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Supreme Court Of India
(S. RAJENDRA BABU AND DR. AR. LAKSHMANAN, JJ.)
T.N. KALYANA MANDAPAM ASSN. Appellant;
Versus
UNION OF INDIA AND OTHERS Respondents.
Civil Appeal No. 2727 of 2002
decided on April 15, 2004
A. Constitution of India, Article 246, Schedule 7, List 2, Entry 49, List I, Entry 97 - Finance Act, 1994, Sections 41(p) 65, 66 and 67(i) - Service Tax Rules, 1994, Rule 2(1)(d)(ix) - Legislative competence - Other provisions relating to Kalyana Mandapams and Mandap-Keepers- held Sections 66, 67(o) of the Finance Act, 1994 and Rule 2(1)(d)(ix) of the Service Tax Rules, 1994 and other provisions related to Kalyana Mandapams and Mandap-Keepers- The High Court held that these provisions of the Act and Rules and other related provisions were intra vires of the Constitution and dismissed the Writ Petitions- The Central Government issued a Notification exempting an amount of service tax leviable on a Mandap-Keeper, in excess of the amount of service tax calculated on 60% of the gross amount- Contention that in order to constitute a tax on land, it must be a tax directly on land and a tax on income from land cannot come within the purview of the said Entry, was affirmed by a Seven-Judge Bench of this Court in India Cement Ltd. and Ors. v. State of Tamil Nadu and Ors., (1990) 1 SCC 12-Held if no Entry is found in List 2 and List 3 of the Schedule, which could cover the tax levied, the question of Parliament lacking legislative competence to do so would not arise- Tax on catering services does not amount to tax on sale and Purchase of goods -It is well settled that for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the Sale of Goods At, 1930.( Paras 40 TO 42 )
B. Constitution of India, Article 366(29A) (f)- Catering service- It only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwise includes the supply to services within the definition of sale and purchase of goods- The concept of catering admittedly includes the concept of rendering service. The fact that tax on the sale of the goods involved in the said service can be levied does not mean that a service tax cannot be levied on the service aspect of catering- It is well settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that service tax is levied as a percentage of the gross charges for catering cannot alter or affect the legislative competence of Parliament in the matter- Therefore, a levy of service tax on a particular kind of service could not be struck down on the ground that it does not conform to a common understanding of the word "service" so long as it does not transgress any specific restriction contained in the Constitution- Appeal dismissed( paras 43 to 58)
Judgment
DR. AR. LAKSHMANAN, J.- The present appeal is directed against the judgment and order dated 30-4-2001 in Writ Petition No. 1617 of 1998 passed by the High Court of Judicature at Madras whereby the Division Bench of the Madras High Court dismissed the writ petition of the appellant Association and held Sections 66, 67(0) of the Finance Act, 1994 and Rule 2(1)(d)(ix) of the Service Tax Rules, 1994 and other provisions related to kalyana mandapams and mandap-keepers to be intra vires the Constitution of India.
2. The appellant is an association of various kalyana mandapams bearing Registration No. 513 of 1992. The appellant Association has been formed to protect the interest of the owners of kalyana mandapams in the city of Madras and elsewhere in the State of Tamil Nadu. The owners of kalyana mandapams/mandap-keepers let out mandaps/premises to the clients. In addition to letting out the kalyana mandaps, the mandap-keepers also provide other facilities such as catering, electricity, water, etc. to their clients.
3. Service tax was introduced in India vide the Finance Act, 1994.
Service tax is legislated by Parliament under the residuary entry i.e. Entry 97 of List I of the Seventh Schedule of the Constitution of India. The service tax provisions have the following scheme:
(i) Section 65 of the Act provides for taxable services;
(ii) Section 66 of the Act provides for the charge of service tax by the person designated as "the person responsible for collecting the service tax" for the Government;
(iii) Section 67 of the Act provides for the value of taxable service which is to be subjected to 5 service tax; and
(iv) Section 68 of the Act provides for the collection and payment mechanism for service tax.
4. Service tax is an indirect tax and is to be paid on all the services notified by the Government of India for the said purpose. The said tax is on the service and not on the service provider. However, under Section 68 of the Finance Act, 1994 as amended by the Finance Act, 1997 read with Rule 2(1)(d)(ix) of the Service Tax Rules, 1994, the service provider (in the present case the mandap-keeper) is expected to collect the tax from the client utilising his services.
5. In 1997, the scope of the service sector was proposed to be widened a and a number of services were sought to be made exigible to service tax. Amongst other services, Chapter VI of the Finance Act, 1997 made the services rendered by the mandap-keepers exigible to service tax.
6. To enable the Government to widen its net of service tax, certain changes were sought to be made to the Finance Act, 1994.
7. New clauses were added to Section 65 of the Finance Act, 1994. The clauses which are relevant for the purposes of the present appeal are reproduced hereinbelow:
"65. (8) 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;
(19) mandap means any immovable property as defined in Section 3 of the Transfer of Property Act, 1882 (4 of 1982) 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;"
8. In clause (41) of Section 65 of the Finance Act, 1994, a few subclauses were inserted and insofar as they are relevant to this appeal, they are reproduced hereinbelow:
"65. (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;"
9. It is relevant to mention here that some of the sub-sections of Section 65 were renumbered by Finance Act 2 of 1998,
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