Court affirms constitutionality of Section 67 Finance Act '94 on service tax valuation

The court upheld the dismissal of the Writ Petitions challenging the constitutional validity of Section 67 of the Finance Act, 1994. It was ruled that the inclusion of expenses and salaries in the 'gross amount' for valuation of taxable service in computing service tax was reasonable. The court emphasized that the liability to pay service tax rests with the service receivers, not the agencies acting as agents for tax collection. Therefore, the Writ Appeals were also dismissed, affirming the constitutionality of Section 67.

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Issues:
Challenge to the constitutional validity of Section 67 of the Finance Act, 1994 regarding the inclusion of expenses and salaries in the 'gross amount' for valuation of taxable service in computing service tax payable.

Analysis:
The judgment involved Writ Appeals against the dismissal of two out of three Writ Petitions seeking declarations regarding the constitutionality of Section 67 of the Finance Act, 1994. The petitioners contested the inclusion of expenses and salaries in the 'gross amount' charged for the valuation of taxable service for computing service tax. The Security Agencies, including a registered Society and an agency providing security services, argued that the inclusion of salary and statutory payments in the 'gross amount' for taxation purposes was unreasonable and violated Articles 14 and 19(1)(g) of the Constitution.

The Revenue, on the other hand, argued that individual assessments had been made against the Agencies, and challenging the constitutional validity of Section 67 was unwarranted. They contended that the 'gross amount' for taxation purposes should include all relevant expenses, as provided by the Act. The court had to determine whether including expenses like salary and statutory payments in the 'gross amount' for calculating taxable service under Section 67 was reasonable.

During the hearing, the Revenue emphasized that the scope of 'taxable net' was defined by Parliament and should not be questioned. The petitioners, supported by the Amicus Curiae, argued that the ambiguity in Section 67 made it ultra vires to the Constitution. The Amicus Curiae referred to a previous Supreme Court decision to support their argument, highlighting the difference between reimbursement of expenses and statutory payments like ESI and EPF.

The court examined the income and expenditure accounts of the petitioners and relevant agreements, noting the absence of a master-servant relationship between the security personnel and clients. Previous Writ Petitions regarding service tax reimbursement were also considered. The court upheld the dismissal of the Writ Petitions, stating that the liability to pay service tax lies with the service receivers, not the agencies acting as agents for tax collection. The judgment concluded that there was no basis to challenge the constitutionality of Section 67, and thus, the Writ Appeals were also dismissed.

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