Judgment · High Court · 2012

#6. Learned counsel for the petitioner submitted that statutory provisions p roviding for levy of service tax on erection, commissioning and installation ser vices were beyond the legislative competence of the Parliament. He refers to the notifications dated 17.9.2004 and No.1/2006 providing for abatement of turn ove r to the extent of 67% under Section 93 of the Act which itself implies that eve n though the charging provisions of service tax do not purport to levy service t ax on sale element, the said levy is to be implied. In support of this submissio n, reliance is placed on Union of India & Ors. vs. Modi Rubber Limited & Ors., 1 986 (25) E.L.T. 849 (S.C.). It is further submitted that there was no question o f suppression of the liability as the entire information was in public domain an d in absence of requisite mens rea the show cause notice involving extended lim itation under Section 73 of the Act was untenable. In support of this submissio n, reliance has been placed on Kerala State Electricity Board vs. Commissioner o f Central Excise, Thiruvananthapuram, (2008) 1 SCC 780.

#7. Learned counsel for the department opposed the above submissions and sub mitted that the notification issued under Section 93 has no relevance to the sco pe of impugned statutory provisions defining taxable service. The said notificat ions applied only when the turnover was covered by taxable service. If a turnove r is covered by taxable service under the Act, notification issued under Section The judgment in Modi Rub ber (supra) is in different context. As regards the plea of extended limitation and levy of penalty, the issue was pre-mature as the adjudicating authority is y 93 of the Act could not be applied to such turnover. et to determine the said questions.

#8. s called for at this stage. We have considered the rival submissions. In our view, no interference i

#9. It is undisputed that in terms of the statutory provisions the charge is envisaged only in respect of taxable service. The same does not in any manner c onflict with Entry 54 of List II read with Article 366 (29A) of the Constitution . No amount of sale or extended sale is sought to be covered. Only taxable servi ce which relates to service aspect of a transaction is sought to be covered. The said provisions are fully covered by Entry 97 of List II. In Gujrat Ambuja Ceme nts Limited & Ano. Vs. Union of India & Ano., (2005) 4 SCC 214, the validity of levy of service tax was upheld by applying the aspect theory in respect of taxab le service. Considering the matter in the context of Entry 56 of List II, it was observed:- (cid:28)29. The provisions relating to service tax in the Finance Act, 1994 make it cle ar under Section 64(3) that the Act applies only to taxable services. Taxable se rvices have been defined, as we have already noted, in Section 65(41). Each of t he sub-clauses of that clause refers to the different kinds of services provided . Most of the taxable services cannot be said to be in any way related to goods or passengers carried by road or waterways. For example, Section 65(41)(g) provi des for service rendered to a client by a consulting engineer, Section 65(41)(k) refers to service to a client by a manpower recruitment agency, Section 65(41)( o) refers to service by pandal or shamiana contractors and so on. The rate of se rvice tax has been fixed under Section 66. Section 67 provides for valuation of taxable service for the purposes of charging tax. The provision for valuation of service rendered by clearing and forwarding agents has been dealt with under cl ause (j) and service provided by goods transport operators has been provided und er clause (l) [subsequently renumbered as clause (m-a)]. These clauses read resp ectively as under: (cid:28)67. (j) in relation to service provided by a clearing and forwarding agent to a client, shall be the gross amount charged by such agent from the client for ser vices of clearing and forwarding operations in any manner; (cid:29) (cid:28)67. (m-a) in relation to service provided by a goods transport operator to a cu stomer, shall be the gross amount charged by such operator for services in relat ion to carrying goods by road in a goods carriage and includes the freight charg es but does not include any insurance charges; (cid:29)

#30. As far as clause (j) is concerned it does not speak of goods or passengers, nor of carriage of goods nor is it limited to service by road or inland waterway s. Clause (m-a) shows that the valuation of the service tax includes the freight charges, but is not limited to it.

#31. It is clear therefore that Section 66 read with Sections 65(41)(j) and 67(m- a) in Chapter V of the Finance Act, 1994 do not seek to levy tax on goods or pas sengers. The subject-matter of tax under those provisions of the Finance Act, 19 94 is not goods and passengers, but the service of transportation itself. It is a levy distinct from the levy envisaged under Entry 56. It may be that both the levies are to be measured on the same basis, but that does not make the levy the same. As was held in Federation of Hotel and Restaurant Assn. of India v. Union of India,(1989) 3 SCC 634: (SCC pp. 652-53, paras 30-31) (cid:28) ’ & subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall withi n another legislative power’. & Indeed, the law ’with respect to’ a subject might incidentally ’affect’ another subject in some way; but that is not the same thing as the law being on the latt er subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects . But the fact that there is an overlapping does not detract from the distinctiv eness of the aspects. (cid:29)

#32. Since service tax is not a levy on passengers and goods but on the event of service in connection with the carriage of goods, it is not therefore possible t o hold that the Act in pith and substance is within the States’ exclusive power under Entry 56 of List II. What the Act ostensibly seeks to tax is what it, in s ubstance, taxes. In the circumstances, the Act could not be termed to be a colou rable piece of legislation. It is not the case of the petitioners that the Act i s referable to any other entry apart from Entry 56 of List II. Therefore the neg ation of the petitioners’ submission perforce leads to the conclusion that the A ct falls within the residuary power of Parliament under Entry 97 of List I. (cid:29)

#10. Again in Imagic Creation Pvt. Ltd. vs. (2008) 2 SCC 614, it was observed as follows: (cid:28)28. We have, however, a different problem at hand. The appellant admittedly is a service provider. When it provides for service, it is assessable to a tax know n as service tax. Such tax is leviable by reason of a parliamentary statute. In the matter of interpretation of a taxing statute, as also other statutes where t he applicability of Article 246 of the Constitution of India, read with the Seve nth Schedule thereof is in question, the Court may have to take recourse to vari ous theories including (cid:28)aspect theory (cid:29), as was noticed by this Court in Federati on of Hotel & Restaurant Assn. of India v. Union of India, (1989) 3 SCC 634.

#29. If the submission of Mr Hegde is accepted in its entirety, whereas on the on e hand, the Central Government would be deprived of obtaining any tax whatsoever under the Finance Act, 1994, it is possible to arrive at a conclusion that no t ax at all would be payable as the tax has been held to be an indivisible one. A distinction must be borne in mind between an indivisible contract and a composit e contract. If in a contract, an element to provide service is contained, the pu rport and object for which the Constitution had to be amended and Clause (29-A) had to be inserted in Article 366, must be kept in mind.

#30. We have noticed hereinbefore that a legal fiction is created by reason of th e said provision. Such a legal fiction, as is well known, should be applied only to the extent for which it was enacted. It, although must be given its full eff ect but the same would not mean that it should be applied beyond a point which w as not contemplated by the legislature or which would lead to an anomaly or absu rdity.

#31. The court, while interpreting a statute, must bear in mind that the legislat ure was supposed to know law and the legislation enacted is a reasonable one. Th e court must also bear in mind that where the application of a parliamentary and a legislative Act comes up for consideration; endeavours shall be made to see t hat provisions of both the Acts are made applicable.

#32. Payments of service tax as also VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of se rvice tax and the sales tax as envisaged in a composite contract as contradistin guished from an indivisible contract. It may consist of different elements provi ding for attracting different nature of levy. It is, therefore, difficult to hol d that in a case of this nature, sales tax would be payable on the value of the entire contract, irrespective of the element of service provided. The approach o f the assessing authority, to us, thus, appears to be correct. (cid:29)

#11. In view of above authoritative pronouncements, covering of service of er ection, commissioning and installation in the purview of (cid:28)taxable service (cid:29) canno t be held to encroach on the subject matter of (cid:28)sale and purchase (cid:29) under Entry 5 4 of List II.

#12. Coming to the show cause notice, we are of the view that though the sub missions made on behalf of the petitioner may require consideration, having rega rd to the fact that the petitioner is a Government Company and is executing work of border road and fencing but since the said issue is yet to be adjudicated up on by the adjudicating authority, we need not go into the matter, at this stage. Needless to say the adjudicating authority would examine the question raised b y the petitioner and take a decision thereon in accordance with law by passing a speaking order. If aggrieved, the petitioner may take remedies available under the law.