2014 (5) TMI 652

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....f the 1994-Act read with rule 2C of the Service Tax (Determination of Value) Rules, 2006 (the Rules). 4. The Petitioner has filed this writ petition challenging the vires of section 66E(i) of 1994-Act. POINTS FOR DETERMINATION 5. We have heard counsel for the parties. The following points arise for determination in the case: (i) Whether any service tax can be charged on a sale of an item or vice versa; (ii) Whether in view of Article 366 (29A)(f) service is subsumed in sale of food and drinks; (iii)Whether section 66E(i) of the 1994-Act is violative of Article 366 (29A)(f) of the Constitution. 1st POINT: NO SERVICE TAX ON SALE AND VICE VERSA 6. In our country, sales tax laws were enacted for the first time in pursuance of the Government of India Act, 1935. Subsequently, when the constitution came into force, it had two entries in the VII Schedule, that were relevant for the tax on sale and purchase: one was entry 92 of List-I (Union-List) and the other was entry 54 of List-III (State-List). 7. Constitution (Sixth Amendment) Act, 1956 inserted entry No. 92A in List-I and also substituted entry 54. At present, these entries are as follows: List-I 92. Taxes on the sale or pu....

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....ment has no legislative competence to enact a law to tax sale of food and drinks. 14. Article 366 of the Constitution is titled as 'Definitions'. Its sub-article (29A) was inserted by 46th Amendment. Article 366(29A) of the Constitution is titled as 'tax on the sale or purchase of goods'. The relevant part of article 366 is as follows: Article 366. In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say- ... (29-A) "tax on the sale or purchase of goods" includes- ... (f) 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), where such supply or service, is for cash, deferred payment or other valuable consideration. In order to understand its implication it is necessary to see its historical background in which it was inserted. Historical Background 15. It was thought that the court would give wider meaning to entry 92, 92-A of List-I and entry 54 of List-II. However, they were interpreted narrowly. 16. In the Sta....

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..... for human consumption... where such supply or service, is for cash ...' This itself shows that the sales tax is on supply of food or on drinks only and not on the service part thereof. 25. The issue involved in the Damodarsamy case related to power of the State to levy tax on the food or drinks. The court after referring to insertion of article 366 (29A) held that by reason of that amendment, the States were entitled to levy tax on the supply of food and drinks. This case is not relevant on the question whether the Parliament can impose service tax on the service element of the sale or not. 26. The case of T.N.Kalyan Mandapan Assn. v. Union of India & Others {AIR 2004 SC 3757: (2004) 5 SCC 632} (the Kalyan-Mandapan case) is relevant to the case in hand. In this case, the validity of sections 6, 67(o) of the Finance Act, 1994 and Rule 2(1)(d)(ix) of the Service Tax Rules, 1994 have been upheld. The court says, 'In regard to the submission made on Article 366 (29-A)(f), we are of the view that it does not provide to the contrary. It only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwi....

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....his is explained under rule 2C of the Rules, read with notification dated 20.06.2012 (the Notification). 34. Section 93 is titled as 'Power to grant exemption from service'. It empowers the Central Government exempt whole or part of the service tax in public interest. The Notification has been issued in pursuance of the power conferred under this section. 35. The Notification exempt, the taxable services from whole of the service tax leviable upon them. Clause 19 of the Notification is as follows: '19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having (I) the facility of airconditioning or central air-heating in any part of the establishment, at any time during the year, and (ii) a licence to serve alcoholic beverages.' 36. Clause 19 of the Notification exempts the service tax in serving food or beverages by the restaurants other than the air-conditioned restaurant or having licence to serve alcoholic beverages ei service tax is levied only in those restaurants that have air-conditioning or licence to serve alcoholic beverages. 37. Rule 2C of the Rules clarifies that in case of a resta....