High Court declares provisions unconstitutional, halts service tax imposition pending specified date

The High Court ruled in favor of the petitioners, declaring certain provisions under the Finance Act, 1994 and the Service Tax Rules, 1994 as unconstitutional. The court referenced a previous decision by the Bombay High Court, upheld by the Supreme Court, which prohibited the imposition of service tax on certain services received by the petitioners. The High Court of Madras disposed of the writ petitions, preventing the respondents from levying service tax on the petitioners until a specified date due to the insertion of Section 66A in the Finance Act, 1994 through a 2006 amendment.

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Issues:

1. Challenge to the provisions of Explanation under Section 65(105) of the Finance Act, 1994 and Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 as ultravires of the Constitution of India.

Analysis:

The writ petitions sought a declaration that certain provisions under the Finance Act, 1994 and the Service Tax Rules, 1994 were unconstitutional concerning the petitioners. The petitioners argued that these provisions violated Articles 14, 19(1)(g), 245, and 265 of the Constitution of India. The counsel for the petitioners referenced a judgment by a Division Bench of the High Court of Bombay in a similar case, where it was held that the imposition of service tax cannot be shifted to recipients of services through rules and that such provisions were invalid. The Supreme Court had also confirmed this decision, restraining the authorities from levying service tax on certain services received by the petitioners' vessels and ships from non-residents outside India for a specific period.

The counsel for the petitioners pointed out that the Division Bench's decision in the Bombay High Court had been upheld by the Supreme Court. The respondents did not challenge this submission. Consequently, the High Court of Madras disposed of the writ petitions, ruling that the respondents were not entitled to levy service tax on the petitioners until a certain date. This decision was based on the insertion of Section 66A in the Finance Act, 1994, through an amendment in 2006, which empowered the authorities to levy service tax on recipients of taxable services only from a specific date onwards.

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