IMPORTANT POINT
Rule 2(d)(xii) and (xvii) of the Service Tax Rules insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires the Act itself.

Headnote:Service Tax Rules-Rule 2(d)(xii) and (xvii) as amended in 1997-Validity of - Definitions contained in Rule 2(d)(xii) and (xvii) which seeks to make customers or clients as assessee is clearly in conflict with Sections 65 and 66 of the Service Tax Act-Person who is receiving services cannot be made responsible for filing return and paying tax-Rule 2(d)(xii) and (xvii) insofar as it makes persons other than clearing and forwarding agents or persons other than goods transport operator as being responsible for collecting service tax are ultra vires the Act itself.
       Held : A perusal of the provisions relating to the machinery of the levy and collection of service tax clearly shows that any action which is required to be taken is qua the assessee, namely, the person responsible for collecting the service tax which includes his agents. (Para 7)
       Section 66, which is a charging section provides that the charge of tax at the rate of 5 is on the value of the taxable services which are provided to any person by the persons responsible for collecting the service tax. Insofar as the clearing agents and the transporters are concerned Section 66 has to be read with Section 65(d)(41), (J) and (M), according to which the taxable service is what, in the case of clearing and forwarding agents, rendered to his client and in the case of goods transporter is rendered to its customer. The "person responsible for collecting the service tax", referred to in Section 66 has to be read with Section 65(28) which defines this expression to mean the person who is required to collect the service tax or to pay the same. It is clear from the reading of these provisions that according to the Finance Act the charge of tax is on the person who is responsible for collecting the service tax. It is he, who by virtue of the provisions of Section 65(5) is regarded as assessee. He is the person who provides the service. (Para 8)
       Section 68(1A) is a special provision which has been inserted by the Finance Act, 1997. According to Section 68(1) "every person who was providing the taxable service is the one who is required to collect the service tax at the rate specified in Section 66." With respect to the taxable services referred in item G to R of sub-clause (41) of Section 65, Section 68(1-A) provides that the service tax for such service shall be collected from such person and in such manner as may be prescribed and to such person all the provisions shall apply as if he is the person responsible for collecting the service tax in relation to such service. As we read Section 68 it does not in any way seek to alter or change the charge of service tax levied under Section 66, which is on the person responsible for collecting the service tax. It also does not to our mind, in any way, amend any of the sub-sections of Section 65 which contains the definitions of different expressions. All that Section 68(1-A) enables to be done is that with regard to the assessees or the persons who are responsible for collecting the service tax, the individual or the officer concerned can be identified and it is that person who would be a person responsible for collecting the service tax. In other words this provision, namely, Section 68(1-A) cannot be so interpreted as to make a person as an assessee even though he may not responsible for collecting the service tax. The service tax is levied by reason of the services which are offered. The imposition is on the person rendering the service. Of course, it may be an indirect tax, it may be possible that the same is passed on to the customer but as far as the levy and assessment is concerned it is the person rendering the service who alone can be regarded as an assessee and not the customer. This is the only way in which the provisions can be read harmoniously. (Para 9)
       By amending the definition of "person responsible for collecting of service tax" in the impugned rules with regard to services provided by the clearing and forwarding agents and the goods transport operator a person responsible is said to be the client or the customer of the clearing and forwarding agents and the goods transporter. In relation to the services provided by others and referred to sub-rule (i) to (xi) and (xiii) to (xvi) of Rule 2(d), the definition of the person responsible is in consonance with the definition of that expression occurring in Section 65 of the Act. However, with regard to the services rendered by clearing and forwarding agents and the goods transport operator the definitions contained in Rule 2(d)(xii) and (xvii), which seeks to make the customers or the clients as the assessee, is clearly in conflict with Sections 65 and 66 of the Act. (Para 10)
       Section 68(1-A) cannot, to our mind, regard a customer or a client of the clearing and forwarding agent or of the goods transport operator being treated as an assessee who will become liable to file a return and be subjected to the levy of service tax and if he does not file the return, would render himself to penalty and other proceedings. (Para 11)
       Sections 70 and 71 clearly show that the return which has to be filed pertains to the payment which are received by the person rendering the service in respect of the value of the taxable services. Surely, this is a type of information which cannot under any circumstances, be supplied by the customer. Moreover the operative part of sub-section (1) of Section 70 clearly stipulates that it is a person responsible for collecting the service tax who is to furnish the return. By rules which are framed, the person who is receiving the services cannot be made responsible for filing the return and paying the tax. Such a position is certainly not contemplated by the Act. Section 94 gives the Central Government power to make the rules. These rules are to be made for carrying out the provisions of the chapter. The chapter relates to taxing the services which are provided. The tax is on the value of the services and it is only the person who is providing the service can be regarded as an assessee. The rules, therefore, cannot be so framed which do not carry out the purpose of the chapter and cannot be in conflict with the same. (Paras 11 & 12)
       Held, consequently, the provisions of Rule 2(d)(xii) and (xvii), insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires the Act itself. The said sub-rules are accordingly quashed. (Para 13)

JUDGMENT

Kirpal, J.-The petitioners in these cases are the persons who are utilising the services of goods transport operators and of clearing and forwarding agents and are seeking to impugn the validity of Rule 2(xii) and (xvii) of the Service Tax Rules, as amended in 1997, on the ground that the said sub rules are contrary to the provisions of Sections 65 and 66 of the Finance Act, 1994, whereby service tax was sought to be levied by the Parliament.

2. A brief legislative history is that service tax was, for the first time, imposed by the Finance Act, 1994. This tax was proposed on three type of services which were rendered. By the Finance Act, 1997 the Legislature sought to cast the net much wider. It amended certain provisions in the Act and, thereafter rules which had originally been framed in 1994 were also amended.

3. By Chapter V of the Finance Act, as amended by the Finance Act, 1997 service tax is imposed in relation to the taxable services which are provided. Section 65 is the definition section. Some of the sub-clauses which are relevant for our purpose read as under :

"65(5) "Assessee" means a person responsible for collecting the service tax and includes his agent;"

(17) "goods transport operator" means any commercial concern engaged in the transportation of goods but does not include a courier agency;

(28) "person responsible for collecting the service tax" means a person who is required to collect service tax under this Chapter or is required to pay any other sum of money under this Chapter and includes every person in respect of whom any proceedings under this Chapter have been taken;

(34) "service tax" means tax chargeable under the provisions of this Chapter;

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

(a) to an investor, by a stock-broker in connection with the sale or purchase of securities listed on a recognised stock exchange;

(b) to a subscriber, by the telegraph authority in relation to a telephone connection;

(d) to a policy holder, by, an insurer carrying on general insurance business in relation to general insurance business;

(e) to a client, by an advertising agency in relation to advertisment in any manner;

(f) to a customer, by a courier agency in relation to door-to-door transportation of time-sensitive documents, goods or articles;

(g) to a client, by an consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering;

(h) to a client, by a custom house agent in relation to the entry or departure of conveyances or the import or export of goods;

(i) to a shipping line, by a steamer agent in relation to a ship s husbandry or dispatch or any administrative work related thereto as well as the booking, advertising or canvassing of cargo, including container feeder services;

(j) to a client, by a clearing and forwarding agent in relation to a clearing and forwarding operations in any manner;

(k) to a client, by manpower recruitment agency in relation to the recruitment of manpower in any manner;

(l) to a customer, by an air travel agent in relation to the booking of passage for travel by air;

(m) to a customer, by a goods transport operator in relation to carriage of goods by road in a goods carriage;

(n) to a client, by an outdoor caterer;

(o) to a client, by a pandal or shamiana contractor in relation to a pandal or shamiana in any manner and also includes the services, if any, rendered as a caterer;

(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, rende

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1999 Supreme(SC) 765

IMPORTANT POINTRule 2(d)(xii) and (xvii) of the Service Tax Rules insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires the Act itself.

IMPORTANT POINT
Rule 2(d)(xii) and (xvii) of the Service Tax Rules insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires the Act itself.