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2014 (4) TMI 447
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....nsequently, the relief restraining the Respondents from giving effect to the said provision directly or indirectly, so also, levying or attempting to levy any service tax under the impugned provision is also claimed. 4 Few facts which are necessary for appreciating the rival contentions are that the Petitioner No.1 before us is an Association registered under the Trade Union Act, 1926 and claims that it has 2000 Hotels in Greater Mumbai and 500 Associate members outside Greater Mumbai and within the State of Maharashtra. They are all holding licences to serve the foreign liquor (FLIII licence). The Petitioner No.2 is one of the Restaurant serving food and drinks. It is a member of the Petitioner No.1 Association. After tracing the history as to how the licences to serve foreign liquor are issued, what the Petitioners contend is that the Respondent No.1 is the Union of India. The Respondent Nos.2 to 6 are the Authorities exercising powers for levying, assessing and recovering, so also, collecting service tax. 5 It is then stated that the service tax was introduced in India by the Finance Act, 1994. The Service Tax was legislated by the Parliament under the residuary entry i.e.....
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....) of clause 105 of Section 65 of the Finance Act, when the declared tariff for providing of such accommodation is less than Rs. 1,000/per day from the whole of the service tax leviable under Section 66 of the said Act. Annexure P5 to the petition is a copy of the notification No. 31/2011 dated 25.04.2011 issued by the Government of India, Ministry of Finance, Department of Revenue. According to the Petitioners, the Notifications at Annexures P3 to P5 came into force with effect from 01.05.2011. 7 It is stated by the Petitioners that the scope and ambit of the Annexures P2, P4 and P5, the amendments in relation to service tax, was clarified by the Ministry of Finance, Government of India, by the communication bearing D.O.F. No. 334/3/2011TRU dated 28.2.2011 (annexed at Annexure P6). It has been stated therein that the levy of service tax is intended to be confined to the value of services contained in the composite contract and shall not cover either the meal portion in the composite contract or mere sale of food by way of pickup or home delivery, as also goods sold at MRP and that the Finance Minister has announced 70% abatement on this service which inter alia meant to se....
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....ted area (being 40% of the total constructed area) in the Restaurant. The Excise law does not allow the restaurants to serve liquor in any place other than in the area demarcated on the plan which has been specifically carved out for the purposes of serving liquor. The Excise department approves the plan and the license is issued to restaurant, specifying the demarcated area, where the liquor is permitted to be sold. 11 According to the Petitioners, the members of the 1st Petitioner association who are running bar hotels are paying Value Added Tax (VAT) under the Maharashtra Value Added Tax (MVAT) Act at the rate of 12.5% on the gross amount paid for food items sold and also VAT as per the provisions of MVAT Act at the rate of 5% on the amount paid for liquor sold. Value Added Tax on the amount paid on food and beverages sold and the turnover tax on the amount of alcoholic beverages sold are levied and collected by the State as the said transactions are sale exigible to tax under the said Acts which exclusively fall under Entry 54 of the List II of the Seventh Schedule to the Constitution of India. 12 It is stated that the Constitution (Fortysixth Amendment) Act, 1982 amended....
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.... and on the balance 30% the Service has been charged. The net result is that two taxes are recovered in respect of the same service. 17 It is, therefore, stated that the Courts have always held sale of food and beverages in a restaurant as a subject matter of sales tax within the perview of the state. They have expressly upheld that the amount paid by the customer in a restaurant includes payment for the services rendered and both are indivisible. 18 Mr.Sridharan, learned Senior Counsel appearing for the Petitioners, submits that the scheme of the Constitution of India and as enumerated by Articles, Lists I and II of the Seventh Schedule and Entries therein, all of which have been extensively referred in the Petition, reveals that the Parliament may have by the Constitution (Eightyeighth Amendment) Act, 2003 inserted Entry92C in ListI relating to "Taxes on services" from the date to be notified. However, no such notification has been issued. It may be that the Parliament is taking aid of Entry97 of ListI and the Constitutional Articles read therewith so as to levy service tax, but levy of sales tax on Hoteliers for sale of food or beverages to the guests demonstrates that the....
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....ase of 20th Century Finance Corporation Limited and another v/s State of Maharashtra reported in (2000) 6 SCC 12, a tax on supply by way of service or as a part of service of food or any other article for human consumption or any drink, is within the exclusive power of the State Legislature under Entry 54 of the State List. 23 Mr.Sridharan submitted that the provisions of the Finance Act, 1994 were amended by the Finance Act, 2011. The Circular No.334/3/2011TRU dated 28.02.2011 was issued by the Central Government at the time of introduction of the Finance Bill, 2011. The Circular sought to explain the scope of restaurant services. The Circular clarified that the restaurants provide a number of services in combination with the meal and beverages for consolidated charge. The services related to the use of restaurant space and furniture, airconditioning, welldressed waiters, linen, cutlery, crockery, music on a dance floor, etc.. Thus, a new clause (zzzzv) was inserted to Section 65(105) of the Finance Act, 1994 by the Finance Act, 2011. According to the said clause, the service provided by a restaurant having specified facilities such as airconditioning and licence to serve liquo....
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....f levy of service tax under Entry 97 of the Union List. It is a well settled law that the Rules providing for deduction, etc. are not relevant in judging the validity of the levy under the Finance Act. The nomenclature of levy will not be decisive of the true character and nature of a particular levy. For deciding the true character and nature of a particular levy, with reference to the legislative competence, the Court has to look into the pith and substance of the legislation. Mr.Sridharan submitted that it is a well settled principle of law that the measure of tax should not be confused with the nature of tax. For example, excise duty is levied on the manufacture of goods, whereas the value and time for discharge of tax is as provided under the provisions of the Central Excise Act. The Courts have upheld the validity of the levy of tax not confined to manufacturing cost or profit, but considering the sale price of the manufacturer for the reason that the measure has reasonable nexus with the nature of levy. The measure of tax is not determinative of its essential character or of the competency of the legislature to levy the tax. What is to be seen is the pith and substance or th....
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....ompetent to legislate on service tax. The argument that the service tax cannot be imposed by the Parliament and therefore, the relevant provision in the Finance Act is beyond competence of the Parliament, deserves to be rejected. It is submitted by Mr.Setalwad that under Entry 8 of List II and Entry 54 of List II, the State Legislature has been given the power to legislate in the matter of manufacture, possession, transport, purchase and sale of intoxicating liquors and sale and purchase of goods, but there is no restriction on the Parliament to legislate in relation to levy a tax on services provided by highend restaurants that are airconditioned and have the license to serve liquor. The Parliament has the power to make law relating to service tax by virtue of its residuary powers vested under Articles 246 and 248 read with Entry 97 of List I of the Seventh Schedule to the Constitution of India. Article 366(29A)(f) of the Constitution of India permits the States to tax the supply of food, drink or any article for human consumption, as part of any service or any other manner. 28 By placing heavy reliance upon a judgment of the Honourable Supreme Court in the case of Tamil Nadu K....
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....provides a facility like restaurant. The Petitioners are also permitted to sell and provide foreign liquor. Thus, the Association is of the owners of restaurants and hotels. The grievance is that the Parliament has enacted the Finance Act and in the same, vide Section 65(105)(zzzzv), it has purported to define "taxable service". It is defined to mean any service to be provided or to be provided to any person, by a restaurant, by whatever name called, having the facility of airconditioning 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. Thus, any service provided by a restaurant and having the above facility, so also, the licence is termed as "taxable service" on which the service tax can be imposed in terms of Chapter V of the Finance Act, 1994. The controversy is that this tax cannot be imposed by the Parliament and this tax is, therefore, beyond its competence. Insofar as the present Petitioners are concerned, the service tax cannot be imposed, levied, assessed and recovered. 32 The foundation for this argu....
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....ch as public and private rooms, bath with hot and cold running water, linen, meals during stated hours, etc.. The bill tendered to the guest is an all inclusive one, namely, a fixed amount for the stay in the hotel for each day was included and did not contain different items of each of the above amenities. This is not the case in its restaurant business where a customer takes his meal consisting either of items of food of his choice or a fixed menu. The primary function of such restaurant was to serve meals desired by a customer although along with the food, the customer got certain other amenities also such as service, linen, etc.. The bill, therefore, takes into account the food items which are consumed and the services and other related amenities. The Respondent before the Honourable Supreme Court had been registered as a Dealer under the Punjab General Sales Tax Act, XLVI of 1948. The RespondentCompany, therefore, applied for a declaration that it was not liable to pay sales tax in respect of meals served in the said Cecil Hotel to the guests coming there for stay. The argument was that the hotel received guests primarily for the purpose of lodging and that when so received, t....
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....ld think that the transaction involves separate sales each time any of those things is supplied. The transaction is essentially one of carrying the passenger to his destination and if in performance of the contract of carriage something is supplied to him, such supply is only incidental to that services, not changing either the pattern or the nature of the contract. Similarly, when clothes are given for washing to a laundery, there is a transaction which essentially involves work or service, and if the laundryman stitches a button to a garment which has fallen off, there is no sale of the button or the thread. A number of such cases involving incidental uses of materials can be cited, none of which can be said to involve a sale as part of the main transaction. 14. The transaction in question is essentially one and indivisible, namely, one of receiving a customer in the hotel to stay. Even if the transaction is to be disintegrated, there is no question of the supply of meals during such stay constituting a separate contract of sale, since no intention on the part of the parties to sell and purchase food stuff supplied during meal times can be realistically spelt out. No doubt, th....
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....tive of a conflict, in the words of Dean Pound, between social interest in the safety of an individual and the individual interest of the supplier of food. The principle accepted in cases where warranty has been spelt out was that even though the transaction is not a sale, the basis for an implied warranty is the justifiable reliance on the judgment or skill of the warrantor and that a sale is not the only transaction in which such a warranty can be implied. The relationship between the dispenser of food and one who consumes it on the premises is one of contractual relationship, a relationship of such a nature that an implied warranty of wholesomeness reflects the reality of the transaction involved and an express obligation understood by the parties in the sense that the customer does, in fact, rely upon such dispenser of food for more than the use of due care. (see Cushing v Rodman). A representative case propounding the opposite view in the case of F. W. Woolworth Co. v. Wilson, citing Nisky v. Childs Co., wherein the principle accepted was that such cases involved no sales but only service and that the dispenser of food, such as a restaurant or a drug store keeper serving food ....
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....ice was for satisfaction of a human need and did not constitute a sale of food. The Honourable Supreme Court relied on several facts and circumstances in that case and in the judgment which is reported and cited before us. It has dismissed the Review Petition seeking review of its main judgment, by confirming the view taken earlier. 37 Mr.Sridharan, therefore, submits that the amendment made by the Constitution (FortySixth Amendment) Act, 1982 is to get over the above two judgments of the Honourable Supreme Court. Once the Constitutional provisions and particularly subclauses (a) to (f) under Article 366(29A) clarified the position, then, the basis of the Supreme Court's judgments itself was altered or taken away. By introduction of this Constitutional amendment, the Parliament clarified that the tax on sale or purchase of goods would include a tax on the supply of goods being food or any other article for human consumption or any drink (whether or not intoxicating), by way of or as part of any service or in any other manner whatsoever. Thus, the element of service in the supply of goods, whether by way of or as part of or in any other manner whatsoever, is included in the t....
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.... or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made." 40 This inclusive definition was inserted so as not to leave any room for argument that a tax on sale or purchase of goods does not include a tax on the supply of goods which may be food or any other article for human consumption or any drink (whether or not intoxicating), by way of or as part of any service or in any other manner whatsoever. It is for that limited purpose and to put an end to the controversy, which was dealt with by the Honourable Supreme Court and to get over the basis of its judgments or to alter them that the Parliament stepped in. Beyond that we do not see as to how a service tax can be said to be a component of tax on sale or purchase of goods envisaged by Entry 54 of List II (State List). To say that the Parliament was denuded of its com....
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.... List. ........" 88. ....... 89. It is by now well settled that various entries in three lists are not powers of legislation, but fields of legislation. The power to legislate is given by Article 246 and other Articles of the Constitution of India. The entries in the Lists are mere legislative heads and are of an enabling character. They are designed to define and delimit the respective areas of legislative competence of the Union and State Legislatures. They neither impose any implied restrictions on the legislative power conferred by the Article nor prescribe any duty to exercise that legislative power in any particular manner. The language of these Entries should be given the widest scope of which their meaning is fairly capable because they set up a machinery of Government and each general word should be accordingly held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. 90. ........... 91. It is also well settled that there is no prohibition against the Legislature enacting a single statute in exercise of powers conferred by several entries in the list which is within its competence. [see AIR 1966 SC 619 (Hari Kr....
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....or any purpose (whether or not for a specified period). It is a tax on the supply of goods by any unincorporated association or body of persons to a member thereof and equally, it is a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating). This is how the Constitution of India envisages a tax on sale or purchase of goods. That such a tax is fully within the competence of the State Legislature. In imposing, levying, assessing or recovering such tax, the State Government does not tax the services. That entry enables the State to impose a tax on sale or purchase of goods and in doing so, the State is enabled to tax the above aspect or matter in the course of sale or purchase of goods. In order to enable the State to levy, assess and recover the sales tax that the Parliament inserted the inclusive definition of a tax on sale or purchase of goods, as above. When the State imposes or levies the sales tax on goods, it is not charging or taxing the services, but sale thereof. The service tax does not charge or tax the sale of goods. It charges or ta....
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....or drink and it is not of relevance that the supply is by way of a service or as part of a service. In our view, therefore, the price that the customer pays for the supply of food in a restaurant cannot be split up as suggested by learned Counsel. The supply of food by the restaurant owner to the customer, though it may be a part of the service that he renders by providing good furniture, furnishing and fixtures, linen, crockery and cutlery, music, a dance floor and a floor show, is what is the subject of the levy. The patron of a fancy restaurant 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. 10. .......... 11. Learned Counsel for the owners of residential hotels in the State of Maharashtra (Writ Petition No. 9901 of 1983) raised much the same contention, but in the context of residential hotels. He pointed out that residential hotel provided only lodging or lodging and boarding. The boarding could co....
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....commenced hereafter until the Rules have been framed. At the same time, completed assessments as of today shall not be affected by this order, and the assessees would be entitled to adopt proceedings there against, subject to the law." 44 The Honourable Supreme Court, thus, negatived the challenge and dismissed the Writ Petitions. 45 It is, therefore, clear that a sales tax is on sale of goods. While selling, supply thereof is contemplated and covered by Article 366(29A) (f) of the Constitution of India. It does not mean that the service during the course of or while supplying the goods is taxed, but the tax is and remains on sale of goods. That is why the State Legislatures were held to be empowered to impose, levy, assess and recover a tax on sale of articles of food and drink which have been termed as "goods". Once the observations of the Honourable Supreme Court and the Constitutional definition is understood in this context, then, we do not feel that any assistance can be derived by the Petitioners from the judgment in K.Damodarasamy Naidu (supra). This judgment of the Honourable Supreme Court in no way decides the controversy before us far from holding that the Parliame....
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.... usually for a fee, that may not be classed as manufacturing or production in any form. That is how professional services are identified and known. The other category of service means any benefit or any act resulting in promoting interest or happiness. It may be contractual, professional, public, domestic, legal, statutory, etc.. In this context, a reference can usefully be made to the judgment of the Honourable Supreme Court in the case of Lucknow Development Authority v/s M.K. Gupta reported in AIR 1994 SC 787. While interpreting Section 2(o) of the Consumer Protection Act, 1986, the Honourable Supreme Court held as under: " 4. .......... The answer to all this shall depend on understanding of the word "service". The term has variety of meanings. It may mean any benefit or any act resulting in promoting interest or happiness. It may be contractual, professional, public, domestic, legal, statutory etc.. The concept of service thus is very wide. How it should be understood and what it means depends in the context in which it has been used in an enactment. ......." 49 By no stretch of imagination, therefore, a service tax can be the same as a tax on sale and purchase of goods.....
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....sale or purchase of goods a service tax. All the incidental or ancillary acts which have been performed during the course of sale or purchase of goods have been included in the definition (Article 366(29A)(f)). Such incidental or ancillary act being performed during the course of sale or purchase of goods would not mean that a tax on sale or purchase of goods is not on sale of goods. The sale of goods may include supply by way of or as part of any service or in any other manner whatsoever, of goods which may be food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration. Such supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply of such goods is made. Thus, by a deeming fiction, the supply of goods is sale thereof by the person making the supply and purchase of those goods by the person to whom the supply is made. By a deeming fiction, a tax on the supply thus, includes a tax on sale or purchase of goods. That is....
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....as the said tax is not mentioned in either List II (State List) or List III (Concurrent List). Mr.Sridharan concedes that there is no entry in relation to a tax in the concurrent list. The Entry 54 in List II (State List) alone is pressed into service. We have already held that same does not envisage a service tax or tax on service rendered by a restaurant to any person and which restaurant is of the nature referred to in Section 65(105)(zzzzv) of the Finance Act. For these reasons, we are of the opinion that the foundation or basis for the challenge fails. The challenge, therefore, cannot be upheld. The Parliament by the Finance Act, 2011 specified or expanded the scope of the taxable services by amending Chapter V of the then prevailing Finance Act, 1994. (see clause 71 of the Bill to amend the Finance Act published on 28th February, 2011). Thus, the Entry 92C of List I being not brought into force cannot be of any consequence. 53 Reliance placed by Mr.Sridharan on the judgments which we have noted above is totally misplaced. We have elaborately discussed the judgments rendered prior to insertion of Article 366(29A)(f) and thereafter. The only other judgment and stated to be d....
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....mpetence of Parliament, particularly in view of the definition of tax on sale and purchase of goods contained in Article 366 (29A) (f) of the Constitution. 41. ...... 42. ...... 43. As far as the above point is concerned, it is well settled that for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the Sale of Goods Act, 1930. Legislature cannot enlarge the definition of sale so as to bring within the ambit of taxation transactions, which could not be a sale in law. The following judgments and the principles laid down therein can be very well applied to the case on hand. 1. M/s. J.K. Jute Mills Co. Ltd. vs. The State of U.P. & Anr. [1962] 2 SCR 1; 2. M/s Gannon Dunkerley & Co. and Ors. vs. State of Rajasthan & Ors. (1993) 1 SCC 364; 3. The State of Madras vs. Ganon Dunkerley & Co. (Madras) Ltd. [1959] SCR 379; 4. The Sales Tax Officer, Pilibhit vs. M/s. Budh Prakash Jai Prakash, [1955] 1 SCR 243; 5. M/s George Oakes (P) Ltd. vs. State of Madras, [1962] 2 SCR 570. 44. In regard to the submission made on Article 366(29A)(f), we are of the view that it....
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....r specific purpose. 52. It may be noted that in recent times the service sector has grown phenomenally all over the world and, therefore, it was recommended by Dr. Raja Chelliah Committee in the early 90s that it should be taxed. Pursuant thereto, service tax was first levied in 1994 by way of the Finance Act. The power to levy such tax can be traced to Sl.No. 97 of List I of Seventh Schedule and this Court in Laghu Udyog Bharati vs. Union of India (supra) found no lack of legislative competence as far as the levy of service tax was concerned. 53. It is also emphasized that a tax cannot be struck down on the ground of lack of legislative competence by enquiring whether the definition accords what the layman's view of service. It is well settled that in matters of taxation laws, the court permits greater latitude to pick and chose objects and rates for taxation and has a wide discretion with regard there to. We may in this context refer to the decision of Mafatlal Industries Ltd. and Others vs. Union of India and Others (1997) 5 SCC 536 para 343 at page 740. ".....In the matter of taxation laws, the court permits a great latitude to the discretion of the legislature. Th....