M/s. Madras Hire Purchase Association v. Union of India

2. Central Board of Excise and Customs North Block New Delhi – 110 0013. Chief Commissioner of Central Excise 121, Nungambakkam High Road Chennai – 600 034.. RespondentsWP No. 15327 of 2001M/s. South India Hire Purchase Associationrep. by its Chairman T.R. AchhaDesabandhu PlazaNo.47, Whites RoadRoyapettahChennai – 600 014.. PetitionerVersus1. Union of India rep. by its Secretary Ministry of Finance Department of Revenue Government of India North Block New Delhi – 110 0012. Central Board of Excise and Customs North Block New Delhi – 110 0013. Chief Commissioner of Central Excise 121, Nungambakkam High Road Chennai – 600 034.. RespondentsWP No. 15328 of 2001M/s. Madras Hire Purchase Associationrepresented by its SecretaryMr. Nitin Sogan220 (Old No.128) N.S.C.Bose RoadSowcarpetChennai – 600 079.. AppellantVersus1. Union of India rep. by its Secretary Ministry of Finance Department of Revenue Government of India North Block New Delhi – 110 001 https://hcservices.ecourts.gov.in/hcservices/

2. Central Board of Excise & Customs North Block New Delhi – 110 0013. Chief Commissioner of Central Excise 121, Nungambakkam High Road Chennai – 600 034.. RespondentsWP No. 15559 of 2001The Equipment Leasing Association (India)rep. by its Chairmanhaving registered office at5-C,. Century PlazaTeynampetChennai – 600 002.. PetitionerVersus1. Union of India rep. by The Secretary Ministry of Finance Department of Revenue Government of India North Block New Delhi – 110 0012. The Commissioner of Central Excise Service Tax Cell, Chennai-II MHU Complex No.473, Anna Salai Chennai – 600 035.. RespondentsWP No. 15560 of 2001T.T. Srinivasaraghavan.. PetitionerVersus1. Union of India rep. by The Secretary Ministry of Finance Department of Revenue Government of India North Block New Delhi – 110 0012. The Commissioner of Central Excise Service Tax Cell, Chennai-II MHU Complex No.473, Anna Salai Chennai – 600 035.. Respondents https://hcservices.ecourts.gov.in/hcservices/ WA No. 4119 of 2003: Appeal under Clause 15 of Letters Patentagainst the Order dated 23.04.2003 made in W.V.M.P. No. 255 of 2002in W.M.P. No. 22743 of 2001 in W.P. No. 15328 of 2001 on the file ofthis Court.WP No. 14905 of 2001: Petition filed under Article 226 of TheConstitution of India praying for a Writ of Declaration to declareSection 65 (10) and 67 of Chapter V of the Finance Act, 1994 (asamended) levying inter alia, service tax on leasing/hire purchasetransactions as ultra vires the provisions of Article 14, 19 (1) (g),265, 366 (29A), Entry 54, List-II, Schedule VII of the Constitutionof India and also being beyond the legislative competence ofParliament in so far as the members of the petitioner is concerned.WP No. 15327 & 15328 of 2001: Petition filed under Article 226 ofThe Constitution of India praying for a Writ of Declaration todeclare Section 65 (10) and 67 of Chapter V of the Finance Act, 1994(as amended) levying inter alia, service tax on leasing/hire purchasetransactions as ultra vires the provisions of Article 14, 19 (1) (g),265, 366 (29A), Entry 54, List-II, Schedule VII of the Constitutionof India and also being beyond the legislative competence ofParliament in so far as the Corporate members of the petitioner isconcerned.WP No. 15559 & 15560 of 2001: Petition filed under Article 226 ofThe Constitution of India praying for a Writ of Declaration todeclare Section 137 of the Finance Act, 2001 and all other provisionsin the said Act which affect the rights of the petitioners herein inrelation to the business of Hire Purchase and finance leasing asunconstitutional without Legislative Competence and null and void sofar as petitioner is concerned.WA No. 4119 of 2003For Appellants :Mrs. Meera Guptafor M/s. Surana & SuranaWP No. 14905 of 2001For Petitioner :Mr. Aravind P. DatarSenior Counselfor Mr. V.S. JayakumarWP Nos. 15327 & 15328 of 2001For Petitioner :Mr. Chandran KaruppiahWP Nos. 15559 & 15560 of 2001For Petitioner :Mr. Satish ParasaranFor Respondents :Mr. M. Ravindran Additional Solicitor Generalassisted byMr. S. YashwantSenior Panel Counselin Writ appeal & all writ petitions https://hcservices.ecourts.gov.in/hcservices/ COMMON JUDGMENTA. KULASEKARAN, JThe prayer in all the above writ petitions i.e., W.P. Nos. 14905,15327, 15328, 15559 and 15560 of 2001 are identical, W.A. No. 4119 of2003 was filed against the vacation of the interim order passed in WPNo. 15328 of 2001, hence, all the writ petitions as well as the writappeal are disposed of by this common judgment. 2.The learned senior counsel Mr. Aravind P. Datar appearingfor the petitioners submitted that the writ petitioners are nonbanking financial companies engaged in the business of hire purchaseand leasing; that 46th Amendment inserted Article 366 (29A), of theConstitution of India, in which clauses a to f, particularly clausesc & d, which are relevant to this case, explain the ambit of theexpressions of tax on the delivery of goods on hire-purchase or anysystem of payment by instalment and also a tax on the transfer of theright to use any goods for any purpose (whether or not for aspecified period) for cash, deferred payment or other valuableconsideration; that the said expression is also found in the Entry 54of List II; that after the said 46th Amendment, hire purchase andleasing transactions are treated as deemed sales and the State hadimposed sales tax, now called as VAT, on both transactions and theentire amount paid by way of installments are liable for sale tax;that the service tax is leviable if any element of service isinvolved; that hire purchase/leasing are transfer of movable wherethere is no service element is involved. For the said contention, thelearned senior counsel relied on the invoices raised by the membersof petitioners association; that the petitioners are not collectingany charges for service, hence, no service tax can be leviable; thatwhen the constitution under Article 366 (29A) authorises levy ofsales tax on hire purchase/leasing transaction and the State leviedsales tax, Parliament has no authority to levy service tax; thatintroduction of Service Tax on hire purchase and leasing transactionby the Parliament is violative of Article 14 and 19 (1) (g), 265,366 (29A), Entry 54 of List II of Schedule VII of the Constitution ofIndia. All the other counsel appearing for the appellant/petitionersadopted the argument of the Senior Counsel Mr. Aravind P. Datar andall of them relied on the below mentioned decisions:- I) K. Damodarasamy Naidu & Bros. v. State of Tamil Nadu 2000(1) SCC Page No.521 in which Para Nos. 12, 13 and 23 are relevant,which are extracted below:- "12. It was not disputed by learned counselfor the State of Maharashtra that the tax on foodand drink could be imposed only upon thatcomponent of the composite charge for lodging andboarding at a residential hotel as related to thesupply of food and drink. But, in his submission,no rules in this behalf were necessary; the SalesTax Officers would make assessments dependingupon the facts of each individual case. https://hcservices.ecourts.gov.in/hcservices/

13. There are several hundred residentialhotels in the State of Maharashtra. They providelodging and boarding to several thousands ofcustomers in every assessment year. It is inpractical terms impossible for the Sales TaxAuthorities to make assessments upon the basis ofthe facts relevant to each individual customer ineach individual hotel. Generalisations are,therefore, inevitable and there is everylikelihood that the basis of the generalisationmade by one Sales Tax Officer would differ fromthe basis of the generalisation made by another,leading to unacceptable arbitrariness. Rules thatindicate to Sales Tax Officers how to treatcomposite charges for lodging and boarding wouldeliminate substantial differences in theirapproach and, thus, arbitrariness. 23. Writ Petition No. 9901 of 1983 is madeabsolute to this extent: The State of Maharashtra is directedhenceforth not to make assessments of the tax onthe supply of food and drink on hotel-owners whoprovide lodging and boarding for a composite sumuntil it frames rules that set out for suchassessment which take account of the fact thatresidential hotels may provide lodging and fullor part-board. If the rules are framed by 1-6-2000 the assessments that are not completed onlyby reason of this order may be proceeded with. Ifthe rules are not framed by the said date, theseassessments shall lapse. No proceedings forassessments shall be commenced hereafter untilthe rules have been framed. At the same time,completed assessments as of today shall not beaffected by this order and the assessees would beentitled to adopt proceedings thereagainst,subject to the law." ii)Bharat Sanchar Nigam Ltd. v. Union of India, (2006 (3) SCC 1– wherein the Honourable Supreme Court in Para Nos. 42, 44 and 45held thus:- "42. All the sub-clauses of Article 366(29-A) serve to bring transactions where one or moreof the essential ingredients of a sale as definedin the Sale of Goods Act, 1930 are absent, withinthe ambit of purchase and sales for the purposesof levy of sales tax. To this extent only is theprinciple enunciated in Gannon Dunkerley Ltd.(sic modified). The amendment especially allowsspecific composite contracts viz. works contracts[sub-clause (b)]; hire-purchase contracts [sub-clause (c)], catering contracts [sub-clause (e)]by legal fiction to be divisible contracts wherethe sale element could be isolated and besubjected to sales tax. https://hcservices.ecourts.gov.in/hcservices/

44. Of all the different kinds of compositetransactions the drafters of the Forty-sixthAmendment chose three specific situations, aworks contract, a hire-purchase contract and acatering contract to bring them within thefiction of a deemed sale. Of these three, thefirst and third involve a kind of service andsale at the same time. Apart from these two caseswhere splitting of the service and supply hasbeen constitutionally permitted in sub-clauses(b) and (f) of clause (29-A) of Article 366,there is no other service which has beenpermitted to be so split. For example, the sub-clauses of Article 366(29-A) do not coverhospital services. Therefore, if during thetreatment of a patient in a hospital, he or sheis given a pill, can the Sales Tax Authoritiestax the transaction as a sale? Doctors, lawyersand other professionals render service in thecourse of which can it be said that there is asale of goods when a doctor writes out and handsover a prescription or a lawyer drafts a documentand delivers it to his/her client? Strictlyspeaking, with the payment of fees, considerationdoes pass from the patient or client to thedoctor or lawyer for the documents in both cases. 45. The reason why these services do notinvolve a sale for the purposes of Entry 54 ofList II is, as we see it, for reasons ultimatelyattributable to the principles enunciated inGannon Dunkerley case, namely, if there is aninstrument of contract which may be composite inform in any case other than the exceptions inArticle 366(29-A), unless the transaction intruth represents two distinct and separatecontracts and is discernible as such, then theState would not have the power to separate theagreement to sell from the agreement to renderservice, and impose tax on the sale. The testtherefore for composite contracts other thanthose mentioned in Article 366(29-A) continues tobe: Did the parties have in mind or intendseparate rights arising out of the sale of goods?If there was no such intention there is no saleeven if the contract could be disintegrated. Thetest for deciding whether a contract falls intoone category or the other is to as what is “thesubstance of the contract”. We will, for the wantof a better phrase, call this the dominant naturetest." iii)Imagic Creative (P) Ltd. v. Commissioner of Commercial Tax,2008 (2) SCC 614 wherein in Para Nos. 28, 32 and 34, it was heldthus:- "28. We have, however, a different problemat hand. The appellant admittedly is a serviceprovider. When it provides for service, it is https://hcservices.ecourts.gov.in/hcservices/ assessable to a tax known as service tax. Suchtax is leviable by reason of a parliamentarystatute. In the matter of interpretation of ataxing statute, as also other statutes where theapplicability of Article 246 of the Constitutionof India, read with the Seventh Schedule thereofis in question, the Court may have to takerecourse to various theories including “aspecttheory”, as was noticed by this Court inFederation of Hotel & Restaurant Assn. of Indiav. Union of India. 32. Payments of service tax as also VAT aremutually exclusive. Therefore, they should beheld to be applicable having regard to therespective parameters of service tax and thesales tax as envisaged in a composite contract ascontradistinguished from an indivisible contract.It may consist of different elements providingfor attracting different nature of levy. It is,therefore, difficult to hold that in a case ofthis nature, sales tax would be payable on thevalue of the entire contract, irrespective of theelement of service provided. The approach of theassessing authority, to us, thus, appears to becorrect. 34. For the reasons aforementioned, theimpugned judgment cannot be sustained. It is setaside accordingly. The appeal is allowed. Nocosts." iv)Unreported judgment of Division Bench of Delhi High Court inWP (C) No. 1659/2008 etc., batch dated 18.04.2009 wherein in ParaNos. 34 and 35, it was held thus:-"34.From the above discussion, it is apparentthat service tax is a value added tax; It is a taxon value addition provided by a service provider.It is obvious that it must have connection with aservice and, there must be some value addition bythat service. If there is no value addition, thenthere is no service. With this in mind, it wouldbe instructive to analyse the provisions of Section65 (105) (zzzz). It has reference to a serviceprovided or to be provided to any person, by anyother person in relation to "renting of immovableproperty for use in the course or furtherance ofbusiness or commerce". The wordings of theprovision are so structured as to entail – aservice provided or to be provided to "A" by "B" inrelation to "C" is the subject matter. As pointedout above by Mr. Ganesh, the expression 'inrelation to' may be of widest amplitude, but it hasbeen used in the said Act as per its context.Sometimes, 'in relation to' would include thesubject matter following it and on other occasions https://hcservices.ecourts.gov.in/hcservices/ it would not. As in the case of the service of drycleaning, the expression 'in relation to drycleaning' also has reference to the very service ofdry cleaning. On the other hand, the servicereferred to in Section 65 (105) (v), which refersto a service provided by a real estate agent 'inrelation to real estate' does not, obviouslyinclude the subject matter as a service. This isso because real estate by itself cannot by anystretch of imagination be regarded as a service.Going back to the structured sentence i.e., -service provided or to be provided to 'A' by 'B' inrelation to 'C', it is obvious that 'C' can eitherbe a service (such as dry cleaning, hair dressingetc.,) or not a service by itself, such as realestate. The expression ' in relation to' wouldtherefore, have different meanings depending onwhether "C" is a service or is not a service. If"C": is a service, then the expression 'in relationto' means the service 'C' as well as any otherservice having connection with the service 'C'.Where 'C' is not a service, the expression 'inrelation to' would have reference only to someservice which has a connection with 'C'. But, thiswould not imply that 'C' itself is a service. 35.From this analysis, it is clear that wehave to understand as to whether renting ofimmovable property for use in the course orfurtherance of business or commerce by itself is aservice. There is no dispute that any serviceconnected with the renting of such immovableproperty would fall within the ambit of Section 65(105) (zzz) and would be exigible to service tax.The question is whether renting of such immovableproperty by itself constitutes a service and,thereby, a taxable service. We have already seenthat service tax is a value added tax. It is a taxon the value addition provided by some serviceprovider. Insofar as renting of immovable propertyfor use in the course or furtherance of business orcommerce is concerned, we are unable to discern anyvalue addition. Consequently, the renting ofimmovable property for use in the course orfurtherance of business or commerce by itself doesnot entail any value addition, and, therefore,cannot be regarded as a service. Of course, ifthere is some other service, such as airconditioning service provided along with therenting of immovable property, then it would fallwithin Section 65 (105) (zzzz)."3.The learned Additional Solicitor General Mr. M. Ravindranfor the respondents has submitted that the Honourable Supreme Courthas upheld the legislative competence of Parliament to levy servicetax under residuary Entry 97 to List I of VII Schedule to the https://hcservices.ecourts.gov.in/hcservices/ Constitution in the decisions reported in (Tamil Nadu KalyanaMandapam Association vs. Union of India) (2004) 167 ELT 3 (SC); (C.K.Jidheesh vs. Union of India) (2008) (1) STR 3 (SC) and (GujaratAmbuja Cements vs. Union of India) (2005) 4 SCC 214 andconstitutional amendment to Entry 92-C to List I of VII Scheduleunder Article 268-A are introduced giving authority to the parliamentto legislate on service tax ; that Section 65(12) of the Finance Act,1994 defines “Banking and other financial services' as "financialleasing services including equipment leasing and hire-purchases". Thelearned Additional Solicitor General further submitted that Section65 (14) of the Finance Act defines body corporate, which has the samemeaning assigned to it in Clause 7 of Section (2) of the CompaniesAct, 1956. Section 65 (105) defines taxable service, which meansany services provided or to be provided. Section 65 (zm) means anyperson, by banking or a financial institution, including a non-banking company, or any other body corporate or commercial concern,in relation to banking and other financial services. The chargingSection 65 of the Finance Act, amended to cover tax on value oftaxable service refers to clause (zm) of Section 65 (105). In viewof the above sections, the petitioners are liable to pay service taxfor leasing and hire purchase transactions so far as service elementis concerned and VAT is payable for sale to State Government. Thegovernment of India issued a circular dated 4/06-ST dated 01.03.2006granting exemption of 90% interest income earned on leasing and hirepurchase. It is further submitted by the learned AdditionalSolicitor General that the banking companies, which are carrying onleasing and hire purchase are paying service tax without any protest,since it is well known fact that in the said transaction, serviceelement is involved. In support of his contention, the learnedAdditional Solicitor General relied on the following decisions:- i)All-India Federation of Tax Practitioners v. Union of India,2007 (7) SCC 527 wherein in Para No.22 and 33, it was held thus:- 22. As stated above, the source of theconcept of service tax lies in economics. It isan economic concept. It has evolved on account ofservice industry becoming a major contributor tothe GDP of an economy, particularly knowledge-based economy. With the enactment of the FinanceAct, 1994, the Central Government derived itsauthority from the residuary Entry 97 of theUnion List for levying tax on services. The legalbackup was further provided by the introductionof Article 268-A in the Constitution vide theConstitution (Eighty-eighth Amendment) Act, 2003which stated that taxes on services shall becharged by the Central Government andappropriated between the Union Government and theStates. Simultaneously, a new Entry 92-C was alsointroduced in the Union List for the levy ofservice tax. As stated above, as an economicconcept, there is no distinction between theconsumption of goods and consumption of servicesas both satisfy human needs. It is this economicconcept based on the legal principle ofequivalence which now stands incorporated in the https://hcservices.ecourts.gov.in/hcservices/ Constitution vide the Constitution (Eighty-eighthAmendment) Act, 2003. Further, it is important tonote, that “service tax” is a value added taxwhich in turn is a general tax which applies toall commercial activities involving production ofgoods and provision of services. Moreover, VAT isa consumption tax as it is borne by the client. 33.Applying the above tests laid down inthe aforestated judgments to the facts of thepresent case, we find that Entry 60 of List II,mentions “taxes on professions, trades, callingsand employments”. Entry 60 is a taxing entry. Itis not a general entry. Therefore, we hold thattax on professions, etc. has to be read as a levyon professions, trades, callings, etc., as such.Therefore, Entry 60 which refers to professionscannot be extended to include services. This iswhat is called as an Aspect Theory. If theargument of the appellants is accepted, thenthere would be no difference betweeninterpretation of a general entry andinterpretation of a taxing entry in List I andList II of the Seventh Schedule to theConstitution. Therefore, “professions” will notinclude services under Entry 60. For the abovereasons, we hold that Parliament had absolutejurisdiction and legislative competence to levytax on services. While interpreting thelegislative heads under List II, we have to go byschematic interpretation of the three Lists inthe Seventh Schedule to the Constitution and notby dictionary meaning of the words “profession”or “professional” as was sought to be argued onbehalf of the appellants, otherwise thedistinction between general entries and taxingentries under the three Lists would standobliterated. The words “in relation to” and thewords “with respect to” are no doubt words ofwide amplitude but one has to keep in mind thecontext in which they are used." ii)Gujarat Ambuja Cements Ltd. v. Union of India 2005 (182)E.L.T. 33 (S.C.) wherein in Para Nos. 33, 34 and 35, it was heldthus:- 33. Since service tax is not a levy onpassengers and goods but on the event of servicein connection with the carriage of goods, it isnot therefore possible to hold that the Act inpith and substance is within the States’exclusive power under Entry 56 of List II. Whatthe Act ostensibly seeks to tax is what it, insubstance, taxes. In the circumstances, the Actcould not be termed to be a colourable piece oflegislation. It is not the case of thepetitioners that the Act is referable to any https://hcservices.ecourts.gov.in/hcservices/ other entry apart from Entry 56 of List II.Therefore the negation of the petitioners’submission perforce leads to the conclusion thatthe Act falls within the residuary power ofParliament under Entry 97 of List I. 34. Incidentally a similar challenge to thelegislative competence of Parliament to levyservice tax was negatived in T.N. KalyanaMandapam Assn. v. Union of India which was a casewhere the levy of service tax was challenged bythe owners of kalyana mandapams/mandap-keepers.By virtue of the 1997 amendment service providedto a client by mandap-keepers including theservices if any rendered as a caterer was treatedas a taxable service. The challenge, inter alia,was that service tax on mandap-keepers wascolourable legislation as the said tax was not onservice but was in pith and substance only a taxon the sale of goods and/or a tax on land. Thewrit petition filed before the Madras High Courtwas rejected and the constitutionality of thelevy was upheld. It was then urged before thisCourt by the appellants that Entries 18, 14 and54 of List II covered the levy in question and,therefore, resort could not be had to Entry 97 inList I of the Seventh Schedule of theConstitution. It was held by this Court thatalthough certain items of the service might havebeen referable to any other entry, the serviceelement was the “more weighty, visible andpredominant”. Therefore, the nature and characterof the levy of the service tax was distinct froma tax on the sale or hire-purchase of goods andfrom a tax on land. 35. The point at which the collection of thetax is to be made is a question of legislativeconvenience and part of the machinery forrealisation and recovery of the tax. The mannerof the collection has been described as “anaccident of administration; it is not of theessence of the duty”. It will not change and doesnot affect the essential nature of the tax.Subject to the legislative competence of thetaxing authority a duty can be imposed at thestage which the authority finds to be convenientand the most effective, whatever stage it may be.The Central Government is therefore legallycompetent to evolve a suitable machinery forcollection of the service tax subject to themaintenance of a rational connection between thetax and the person on whom it is imposed. BySections 116 and 117 of the Finance Act, 2000,the tax is sought to be levied on the recipientsof the services. They cannot claim that they arenot connected with the service since the service https://hcservices.ecourts.gov.in/hcservices/ is rendered to them. iii)T.N. Kalyana Mandapam Assn. v. Union of India, 2004 (5) SCC632 wherein in Para Nos. 43, 44, 45, 46 and 47, it was held thus:- "43. As far as the above point is concerned,it is well settled that for the tax to amount toa tax on sale of goods, it must amount to a saleaccording to the established concept of a sale inthe law of contract or more precisely the Sale ofGoods Act, 1930. The legislature cannot enlargethe definition of sale so as to bring within theambit of taxation transactions, which could notbe a sale in law..... 44. In regard to the submission made onArticle 366(29-A)(f), we are of the view that itdoes not provide to the contrary. It only permitsthe State to impose a tax on the supply of foodand drink by whatever mode it may be made. Itdoes not conceptually or otherwise include thesupply of services within the definition of saleand purchase of goods. This is particularlyapparent from the following phrase contained inthe said sub-article “such transfer, delivery orsupply of any goods shall be deemed to be a saleof those goods”. In other words, the operativewords of the said sub-article are supply of goodsand it is only supply of food and drinks andother articles for human consumption that isdeemed to be a sale or purchase of goods. 45. The concept of catering, admittedly,includes the concept of rendering service. Thefact that tax on the sale of the goods involvedin the said service can be levied does not meanthat a service tax cannot be levied on theservice aspect of catering. Mr Mohan Parasaran,learned Senior for the appellant submitted thatthe High Court before applying the aspect theorylaid down by this Court in the case of Federationof Hotel and Restaurant Assn. of India v. Unionof India1 ought to have appreciated that in thatmatter Article 366(29-A) of the Constitution wasnot considered which is of vital importance tothe present matter and that the High Court oughtto have differentiated the two matters. In reply,our attention was invited to paras 31 and 32 ofthe judgment of the High Court in which serviceaspect was distinguished from the supply aspect.In our view, reliance placed by the High Court onFederation of Hotel and Restaurant and, inparticular, on the aspect theory is, therefore,apposite and should be upheld by this Court. Inview of this, the contention of the appellant onthis aspect is not well founded. 46. It is well settled that the measure oftaxation cannot affect the nature of taxationand, therefore, the fact that service tax is https://hcservices.ecourts.gov.in/hcservices/ levied as a percentage of the gross charges forcatering cannot alter or affect the legislativecompetence of Parliament in the matter. 47. The legislative competence of Parliamentalso does not depend upon whether in fact anyservices are made available by the mandap-keeperswithin the definition of taxable servicecontained in the Finance Act. Whether in thegiven case taxable services are rendered or notis a matter of interpretation of the statute andfor adjudication under the provisions of thestatute and does not affect the vires of thelegislation and/or the legislative competence ofParliament. In fact, a wide range of services isincluded in the definition of taxable services asfar as mandap-keepers are concerned. The saiddefinition includes services provided “inrelation to use of mandap in any manner” andincludes “the facilities provided to the clientin relation to such use” and also the services“rendered as a caterer”. The phrase “in relationto” has been construed by this Court to be of thewidest amplitude."4.This Court considered the submission of counsel on bothsides. The relevant Articles in the Constitution of India and theprovisions of Law are extracted below:- "Section 65 (12) of Finance Act- “Bankingand other financial services' means(a)the following services provided by abankign company or a financial institutionincluding a non-banking financial company or anyother body corporate or commercial concernnamely:-(1)financial leasing services includingequipment leasing and hire-purchase:-Explanation: For the purpose of this item,“financial leasing” means a lease transactionwhere-(i)Contract for lease is entered into betweentwo parties for leasing of a specific asset:(ii)such contract is for use and occupation ofthe asset by the lessee:(iii)the lease payment is calculated so asto cover the full cost of the asset together withinterest charges: and(iv)the lessee is entitled to own, or has theoption to own, the asset at the end of the leaseperiod after making the lease payment;...........”S.65(14) “body corporate” has the meaningassigned to it in clause (7) of Section 2 of theCompanies Act, 1956.S.65 (105) “taxable service” means any https://hcservices.ecourts.gov.in/hcservices/ service provided or to be provided:-..............(zm)to any person by a banking company or afinancial institution including a non-bankingcompany, or any other body corporate orcommercial concern, in relation to banking andother financial services. Section 66: Charge of service tax:- (1) Onand from the date of commencement of thischapter, there shall be levied a tax (hereinafterreferrred to as the service tax), at the rate offive percent of the value of the taxable servicesreferred to in sub-clauses (a), (b) and (d) ofclause (72) of section 65 and collected in suchmanner as may be prescribed.(2).....(3).....(4)......(5)With effect from the date notified underSection 137 of the Finance Act, 2001, there shallbe levied a service tax at the rate of five percent, of the value of the taxable servicesreferred to in sub-clauses (za), (zb), (zc),(zd), (ze), (zf), (zg), (zh), (zi), (zj), (zk),(zl), (zm), (zn) and (zo) of clause 72 of Section65 and collected in such manner as may beprescribed.Article 14: The State shall not deny to anyperson equality before the law or the equalprotection of the laws within the territory ofIndia.Article 19: Right to Freedom(1)All citizens shall have the right--.............(g)to practise any profession, or to carry onany occupation, trade or business.Article 265: No tax shall be levied orcollected except by authority of law.Article 268A: (1) Taxes on services shall belevied by the Government of India and such taxshall be collected and appropriated by theGovernment of India and the States in the mannerprovided in clause (2).(2)The proceeds in any financial year ofany such tax levied in accordance with theprovisions of clause (1) shall be--(a)collected by the Government of Indiaand the States;(b)appropriated by the Government of Indiaand the States,in accordance with such principles of collection https://hcservices.ecourts.gov.in/hcservices/ and appropriation as may be formulated byParliament by law.Article 366 (29A) “tax on the sale orpurchase of goods” includes............(c)a tax on the delivery of goods on hirepurchase or any system of payment by instalments:(d)a tax on the transfer of the right to useany goods for any purpose (whether or not for aspecified period) for cash, deferred payment orother valuable consideration....................” Entry 54 of List II of VII Schedule: Taxeson the sale or purchase of goods other thannewspapers, subject to the provisions of Entry92A of List I.5.The appellant/petitioners are engaged in the business ofhire purchase/leasing transaction. The hire purchase and leasing aremore or less identical. In leasing, the lessee selects the goodswith the manufacturer and thereafter, approach the financier to lendloan and after executing the agreement, the amount is paid to thedealer or manufacturer and invoice is raised in the name of thefinancier, however, goods are being used by the lessee on payment ofinstallments, and later after paying the entire installments, thelessee exercise option to purchase the same. In hire purchase, afteragreement with the hirer, the financier purchases the goods from themanufacturer or dealers in the name of the hirer, thereafter thefinancier name is endorsed in the documents, thereby creating acharge on it. On payment of intallments i.e., the principal andinterest, the hirer become the owner of the goods after cancellingthe endorsement in the documents. 6.The clauses (c) and (d) of Article 366 (29-A) permit theState legislatures to levy sales tax on the sale of purchase ofgoods/on the delivery of goods on hire purchase or any system ofpayment by instalments/on the transfer of the right to use any goodsfor any purpose for cash deferred payment or other valuableconsideration and widen the scope of Entry 54 of List II of ScheduleVII of the Constitution of India. It is contended by theappellant/petitioners that levy of sales tax on sale comes within theexclusive domain of the State legislature, the hire purchase/leasingtransactions have already suffered sales tax and service tax cannotbe levied thereon as no service element is involved. Hence, therelevant provisions in the Finance Act levying interalia service taxon leasing/hire purchase transaction is ultra vires the provisions ofArticle 14 and 19 (1) (g), 265, 366 (29A), Entry 54 List II ScheduleVII of the Constitution of India.7.The appellant/petitioners produced invoices, which containsthe headings of installments due date, installment amount, principal,interest, VAT and total rental amount. Pointing out the same, thelearned senior counsel for the petitioners has advanced argumentsthat they have not charged any amount towards service charges, as no https://hcservices.ecourts.gov.in/hcservices/ service element is involved. However, the petitioner/appellant haveadmitted that they collect 1% service charge for preparation ofdocuments and other incidental activities. The specific contentionof the petitioners/ appellants is that the particular impost underthe impugned law, having regard to its nature and incidents, isreally not a service tax at all and in pith and substance, really oneimposing a tax on the price paid for the sale of goods.8.Service tax is evolved on account of service industrybecoming a major contributor to the GDP of an economy. Union deriveits authority from the residuary entry 97 of the Union list forlevying tax on services. Article 268-A of the Constitution of Indiaempowers the Union to levy tax on service. Entry 92 (c) was alsointroduced in the Union list for the levy of service tax. 9.In the amended Act 32 of 1994 in the Finance Act, 1994,Section 65 (12 ) (a) (i) defines "finance leasing service includingequipment leasing and hire purchase"10.The subsequent amendments made in the Finance Act, 1994,Section 65 (105) (zm) was introduced which defines "to any person bya banking company or a financial institution including a non-bankingcompany, or any other body corporate or commercial concern, inrelation to banking and other financial services." 11.The case of the respondents is that service tax on financialleasing services/hire purchase is not a tax on sale of goods, but itis a tax on the services rendered in relation to the saidtransactions and the Parliament has legislative competence to levyservice tax under the impugned Act. 12.The State legislature cannot enlarge the definition of saleto bring the 'service' which could not be sale in law. Thepetitioners/appellant admit that in hire purchase/leasing, theycollect 1% of service charges which details are not furnished bythem. Admittedly, the petitioners/appellant are rendering serviceand collecting charges therefor. The tax on sale of goods involvedin the said service does not mean that no service tax be levied onthe service aspect. The ratio laid down in (Federation of Hotel andRestaurant Association of India vs. Union of India) AIR 1990 SC 1637and aspect theory applies in this case. 13.In Lefroy's Canada's Federal System, the learned authorrefers "that by 'aspect must be understood the aspect or point ofview of the legislator in legislating the object, purpose and scopeof the legislation that the word is used subjectively of thelegislator rather than objectively of the matter legislated upon'. 14.In (Imagic Creative (P) Ltd. v. CCT) (2008) 2 SCC 614,wherein Para No. 28, it was held thus:- "28. We have, however, a differentproblem at hand. The appellant admittedly is aservice provider. When it provides for service,it is assessable to a tax known as service tax. https://hcservices.ecourts.gov.in/hcservices/ Such tax is leviable by reason of a parliamentarystatute. In the matter of interpretation of ataxing statute, as also other statutes where theapplicability of Article 246 of the Constitutionof India, read with the Seventh Schedule thereofis in question, the Court may have to takerecourse to various theories including “aspecttheory”, as was noticed by this Court inFederation of Hotel & Restaurant Assn. of Indiav. Union of India."Thus, In the matter of interpretation of a taxing statute, asalso other statutes, when the applicability of Article 246 read withseventh schedule thereof is in question, the Court may have to takerecourse to various theories including aspect theory. 15.It is trite that the true nature and character of thelegislation must be determined with reference to a question of thepower of the legislature. The consequences and effects of thelegislation are not the same thing as the legislative subject matter. 16.In (Governor General in Council vs. Province of Madras) AIR1945 PC 98 it was held that "....The two taxes, the one levied on amanufacturer in respect of his goods, the other on a vendor inrespect of his sales, may, as is there pointed out, in one senseoverlap. But in law there is no overlapping. The taxes areseparated and distinct imposts. If in fact they overlap, that may bebecause of taxing authority, imposing a duty of excise, finds itconvenient to impose that duty at the moment when the excisablearticles leaves the factory or workshop for the first time on theoccasion of its sale". 17.In Larsen & Toubro vs. Union of India, it has expressly beenlaid down that the effect of amendment by introduction of clause 29-Ain Article 366 is that by legal fiction, certain indivisiblecontracts are deemed to be divisible into contract of sale of goodsand contract of service. It has been held in para 47 thus:-"47.Keeping in view the legal fictionintroduced by the Forty-sixth Amendment wherebythe works contract which was entire andindivisible has been altered into a contractwhich is divisible into one for sale of goods andother for supply of labour and services, thevalue of the goods involved in the execution of aworks contract on which tax is leviable mustexclude the charges which appertain to thecontract for supply of labour and services."18.In Bharat Sanchar Nigam Ltd. v. Union of India,(2006) 3 SCC1, in Para No. 88 and 89, it was held thus:- 88. No one denies the legislative competence https://hcservices.ecourts.gov.in/hcservices/ of the States to levy sales tax on sales providedthat the necessary concomitants of a sale arepresent in the transaction and the sale isdistinctly discernible in the transaction. Thisdoes not however allow the State to entrench uponthe Union List and tax services by including thecost of such service in the value of the goods.Even in those composite contracts which are bylegal fiction deemed to be divisible underArticle 366(29-A), the value of the goodsinvolved in the execution of the wholetransaction cannot be assessed to sales tax. Aswas said in Larsen & Toubro v. Union of India:(SCC p.395, para 47)“The cost of establishment of the contractorwhich is relatable to supply of labour andservices cannot be included in the value ofthe goods involved in the execution of acontract and the cost of establishment whichis relatable to supply of material involvedin the execution of the works contract onlycan be included in the value of the goods.” 89. For the same reason the Centre cannotinclude the value of the SIM cards, if they arefound ultimately to be goods, in the cost of theservice. As was held by us in Gujarat AmbujaCements Ltd. v. Union of India, SCC at p.228,para 23:“This mutual exclusivity which has beenreflected in Article 246(1) means thattaxing entries must be construed so as tomaintain exclusivity. Although generallyspeaking, a liberal interpretation must begiven to taxing entries, this would notbring within its purview a tax on subject-matter which a fair reading of the entrydoes not cover. If in substance, the statuteis not referable to a field given to theState, the court will not by any principleof interpretation allow a statute notcovered by it to intrude upon this field.” 19.The respondents submitted that notification No.4/2006-STdated 01.03.2006 was issued granting exemption on 90% representinginterest income. The petitioners/appellant argued to the extent thatgranting such exemption would not save legislative competence, ifthere is no competence, the provision has to be struck down. Bothsides not furnished any details relating to the exemption orconsequences to the exemption. In view of the said position, thisCourt not go into the details of the said notification. https://hcservices.ecourts.gov.in/hcservices/

20.In (Tamil Nadu Kalyana Mandapam Association vs. Union ofIndia) (2004) 167 ELT 3 (SC); (Gujarat Ambuja Cements vs. Union ofIndia) (2005) 4 SCC 214; All-India Federation of Tax Practitioners v.Union of India, 2007 (7) SCC 527and (C.K. Jidheesh vs. Union ofIndia) (2008) (1) STR 3 (SC) the Honourable Supreme Court upheld thelegislative competence of the parliament to levy service tax under aresiduary entry 92 to List I of VII Schedule of the Constitution andnecessary constitutional amendments were made and Entry 92 (c) wasintroduced to List I giving authority to the Parliament to legislateon service tax. 21.The Honourable Supreme Court in Larsen & Toubro v. Union ofIndia as well as Bharat Sanchar Nigam case extracted above consideredthe transaction relating to supply of goods and rendering service andheld that the State cannot encroach upon the Union List and taxservices by including the same in the value of goods involved.Similarly, the Centre cannot include the value of the goods involvedin the cost of the service.22.The Hire Purchase/Leasing transactions admittedly includesthe concept of rendering service. Service tax is an indirect tax andit is to be paid on all the services notified by the Government ofIndia. Service tax is levied on service not on sale or purchase ofgoods. The said tax is on service and not on the service provider.Service tax is made by Parliament under Entry 92C of List I andArticle 268-A, which has legislative competence to levy service taxby way of the impugned Act and Entry 54 of List II and Entry 92C ofList I operate on different areas. 23.Hence, the plea of the appellant/petitioners that servicetax relating to leasing and hire purchase transaction is contrary toArticle 265 and 366 (29A) of Entry 54 List II of VII Schedule of theConstitution is rejected.24.It is well settled that though taxing laws are not outsideArticle 14, however, having regard to the wide variety of diverseeconomic criteria that go into the formulation of a fiscal policy,legislature enjoys a wide latitude in the matter of selection ofpersons, subject matter, events etc., for taxation. If there isequality and uniformity within each group, the law would not bediscriminatory. The learned Additional Solicitor General for therespondents submitted that all the banking companies, which arecarrying on similar hire purchase/leasing transactions are payingservice tax without any protest as service element is involved. 25.A taxing statute is not per se, a restriction of the freedomunder Article 19 (1) (g). The policy of a tax, in its effectuation,might, of course, bring in some hardship in some individual cases.But that is inevitable, so long as law represents a process ofabstraction from the generality of cases and reflects the highestcommon factor. Every cause, it is said, has its martyrs. Thenagain, the mere excessiveness of a tax, or even the circumstance thatits imposition might tend towards the diminution of the earnings orprofits of the persons of incidence does not, per se, and withoutmore, constitute violation of the rights under Article 19 (1) (g). https://hcservices.ecourts.gov.in/hcservices/ In (Sonia Bhatia vs. State of Uttar Pradesh) (1981) 2 SCC 585, it washeld that "The Act seems to implement one of the most importantconstitutional directives contained in Part IV of the Constitution ofIndia. If, in this process a few individuals suffer severe hardshipthat cannot be helped, for individual interests must yield to thelarger interests of the community or the country as indeed everynoble cause claims its martyr." 26.For the said reasons, the averments that levying of servicetax on hire purchase/leasing transaction is violative of Article 14and 19 (1) (g) of the Constitution is also rejected.27.In fine, the writ appeal as well as the writ petitions aredismissed. No costs. Connected miscellaneous petition is closed.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarrshTo1. The Secretary Government of India Ministry of Finance Government of India North Block New Delhi – 110 0012. Central Board of Excise & Customs North Block New Delhi – 110 0013. Chief Commissioner of Central Excise 121, Nungambakkam High Road Chennai – 600 0344. The Commissioner of Central Excise Service Tax Cell, Chennai-II MHU Complex No.473, Anna Salai Chennai – 600 0351 cc To Mr.V.S.Jayakumar, Advocate, SR.215011 cc To M/s.Surana & Surana, Advocate, SR.217291 cc To M/s. Satish Parasaran, Advocate, SR.21679WA No. 4119 of 2003andWP Nos. 14905, 15327, 15328,,15559 and 15560 of 2001KSK(CO)SRA(23/6/2009)