2005 (3) TMI 10 - SC - Service Tax

Validation Section in Finance Act, 2002 retroactively treated agents as broadcasters for past tax demands; interest only prospective

Star India Pvt. Ltd. Versus CCE, Mumbai & Goa

SC held the Validation Section in the Finance Act, 2002 retrospectively amended the law to treat agents as service providers for broadcasting services, ... Liability for service tax on broadcasting services - effect of the amendment inter alia was to make an agent - Validation Section was introduced, in the Finance Act, 2002 - liability to pay interest on service tax post the 2002 amendment - held that:- In any event, it is clear from the language of the validation clause, as quoted by us earlier, that the liability was extended not by way of clarification but by way of amendment to the Finance Act with retrospective effect. It is well established that while it is permissible for the legislature to retrospectively legislate, such retrospectivily is normally not permissible to create an offence retrospectively. There were clearly judgements, decrees or orders of courts and Tribunals or other authorities, which required to be neutralised by the Validation Clause. We can only assume that the judgements, decree or orders etc. had, in fact, held that persons situate like the appellants were not liable as service providers. This is also clear from the Explanation to the Validation Section which says that no act or acts on the part of any person shall be punishable as an offence which would have been so punishable if the Section had not come into force. The liability to pay interest would only arise on default and is really in the nature of quasi-punishment. Interest liability can be prospective only. Issues:1. Liability of a company under the Companies Act, 1956, for service tax on broadcasting services.2. Interpretation of the Validation Section introduced in the Finance Act, 2002.3. Dispute regarding the liability to pay interest on service tax post the 2002 amendment.4. Retrospective effect of legislative amendments on liabilities and penalties.Issue 1: Liability of the Company for Service Tax on Broadcasting ServicesThe appellant, a company incorporated under the Companies Act, 1956, acted as an agent for a broadcasting company. The company contended that it did not engage in broadcasting but only sold time slots for advertisements. The dispute arose when the Finance Act, 1994, introduced broadcasting as a taxable service, and the appellant challenged its liability to pay service tax on the grounds of not being a broadcaster.Issue 2: Interpretation of the Validation SectionThe Finance Act, 2002, introduced a Validation Section, making agents liable to pay service tax as broadcasters. The appellant's appeal was rejected based on this amendment. The Tribunal upheld the appellant's liability as a broadcaster, citing the 2002 amendment. However, the Tribunal's decision was based on an incorrect understanding, as it actually held the appellant liable due to the amendment to the term 'broadcasting' by the Finance Act, 2002.Issue 3: Dispute Regarding Interest on Service Tax Post-2002 AmendmentThe Tribunal refused the appellant's argument for interest payment only after 30 days from the assent of the Finance Act, 2002. The Tribunal's rationale was that the appellant was already liable as a broadcaster before the 2002 amendment. However, the Validation Section extended liability through retrospective amendment, neutralizing previous judgments that did not hold the appellant liable. The retrospective imposition of interest was deemed quasi-punitive and not permissible as a punishment with retrospective effect.Issue 4: Retrospective Effect of Legislative AmendmentsThe retrospective effect of legislative amendments was analyzed concerning the liability to pay interest and penalties. The Tribunal deleted the penalty imposed by the Commissioner (Appeals) on the appellant. The amended section of the Finance Act, 2002, required payment within 30 days from the Presidential Assent, allowing the appellant a grace period for tax payment. The judgment allowed the appeals without costs, emphasizing the necessity to give full effect to the amended provisions within the specified timelines.This detailed analysis of the Supreme Court judgment covers the various issues involved, including the company's liability for service tax, interpretation of legislative amendments, dispute over interest payment, and the retrospective impact of the Validation Section introduced in the Finance Act, 2002.