1999 (7) TMI 1 - SC - Service Tax

Only service provider is assessee for service tax under Sections 65-66; Rules 2(d)(xii) and 2(d)(xvii) quashed

LAGHU UDYOG BHARATI Versus UNION OF INDIA

SC held that only the service provider can be the assessee for service tax under Sections 65 and 66, and Rules 2(d)(xii) and 2(d)(xvii) insofar as they ... Service Tax - Services by clearing and forwarding agents and goods transport operators to their clients - Demand for refund - Taxable service - Liability to pay service tax - validity of Rules 2(xii) and (xvii) of the Service Tax Rules, as amended in 1997 - HELD THAT:- 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-rules (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 Rules 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. Any person responsible for collecting the(3) service tax who has not furnished the return within the time allowed under sub-section (1) or sub-section (2) or having furnished a return under sub-section (1) or sub-section (2), discovers any omission or wrong statement therein, may furnish a return or a revised return, as the case may be, at any time before the assessment is made. 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. We have no hesitation in holding that 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. At this juncture it is pertinent to notice that by an amendment Notification No. 20/98-Central Excise (N.T.), dated 2nd June, 1998 issued under Section 93 of the Finance Act taxable services provided by goods transport operators, outdoor caterers, pandal and shamiana contractors were exempted from the levy of the said tax. This exemption was, however, prospective and it does not grant exemption in regard to clearing and forwarding agents. It is for this reason that the petitioners have continued to persue with these petitions. Issues Involved:1. Validity of Rules 2(xii) and (xvii) of the Service Tax Rules, 1997.2. Interpretation of Sections 65, 66, 67, 68, 70, and 71 of the Finance Act, 1994.3. Ultra vires nature of the Service Tax Rules vis-`a-vis the Finance Act.4. Refund of service tax paid by customers or clients of clearing and forwarding agents or goods transport operators.Detailed Analysis:1. Validity of Rules 2(xii) and (xvii) of the Service Tax Rules, 1997:The petitioners challenged the validity of Rules 2(xii) and (xvii) of the Service Tax Rules, 1997, asserting that these sub-rules are contrary to Sections 65 and 66 of the Finance Act, 1994. The court examined the legislative history and provisions of the Finance Act, 1994, and subsequent amendments, concluding that the impugned sub-rules conflict with the Act's provisions. Specifically, these rules incorrectly designated the customers or clients of clearing and forwarding agents and goods transport operators as the persons responsible for collecting the service tax, which is contrary to the statutory definitions and charging sections.2. Interpretation of Sections 65, 66, 67, 68, 70, and 71 of the Finance Act, 1994:The court provided an in-depth analysis of the relevant sections:- Section 65 defines various terms, including 'assessee,' 'goods transport operator,' 'person responsible for collecting the service tax,' and 'taxable service.'- Section 66 is the charging section, imposing a 5% service tax on the value of taxable services provided by the person responsible for collecting the service tax.- Sections 67 and 68 detail the valuation, collection, and recovery of service tax, emphasizing that the person providing the service is responsible for collecting and remitting the tax.- Sections 70 and 71 outline the procedure for filing returns and assessments, reinforcing that the responsibility lies with the service provider, not the customer.3. Ultra vires nature of the Service Tax Rules vis-`a-vis the Finance Act:The court held that the provisions of Rule 2(d)(xii) and (xvii) are ultra vires the Finance Act. The rules improperly shifted the responsibility for collecting and remitting the service tax to the customers or clients of the service providers, which is inconsistent with the Act. The Act clearly stipulates that the service provider is the assessee and responsible for the tax. The court quashed these sub-rules, stating that they conflict with the statutory framework and cannot be enforced.4. Refund of service tax paid by customers or clients of clearing and forwarding agents or goods transport operators:The court directed that any service tax paid by customers or clients of clearing and forwarding agents or goods transport operators should be refunded within twelve weeks upon their request. This decision was based on the finding that the impugned rules were invalid, and therefore, any tax collected under these rules was not legally justified.Additional Judgments:- W.P. (C) No. 262 of 1998: The writ petition was dismissed as withdrawn.- W.P. (C) Nos. 228 of 1998 and 5 of 1999: These petitions were dismissed as withdrawn, with liberty to raise contentions before the authorities under the Act if an appeal is filed by the members of the petitioner-Association.- I.A. No. 6/99 in W.P. (C) No. 53 of 1998: The application for intervention was dismissed, as the main writ petition had already been disposed of. The applicant was allowed to proceed with their pending writ petition in the High Court.In conclusion, the court's judgment clarified the statutory responsibilities for collecting and remitting service tax, invalidated certain rules that were inconsistent with the Finance Act, and provided for the refund of improperly collected taxes.