2009 (6) TMI 16 - HC - Service Tax

Parliament's Power to Levy Service Tax on Hire Purchase & Leasing Transactions Affirmed

M/s. Madras Hire Purchase Association and Others Versus Union of India

The court upheld the legislative competence of Parliament to levy service tax on hire purchase and leasing transactions, citing relevant constitutional ... Hire purchase and leasing transactions - Non - Banking and Financial Companies - Held that Honourable Supreme Court in Larsen & Toubro v. Union of India as well as Bharat Sanchar Nigam considered the transaction relating to supply of goods and rendering service and held that the State cannot encroach upon the Union List and tax services by including the same in the value of goods involved. Similarly, the Centre cannot include the value of the goods involved in the cost of the service - The Hire Purchase/Leasing transactions admittedly includes the concept of rendering service. Service tax is an indirect tax and it is to be paid on all the services notified by the Government of India. Service tax is levied on service not on sale or purchase of goods. The said tax is on service and not on the service provider. Service tax is made by Parliament under Entry 92C of List I and Article 268-A, which has legislative competence to levy service tax by way of the impugned Act and Entry 54 of List II and Entry 92C of List I operate on different areas - Service Tax is leviable Issues Involved:1. Legislative competence of Parliament to levy service tax on hire purchase and leasing transactions.2. Whether hire purchase and leasing transactions involve a service element.3. Constitutionality of the service tax under various Articles of the Constitution of India (Articles 14, 19(1)(g), 265, 366(29A), Entry 54 of List II of Schedule VII).Issue-wise Detailed Analysis:1. Legislative Competence of Parliament to Levy Service TaxThe petitioners argued that the Parliament lacks the authority to levy service tax on hire purchase and leasing transactions, as these transactions are deemed sales under Article 366(29A) and fall within the State's domain under Entry 54 of List II. However, the court noted that service tax is levied under the residuary Entry 97 of List I and Article 268-A, which empowers the Union to levy taxes on services. The court cited multiple Supreme Court judgments (e.g., Tamil Nadu Kalyana Mandapam Association v. Union of India, Gujarat Ambuja Cements v. Union of India) upholding the legislative competence of Parliament to levy service tax.2. Service Element in Hire Purchase and Leasing TransactionsThe petitioners contended that hire purchase and leasing transactions do not involve any service element and are purely sales transactions. They presented invoices showing no service charges were collected. However, they admitted to collecting 1% service charges for document preparation and other incidental activities. The court held that the service element in these transactions justifies the levy of service tax, distinguishing it from sales tax. The court referenced the 'aspect theory' and previous judgments (e.g., Federation of Hotel and Restaurant Association of India v. Union of India) to support this view.3. Constitutionality Under Various Articles- Article 14 (Equality Before Law): The court held that taxing laws are not outside the purview of Article 14 but enjoy wide latitude in the selection of subjects for taxation. The court found no discrimination in the levy of service tax on hire purchase and leasing transactions.- Article 19(1)(g) (Right to Practice Any Profession): The court stated that a taxing statute is not per se a restriction on the freedom under Article 19(1)(g). The imposition of service tax, even if it causes some hardship, does not violate this right.- Article 265 (No Tax Without Authority of Law): The court found that the service tax on hire purchase and leasing transactions is authorized by law under the Finance Act and relevant constitutional provisions.- Article 366(29A) and Entry 54 of List II: The court clarified that the State's power to levy sales tax on hire purchase and leasing transactions does not preclude the Union from levying service tax on the service component of these transactions. The court emphasized that service tax and sales tax operate in different domains.ConclusionThe court dismissed the writ petitions and the writ appeal, upholding the legislative competence of Parliament to levy service tax on hire purchase and leasing transactions. The court found that these transactions involve a service element, justifying the imposition of service tax. The court also rejected claims that the service tax violates Articles 14, 19(1)(g), 265, and 366(29A) of the Constitution.