behalf, it will be better to see that the concept of ""service tax"" is a
totally novel concept, which was introduced for the first time in the year 1994. Learned counsel for the respondent heavily relied on the speech of
the then Finance Minister on the floor of the House while introducing the service tax for the first time. In paragraph 87 (see [1994] 206 ITR 5), of
his speech, the then Finance Minister has referred to the fact that the ""service sector"" which accounts for 40 per cent, of our Gross Domestic
Product (GDP) was not subjected to the taxation and that there was a need to widen the base for domestic indirect taxes. The Finance Minister
argued that there was no sound reason for exempting the service sector from taxation when ""goods"" are taxed and that in many countries ""goods
and ""services"" were treated alike for tax purposes. A reference was also made to the report of the Taxation Reforms Committee suggesting tax on
services"" for broadening the base of the indirect taxes. That is how the ""services"" offered, to begin with, by telephones, non-life insurance and
stock brokers came to be charged at the rate of five per cent, of tax. Eventually, a number of other services came to be included which services
were hitherto untaxed.
This speech can be used by us to see the ""object of the service tax"" which would help us to understand the real nature thereof. In this behalf,
the observations of the apex court in the derision reported in K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, are apposite. The
apex court has approved the reference to the speech of the mover of the Bill to ascertain the object behind the legislation. The relevant
observations are found in paragraph 8 of the judgment, which are as under (page 608) :
Now, in this connection the speech made by the Finance Minister while moving the amendment introducing Sub-section (2) is extremely relevant,
as it throws considerable light on the object and purpose of the enactment of Subsection (2). The Finance Minister explained the reason for
introducing Sub-section (2) in the following words : . . .
Now, it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is
being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the
reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the
legislation and the object and purpose for which the legislation was enacted. This is in accord with the recent trend in juristic thought not only in
Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically
relevant should be admissible. In fact there are at least three decisions of this court, one in The Sole Trustee, Lok Shikshana Trust Vs. The
Commissioner of Income Tax, Mysore, , the other in Indian Chamber of Commerce Vs. Commissioner of Income Tax , West Bengal II, Calcutta,
and the third in Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, , where the speech made
by the Finance Minister while introducing the exclusionary clause in Section 2, clause (15), of the Act was relied upon by the court for the purpose
of ascertaining what was the reason for introducing that clause.
Be that as it may, it is clear that this is a tax on service and is entirely independent of and different from the existing taxes covered by the taxes
provided in List II. That itself would suggest that this cannot come within the arena of entry 49 of List II also.
In the decision reported in India Cement Ltd. v. State of Tamil Nadu , when the apex court was considering the legality and constitutional
validity of the cess on royalty on mineral rights again the scope of entry 49 of List II came to be considered. The Supreme Court held that cess on
royalty could not be sustained under entry 49 of List It as being a tax on land. It was further held that royalty on mineral rights was not a tax on
land but a payment for the ""user of the land"". It would mean that the apex court has pointed out a ""subtle distinction"" between the ""tax on the land
and the ""tax for the user of the land"". The case of the ""mandap keepers"", from the very language of the provisions, would be clearly covered by the
law laid down in this case regarding the ""user of the land"". In the present case, the tax is on the ""user"" of the ""mandap"", which is provided as a
service"" by the ""mandap keeper"". Therefore, in our opinion, the argument that the impugned legislation is covered by entry 49, List II, has to be
rejected.
Yet the third limb of the argument on ""legislative competence"" was addressed by Mr. Mohan Parasaran. This was on account of the language
of Section 65(48)(m) of the Finance Act. We will quote the said provision even at the cost of repetition.
Definitions.--. , .
(48) ''taxable service'' means any service provided,-- . . .
(m) to a client, by a mandap keeper in relation to the use of a mandap in any manner including the facilities provided to the client in relation to such
use and also the services, if any, rendered as a caterer; ...
(emphasis'' ours)
Learned counsel then takes us to Section 67, which defines the ""valuation of the taxable services"" in Section 67(1). Again, at the cost of
repetition, we quote Section 67(1) :
Valuation of taxable services for charging service tax. -
For the purposes of this Chapter, the value of taxable service,--. . .
(1) in relation to service provided by a mandap keeper to a client, shall be the gross amount charged by such keeper from the client for the use of
mandap including the facilities provided to the client in relation to such use and also the charges for catering, if any ;
(emphasis'' ours)
The thrust is again on the emphasised portion. Learned counsel says that from this it is clear that when a ""mandap keeper"" provides the
catering service"", even that service is charged. Learned counsel then invited our attention to the definition of the word ""caterer"", which is defined in
Section 65(10) of the Finance Act, which reads as under :
''caterer'' means any person who supplies, either directly or indirectly, any food, edible preparations, alcoholic or non-alcoholic beverages or
crockery and similar Articles or accoutrements for any purpose or occasion ;
According to learned counsel from the conjoint reading of Section 65(10) and Section 65(m) of the Finance Act, it is dear that when the
mandap keeper"" while providing the services of user of the ""mandap"" also supplies directly or indirectly food or beverages, then, such services
would be included in the ""taxable service"". According to learned counsel, the inclusion of the service rendered as a caterer"" is clearly beyond the
legislative competence"" of Parliament as that subject is covered in entry 54 of List II, which we have quoted already. In support of the argument,
learned counsel heavily relies on the provisions of Article 366(29A)(f) of the Constitution, which we have already quoted in the earlier part of this
judgment. The contention is that if the service of catering by a mandap keeper is included in the ""services"" provided by the ""mandap keeper"" then,
it would amount to a tax on ""sale or purchase of goods"" as it would be totally covered under clause (f) of Article 366(29A). Under clause (f) of
Article 366(29A), a tax on the supply by way of or a part of any service or in any other manner whatsoever of food or any other Article for human
consumption or any drink, intoxicating or otherwise, will be included in the tax on sale or purchase of goods. Learned counsel argues that this tax is
directly covered by entry 54 as such the supply of food is deemed to be a sale thereof by the person making the supply by way of a service. The
argument is extremely attractive.
By way of a reply, learned senior counsel for the Department, however, suggested that Article 366(29A)(f) will have no application as the
concept of service envisaged in that clause is entirely different from the concept of service, which is covered by Section 65(48)(m), the valuation of
which is provided in Section 67(1). Learned senior counsel argues that clause (29A) was introduced by way of the forty-sixth constitutional
amendment. Learned counsel, therefore, refers to the Statement of Objects and Reasons of the forty-sixth amendment and argues that Sub-clause
(f) of clause (29A) was clearly brought in because of the two earlier decisions by the Supreme Court, they being the decision in The State of
Punjab Vs. Associated Hotels of India Ltd., , as also the decision in Northern India Caterers (India) Ltd. Vs. Lt. Governor of Delhi, . In the earlier
referred case, the Supreme Court had held that there is no ""sale"" involved in the supply of food and drink by a hotelier to a person lodged in the
hotel and that the States have been proceeding on the basis of that case that this rule does not apply to the food served in a hotel restaurant to a
customer who was not necessarily staying in the hotel. However, in Northern India Caterers'' case [1978] 42 STC 386, the Supreme Court while
overruling a decision of the Delhi High Court held that service of meals even in a hotel restaurant does not constitute a sale of food for the purpose
of levy of sales tax but must be regarded as the rendering of a service in satisfaction of a human need or catering to the bodily wants of human
beings. The Supreme Court further held that it would not make any difference whether the visitor to the restaurant was charged for the meal as a
whole or according to each dish separately. From this, learned counsel argues that the Government wanted this supply of food by the hotel to the
residents as also to the non-resident guests under the taxnet for the sales tax and it is in that light that clause (f) should be read. He points out that
the ""service"" by a ""mandap keeper"" providing the food along with the service of ""user of mandap"" is of entirely a different nature and, therefore,
cannot be viewed to be covered under Article 366(29A)(f). Learned counsel again relied upon Federation of Hotel and Restaurant''s case .
Learned counsel points out that in this case also, the question of ""legislative competence"" of Parliament in enacting the ""Expenditure-tax Act"" was
involved and the term ""chargeable expenditure"" in that Act included the expenditure incurred in or payments made to a hotel in connection with the
provisions of (a) ... (not relevant)... and (b) food or drink by the hotel whether at the hotel or outside or by any other person at hotel. Learned
counsel further argues that entry 54 of List II fell directly for consideration, which would be clear from the references to it in paragraphs 10, 11, 13
and 19 of the apex court''s judgment. While the references in paragraphs 10 and 11 pertain to the contentions raised, in paragraphs 13 and 19, the
Supreme Court discusses the aspect of sale of goods. In paragraph 13, the Supreme Court says (page 115) :
The crucial questions, therefore, are whether the economists'' concept of such a tax qualifies and conditions the legislative power and, more
importantly, whether ''expenditure'' laid out on what may be assumed to be ''luxuries'' or on the purchase of goods admits of being isolated and
identified as a distinct aspect susceptible of recognition as a distinct field of tax legislation.
(emphasis1 supplied)
In paragraph 19, the court records the finding in the following words (page 120) :
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 Stale power must, in our opinion, be accepted.
(emphasis1 supplied)
From all this, learned counsel argues that the Supreme Court treated the aspect of expenditure as a separate field for taxation distinct from the
sale of goods. Similarly, in the present legislation also, the field of service has to be treated as distinct from the field of sale of goods, which would
be covered by entry 54 of the State list.
However, the above argument was tried to be countered by learned counsel for the petitioners by showing that there is not even a distant
reference to Article 366(29A)(f) and, therefore, it was tried to be urged that the aforesaid decision was without reference to the constitutional
provision.
In our opinion, the submission is wholly incorrect and, therefore, not binding. We will consider this aspect of binding nature first. There can be
no question that the Supreme Court decisions are wholly binding on us. The binding nature of the Supreme Court decisions was considered in a
recent apex court decision reported in Mahesh Kumar Saharia Vs. State of Nagaland and Others, , wherein the apex court has specifically held
and approved the earlier observations to the following effect (page 104) :
A binding effect of a decision does not depend upon whether a particular argument was considered therein or not provided that the point with
reference to which an argument was subsequently advanced was actually decided.
Again in the decision in Ballabhadas Mathurdas Lakhani and Others Vs. Municipal Committee, Malkapur, , the Supreme Court has specifically
cautioned against such a course being adopted by the High Court. We would, therefore, not venture to comment upon the judgments of the apex
court in the manner the petitioners would want us to do. The contention by learned counsel for the petitioners is, therefore, clearly incorrect. It is
quite apparent as to why no reference was made to Article 366(29A)(f) as the argument in that case was that the aspect of expenditure was a
distinct and a separate aspect from the aspect of taxability on account of the sale of goods or on account of its being the luxuries. Article 366(29A)
(f) as the argument in that case was that the aspect of expenditure was a ""distinct and separate"" aspect from the aspect of taxability on account of
the sale of goods or on account of its being luxuries. We can safely take same logic and point out that in the present matters also, the aspect of
service is totally ""independent of"" and ""distinct"" from the aspect of ""supply of food or drink"" as the case may be. In the Federation of Hotel and
Restaurant Association of India, etc., Vs. Union of India (UOI) and Others, , also the question which fell for consideration was as to whether the
tax on ""expenditure"" was validly imposed by Parliament when the said expenditure pertained to food or drink supplied by the hotel whether at the
hotel or outside or by any other person at the hotel. Mr. Chandrasekaran argues very forcefully that in spite of the striking similarity of the language
in between Section 5 of the Expenditure-tax Act and clause (f) of Article 366(29A), there could be simply no question of the said tax being
covered under entry 54 of the State List (List II) for the simple reason, the Supreme Court had found that the aspect of expenditure was ""distinct
and separate"". In the same manner, learned counsel points out that the aspect of service is totally ""distinct and separate"" in the present case.
We feel that the aspect of service is extremely important and can be viewed as a ""distinct and independent aspect"" from the very language of
Section 65(48)(m). That provision spells out the ""taxable service"" and, therefore, can legitimately be read as fixing the tax liability along with
Section 66. u/s 65(48)(m) what is taxed is taxable service to a client by a ""mandap keeper"" in relation to the use of a ""mandap"" in any manner and
includes the facilities provided to the clients in relation to such use. The last words are extremely important and they are :
and also the services, if any, rendered as a caterer.
What is, therefore, to be taxed is the ""service"" given by the ""mandap keeper"", which would mean the ""user of the mandap"" and the ""facilities
provided therein"", which ""facilities"" would be in relation to the ""user"" and also the services rendered by the ""mandap keeper"" as a ""caterer"".
Therefore, the last words of the provision clearly bring out a position that it is the service provided by the ""mandap keeper"" as a ""caterer"", which is
taxable and not the supply made by him of food, drink, etc.
Mr. Mohan Parasaran, however, drew our attention to Section 67, which provides the ""valuation of taxable service"". Clause (1) of Section 67
contains the words ""and also the charges for catering, if any"" as the concluding words of the provision. Learned counsel says that this itself suggests
that in ""pith and substance"", what is being taken as the basis of the tax is the ""gross amount"" charged by the ""mandap keeper"", which includes the
charges for the use of the mandap, other facilities and also the charges for catering and, therefore, it is clear that in effect, the ""mandap keeper"" is
being taxed for the food that he has supplied by way of a service and, therefore, such service of food, drink, etc., must be understood as a ""sale of
goods"" as per Sub-clause (f) of Article 366(29A). The basic fallacy in this logic is that the nature of the tax is being tried to be decided on the basis
of ""measure thereof"". There can be no dispute that Section 67(1) is nothing but the ""measure of the tax"", which cannot be considered while
considering the true nature of the tax. Even at the cost of repetition, we may point out that in Federation of Hotel and Restaurant Association of
India, etc., Vs. Union of India (UOI) and Others, of the judgment of Venkatachaliah J., as his Lordship then was, the court says (page 120) :
The subject of a tax is 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 I 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 page 1484 of AIR 1961 SC) :
''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. . .''
We have already pointed out that the majority judgment in paragraph 19 has specifically held as follows (page 120) :
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 with the Union power must be distinguished and the legislative competence to impose a tax thereon sustained.
Contention (a) is, in our opinion, unsubstantial and, accordingly, fails.
In the same manner, Ranganathan J., also observed after referring to the decisions in Province of Madras v. Boddu Paidanna and Sons [1938]
1 STC 104 ; AIR 1942 FC 33 ; AIR 1945 98 (Privy Council) and AIR 1939 1 (Federal Court) :
In the light of these legislative entries, the two different activities could properly be regarded as two different matters for taxation and the relevant
legislation was held to be one concerned with ''sale'' and not with ''manufacture''. In other words, there could be two enactments ''each, in one
aspect, conferring the power to impose a tax upon goods.'' The legislation was held not to be vitiated merely because there was an element of
overlapping in that both excise duty and sales tax became leviable on the same assessee in respect of the same goods and by reference to the same
sale price when the first sale after manufacture occurs, one by reference to the ''manufacture'' aspect and the other by reference to the ''sales''
aspect. This bifurcation of the two different aspects pertaining to goods was justified by the language of the legislative entries themselves which
referred separately to the different sets of activities and put them down in different legislative lists. Again, on the same principle, the manufacture of
electricity may attract excise duty at the point of its captive consumption (under entry 84 of List I) and also a tax on the consumption or sale of
electricity (referable to entry 53 of List II).
This should put an end to the argument. However, Mr. Mohan Parasaran again pointed out that there would be ""double taxation"", i.e., firstly,
the ""mandap keeper"" would have to pay ""sales tax"" on the food, drink, etc., which he supplies and, secondly, such supply of Food, drink,, etc.,
would also attract the ""service tax"" because the charges thereof would be included in the ""gross amount"" which he charges from the customers for
the ""user of the mandap"". The apex court has, on more than one occasion, pointed out that there could be two levies by two separate enactments
and that by itself would not be a vitiating factor.
There is one more reason why we say that this ""service"" is ""distinct and separate"". It will be seen that the definition of ""caterer"", which we have
already quoted above, provides that it means ""any person who supplies, either directly or indirectly, any food, edible preparations, alcoholic and
nonalcoholic beverages or crockery and similar Articles or accoutrements for any purpose or occasion"". It can, therefore, be said that ""catering
service"" could be given even without the supply of food, drink, etc., because even if a ""mandap keeper"" provides the services by supplying the
crockery and similar Articles or accoutrements and docs not choose to supply food, drink, etc., which the customer may arrange himself, the
service"" which has been given by the ""mandap keeper"" would still be that of a ""caterer"". Therefore, it is not necessary that every catering service
must include the supply of food, drink, etc., and the charges for catering would be the price of food, drink, etc., supplied by the caterer.
It was tried to be argued by Mr. Mohan Parasaran that the term used in Sub-clause (f) of Article 366(29A) is "". . . supply, by way of or as
part of any service or in any other manner whatsoever, of goods, being food or any other Article for human consumption or any drink ..."" We have
absolutely no difficulty with the word ""service"" because even if we consider that ""service"" to be the ""service"" to be governed by that entry and
termed to be a ""sale of goods"" even then, the aspect of the taxability of the services offered by the ""mandap . keeper"" as a ""caterer"" would, in our
opinion, be a ""distinct and separate"" aspect. We, therefore, need not interpret the term ""service"" in Article 366(29A)(f).
Our attention was also invited to the decision in K. Damodarasamy Naidu and Bros. v. State of Tamil Nadu [2000] 117 STC 1; [2001] 1
SCC 521, wherein, the provisions of Article 366(29A)(f) came to be considered. It was pointed out that in the Tami Nadu General Sales Tax Act,
a provision was introduced by way of an amendment in 1984 wherein the term ""sale"" specifically included the exact phraseology of Sub-clause (f)
of Article 366(29A). So also, the definition of ""dealer"" was expanded under the Act. It was pointed out by learned counsel that, therefore, the
supply by the ""mandap keeper"" of the food, drink, etc., would certainly invite the ""sales tax"". We have absolutely no difficulty of that but, we have
already pointed out that the present tax is not on the ""sales"" but it is on the ""service"" and that aspect is well explained in Federation of Hotel and
Restaurant Association of India, etc., Vs. Union of India (UOI) and Others, . In this case also in paragraph 9 when this aspect of service was
pointed out to the Supreme Court, the Supreme Court has held that it is the supply of food, which is the subject of levy though it may be a part of
that service that he renders by providing food furniture, furnishing and fixtures, linen, crockery and cutlery, music, a dance floor and floor show, is
what is the subject of levy. The Supreme Court says that the customer pays for the supply and it is on that payment that the restaurant-owners
must be taxed. The argument raised by the restaurant-owners that the bills should be split was not accepted in paragraph 8 in that case. This
reiterates our finding that even if there is a tax on the ""sale of food"" that is a ""separate aspect"" by itself which would have no concern with this
distinct aspect"" of ""service"".
A reference came to be made to the decisions in M/s. Rainbow Colour Lab and Another Vs. The State of Madhya Pradesh and Others
[OVERRULED], and M/s. Associated Cement Companies Ltd. Vs. Commissioner of Customs, . Both the decisions and more particularly the
decision in M/s. Associated Cement Companies Ltd. Vs. Commissioner of Customs, would be really of no consequence as all that it provides is
that after the introduction of the Forty-sixth amendment, there cannot be a splitting of the works contract. The apex court holds in paragraphs 24,
25 and 26 that the conclusion arrived at in M/s. Rainbow Colour Lab and Another Vs. The State of Madhya Pradesh and Others
[OVERRULED], runs counter to the express provision contained in Article 366(29A) as also of the Constitution Bench decision in Builders
Association of India and Others Vs. Union of India (UOI) and Others, . We are not concerned with the splitting of any works contract here. We
have no hesitation in holding that the supply of food, drink, etc., by the mandap keeper may attract ""sales tax"". We do not say that such supply will
not attract ""sales tax"" because it is a ""service"" of a different kind. On the other hand, we say that though it may attract the ""sales tax"", it would also
attract the ""service tax"" and, at any rate, the provision of service tax against such supply is not outside the legislative competence of Parliament. We
have already referred to the Statement of Objects and Reasons of the Forty-sixth amendment to know precisely as to why the said amendment
was introduced. In this view, we must hold that even the third argument of Mr. Mohan Parasaran has to be rejected.
Lastly, Mr. Mohan Parasaran urged that the impugned provisions and more particularly Section 65(23) is vague and there is no way of
knowing for any mandap keeper as to whether a function for which he allows the user of the mandap is social, official or business. He points out
that there are no guidelines provided in the whole machinery of the Act to suggest what is precisely meant by an ""official function"", ""social function
or ""business function"". Learned counsel further argued that even as regards the ""gross charges"", which are referred to in the ""valuation of taxable
service"", there are no guidelines as to what part of such ""gross charge"" is to be taxed and what part is not to be taxed. Learned counsel heavily
relied on the decision in K. Damodarasamy Naidu and Bros. v. State of Tamil Nadu [2000] 117 STC 1; [2001] 1 SCC 521 and points out that
there the Supreme Court has taken particular steps in that case. As against this, learned senior counsel for the Department points out that it is not
necessary that each and every term used in the Act should be specifically explained or the guidelines should be provided therefor. Learned counsel
argues that this being a ""taxing statute"" and, therefore, ordinarily there should be enough scope for ""discretion and play"" in this statute as observed
by the Supreme Court in Federation of Hotel and Restaurant Association of India, etc., Vs. Union of India (UOI) and Others, . Learned counsel
further argues that it was not necessary that there have to be rules and guidelines in every provision. According to learned counsel, the only test is
that there should not be any vice of arbitrariness attached to any of the provisions which are in challenge.
Our attention was invited to the decisions in Municipal Corporation of Delhi Vs. Ganesh Razak and Another, ; Mafatlal Industries Ltd. and
Others Vs. Union of India (UOI) and Others, and In Re: The Special Courts Bill, 1978, . Before going to the case law, it will be better to consider
the language of Section 65(22) and (23) of the Finance Act.
The objection by learned counsel for the petitioners is that there is no guidance as to which kind of function would be ""social"", ""official"" or
business"", which would come in the dragnet of the Finance Act. In fact, according to us, there is nothing confusing in the Sections which requires
any explanation. When any provision is to be understood, the first rule is that it has to be understood by its reference to the language. The terms
given in the provisions clearly are to be understood by their plain meaning which are understood ordinarily. We do not think there is any difficulty
about understanding as to what kind of function would be the ""official function"", ""social function"" or ""business function"". Again, there is a complete
machinery given in the Act to decide the nature of the function. If a ""mandap keeper"" seeks any exemption or contends that the function for which
he has provided the service of the user of the mandap is not of the nature covered by Sub-sections (22) or (23), it would be for the assessee to
claim any exemption and it would be for the authorities to decide. There are provisions for appeal within the machinery of the Act. Therefore, in
our opinion, it is not necessary to further elaborate as to what kinds of functions would be social, official or business functions.
It is further argued though haltingly that only these three kinds of functions are made taxable while the others are not, which are, for example,
religious functions, political functions, family functions, etc. We only say, relying on the observations made in Federation of Hotel and Restaurant
Association of India, etc., Vs. Union of India (UOI) and Others, , that though taxing laws are not outside Article 14, however, having regard to the
wide variety of diverse economic criteria that go into the formulation of a fiscal policy the Legislature enjoys a wide latitude in the matter of
selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous.
In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions.
In the decision in Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, , also the apex court has approved the ""theory of
discretion"" in the Legislature. There, the observations in the decision of R.K. Garg and Others Vs. Union of India (UOI) and Others, have been
approved in paragraph 87 (page 618). The observations are (page 532 of 111 STC) :
... laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion,
etc. It has been said by no less a person than Holmes }., that the Legislature should be allowed some play in the joints, because it has to deal with
complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in the case of
legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has
to be allowed to the Legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic
regulation than in other areas where fundamental human rights are involved. . . .The court must always remember that ''legislation is directed to
practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not
abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry""; ''that exact wisdom and nice adaption
of remedy are not always possible'' and that ''judgment is largely a prophecy based on meagre and uninterpreted experience''.
Similarly, in the same decision, the following observations in His Holiness Kesavananda Bharati Sripadagalvaru Vs. State of Kerala, were also
approved. The observations are quoted in paragraph 88 of the judgment. They are [1997] 5 SCC 619 and 111 STC 533
''In exercising the power of judicial review, the courts cannot be oblivious of the practical needs of the Government. The door has to be left open
for trial and error. Constitutional law like other mortal contrivances has to take some chances. Opportunity must be allowed for vindicating
reasonable belief by experience''.
We do not, therefore, find that the Legislature has done anything wrong in bringing the ""social function"", ""official function"" and ""business
function"" alone in the dragnet of service tax while leaving other kinds of functions, if any.
As regards the contention of the ""language"" of the provisions, let us now consider the law laid down by the Supreme Court in the decision
reported in Municipal Corporation of Delhi Vs. Ganesh Razak and Another, . A complaint was made against the C. P. and Berar Regulation of
Letting of Accommodation Act, 1964, as also the C. P. and Berar Letting of House and Rent Control Order, 1949, especially clause 13(3)(ii). It
was complained that the words ""habitually in arrears"" are vague and are indefinite. The presumption was that those words should have been
defined but that was not done and its construction is varied on subjective decision of the court and can vary from court to court. Therefore, the
words ""habitually in arrears"" being vague and indefinite, and exercise of the power having been entrusted to an officer not judicially trained to
construe the provisions of the Act, it would lead to unbridled exercise of power without guidelines, offending Article 14 of the Constitution. The
Supreme Court held :
It is well settled that the legislative scheme may employ words of generality conveying its policy and intention to achieve the object set out therein.
Every word need not be defined. It may be a matter of judicial construction of such words or phrases. Mere fact that a particular word or phrase
has not been defined is not a ground to declare the provisions of the Act itself or the order as unconstitutional. The word ''habitual'' cannot be put
in a strait-jacket formula. It is a matter of judicial construction and always depends upon the given facts and circumstances in each case.
We do not think that the above contention raised by Mr. Mohan Parasaran deserves any merit as such for the reasons stated above. Mr.
Mohan Parasaran also contended that there is no guideline in the provisions as to which part is to be taxed and which part not to be taxed. We do
not think that there is any such deformity in the provisions. The provisions are clear that the ""gross charges"" are to be taken into consideration while
assessing the ""service tax"". The contention is, therefore, rejected. Mr. Mohan Parasaran asked us to follow the course that the Supreme Court
followed in respect of Maharashtra Hotel-owners. There, the question was regarding ""residential hotels"" and the charges was also to be a
composite charge"". Such is not the situation here. The charge which has to be paid by the assessee is to be fully covered by the ""gross charges"" in
respect of the service provided. The distinctions in the two kinds of services made are apparent from the express language of Section 67(1) and,
therefore, we do not think that the provisions suffer from the vice of arbitrariness.
We have dealt with all the writ petitions in this category, which have been argued before us. Besides the above writ petitions, the following writ
petitions, viz., W. P. Nos. 12316, 16223, 16501, 16651, 13048, 15131, 15990, 10405, 17116 and 20729 of 1998, 1049, 3883, 269, 9042,
1601, 9267, 15650 and 54 of 1999, 13081 and 13082 of 2000, 2810, 10347 and 12888 of 2000 and 46 and W.M.P. No. 59 of 2001, are in
the group and shown in the list, for which no arguments were advanced. We, therefore, dispose of these writ petitions also by the present
judgment.
We see no merit in the writ petitions. The writ petitions are liable to be dismissed and are, accordingly, dismissed. No costs. Connected
WMPs, if any, are closed.