TaxTMI 
TaxTMI 
2013 (7) TMI 431
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....alled, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises; (zzzzw) Services provided or to be provided to any person, by a hotel, inn, guest house, club or camp-site, by whatever name called, for providing of accommodation for a continuous period of less than three months;" 2. The main contention urged by the petitioners is that the imposition of service tax in relation to serving of food or beverage including alcoholic beverages represents only sale of goods which transaction squarely falls under Entry 54 of List II (State List) of the 7th schedule to the Constitution of India and therefore within the exclusive competence of the State Legislature. The service tax was originally introduced by the Parliament in exercise of the residuary power under Entry 97 of List I. Though Entry 92 C has been introduced to List I of the 7th schedule which enables the Union to levy "Taxes on Services", the said entry had not come into effect as it was not notified by the Gov....
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.... by the Union with service tax, invoking the residuary powers at Entry 97 of List I of the Constitution. 5. The relevant entries of List I and II of the seventh schedule reads as under: List I -- Union List 97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists. List II -- State List 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A of List I.] 62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling. 8. Article 246 and 366 (29A) reads as under: 246. Subject-matter of laws made by Parliament and by the Legislatures of States. --(1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the "Union List"). (2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of any State [* * *] also, have pow....
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....livery or supply is made; 6. The judgment in State of M.P. v. Rakesh Kohli, (2012) 6 SCC 312) is relied upon by the learned counsel for respondent to highlight the principles to be kept in mind by courts while considering constitutionality of a statute and the Supreme Court held as under: "32. While dealing with constitutional validity of a taxation law enacted by Parliament or State Legislature, the court must have regard to the following principles: (i) there is always presumption in favour of constitutionality of a law made by Parliament or a State Legislature, (ii) no enactment can be struck down by just saying that it is arbitrary or unreasonable or irrational but some constitutional infirmity has to be found, (iii) the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law as Parliament and State Legislatures are supposed to be alive to the needs of the people whom they represent and they are the best judge of the community by whose suffrage they come into existence, ....
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....eiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in on account of the activity undertaken by the professional like tax planning, advising, consultation, etc. It gives value addition to the goods manufactured or produced or sold. Thus, service tax is imposed every time service is rendered to the customer/client. This is clear from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted." "Scope of Article 366(29-A) 49. If one examines Article 366(2....
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.... "63. In our view, the judgment in BSNL case has no application to the present case. As stated above, what is challenged in this case is the service tax imposed by Section 66 of the Finance Act, 1994 (as amended) on the value of taxable services referred to in Section 65(105)(zm) read with Section 65(12) of the said Act, insofar as it relates to financial leasing services including equipment leasing and hire purchase as beyond the legislative competence of Parliament by virtue of Article 366(29-A) of the Constitution. In short, the legislative competence of Parliament to impose service tax on financial leasing services including equipment leasing and hire purchase is the subject-matter of challenge. Legislative competence was not the issue before this Court in BSNL case. In that case, the principal question which arose for determination was in respect of the nature of the transaction by which mobile phone connections are enjoyed. The question was whether such connections constituted a sale or a service or both. If it was a sale then the States were legislatively competent to levy sales tax on the transaction under Entry 54, List II of the Seventh Schedule to the Con....
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.... course, in the present case, we are not concerned with the services rendered by a mandap-keeper, who performs what is called as property based services. In this case, we are concerned with performance based services. However, both the categories fall within the ambit of the word "services". 49. In Gujarat Ambuja Cements Ltd. v. Union of India it was held that service tax is not a tax on goods or on passengers but it was on the transportation itself and, therefore, it falls under residuary power of Parliament under Entry 97 of the Seventh Schedule to the Constitution. "xxxxxxx" In the present case, as stated above, we are concerned with Entry 60 of List II. As stated above, service tax is on performance based services itself. It is on professional advice, tax planning, auditing, costing, etc. On each of the exercise undertaken tax becomes payable. Therefore, the above judgment has no application. 50. In Bharat Sanchar Nigam Ltd. v. Union of India the question which arose for determination before this Court was whether a telephone service (mobile or fixed) would attract liability to service (sic sales) tax. It was held that in order to attract the lia....
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....p; (A) What are "goods" in telecommunication for the purposes of Article 366(29-A)(d)? (B) Is there any transfer of any right to use any goods by providing access or telephone connection by the telephone service provider to a subscriber? (C) Is the nature of the transaction involved in providing telephone connection a composite contract of service and sale? If so, is it possible for the States to tax the sale element? (D) If the providing of a telephone connection involves sale, is such sale an inter-State one? (E) Would the "aspect theory" be applicable to the transaction enabling the States to levy sales tax on the same transaction in respect of which the Union Government levies service tax?" The Supreme Court further held as follows: "41. xxxxxxxx Sub-clause (f) pertains to contracts which had been held not to amount to sale in State of Punjab v. Associated Hotels of India Ltd. That decision has by this clause been effectively legislatively invalidated." "44....
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....on." 11. In Godfrey Phillips India Ltd. v. State of U.P., (2005) 2 SCC 515) the Supreme Court held as under: "83. Hence on an application of general principles of interpretation, we would hold that the word "luxuries" in Entry 62 of List II means the activity of enjoyment of or indulgence in that which is costly or which is generally recognised as being beyond the necessary requirements of an average member of society and not articles of luxury. "93. Given the language of Entry 62 and the legislative history we hold that Entry 62 of List II does not permit the levy of tax on goods or articles. In our judgment, the word "luxuries" in the entry refers to activities of indulgence, enjoyment or pleasure. Inasmuch as none of the impugned statutes seek to tax any activity and admittedly seek to tax goods described as luxury goods, they must be and are declared to be legislatively incompetent. However, following the principles in Somaiya Organics (India) Ltd. v. State of U.P. while striking down the impugned Acts we do not think it appropriate to allow any refund of taxes already paid under the impugned Acts. Bank guarantees if any furnished by the asses....
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....ant who orders a plate of cheese sandwiches whose price is shown to be Rs. 50 on the bill of fare knows very well that the innate cost of the bread, butter, mustard and cheese in the plate is very much less, but he orders it all the same. He pays Rs. 50 for its supply and it is on Rs. 50 that the restaurant-owner must be taxed." 14. In Federation of Hotel & Restaurant Assn. of India v. Union of India, (1989) 3 SCC 634) a constitution bench of the Supreme Court while considering the constitutional validity of the Expenditure Tax Act, 1987 (Central Act 35 of 1987) held as under: "31. Indeed, the law "with respect to" a subject might incidentally "affect" another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. Lord Simonds in Governor General-in-Council v. Province of Madras in the context of concepts of Duties of Excise and Tax on Sale of Goods said:  ....
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....ution of India and had formed an opinion that the first limb of the said Article says that the tax on sale or purchase of goods includes a tax on transactions specified in sub Clauses (a) to (f). It was also found that the said Article is brought in to expand the tax base which should narrow down because of certain judgments of the Court. The deemed sale is therefore brought into effect as a concept in the constitutional definition. The Supreme Court also observed that BSNL (Supra) had no application to the factual situation as it was only concerned with the question as to whether the mobile connections constituted a sale or service or both. In fact, in BSNL (Supra) the Supreme Court held that providing mobile phone connections is only a service. In All-India Federation of Tax Practitioners (Supra), the question involved was whether the services rendered by Chartered Accountants could be imposed with service tax in the light of Entry 60 of List II. In that case also, Supreme Court had occasion to consider the judgments in Gujarat Ambuja Cements Ltd. v. Union of India and also BSNL (Supra). In BSNL (Supra) as already held, the Supreme court had occasion to consider the scope of Arti....
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.... as held by the Supreme Court in K. Damodarasamy Naidu (Supra). 19. Now coming to Article 366(29-A)(f) of the Constitution of India one could see that a deeming provision has been incorporated by way of 46th amendment to the Constitution of India and the history of such a legislation has been clearly dealt with in the judgments cited above. The very purpose of incorporating the definition of tax on sale or purchase of goods in Article 366 was to empower the State Governments to impose tax on the supply, whether it is by way of or as a part of any service of goods either being food or any other article for human consumption or any drink either intoxicating or not intoxicating whether such supply or service is for cash, deferred payment or other valuable consideration. The words "and such transfer delivery or supply of goods" is deemed to be a sale of those goods by the person making the transfer. Therefore the incidence of tax is on the supply of any goods by way of or as part of any service. When food is supplied or alcoholic beverages are supplied as part of any service, such transfer is deemed to be a sale. Apparently, the transfer is during the course of a service and when th....