TaxTMI 
TaxTMI 
TaxTMI 
2001 (4) TMI 7
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....n the following categories: (I) Petitioners who are "Stage Carriage Operators" owning a "spare bus" covered under a "spare bus permit" as per Section 72(2) (xvii) of the Motor Vehicles Act, 1988. (II) Petitioners who are "Contract Carriage Operators", owning the vehicles covered under Section 74 of the Motor Vehicles Act, 1988. (III) Petitioners who are the owners of the "Maxi Cabs or Taxis" and having a permit under Section 74 of the Motor Vehicles Act, 1988. 4. Though we are disposing of all the writ petitions, where the petitioners are treated as "tour operators" under Section 65(52) of the Finance Act and/or "rent-a-cab scheme operators" under Section 65(38) of the Finance Act, we would be dealing with the petitions under each category separately. Common arguments were addressed by number of learned Counsel in each category. 5. Following is the legal background and the concerned provisions of the Finance Act, 1994 which would be necessary for appreciating the contentions raised in these writ petitions : 5.1 Tax on "services" came to be introduced for the first time in the Budget presented in February, 1994. To begin with, this was to be a tax on services pr....
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....ermit granted under the Central Motor Vehicles Act, 1988 or the rules made thereunder. The term "cab", "maxi cab", "motor cab" and "rent-a-cab scheme operator" are defined in Section 65 of the Finance Act as follows : 65(9) "cab" means a motor cab or maxi cab. 65(26)"maxi cab" has the meaning assigned to it in clause (22) of Section 2 of the Motor Vehicles Act, 1988. 65(28)"motor cab" has the meaning assigned to it in clause (25) of Section 2 of the Motor Vehicles Act, 1988. 65(38)"rent-a-cab scheme operator" means any person engaged in the business of renting of cabs. Section 67 of the Finance Act, 1994 provides the principles for the valuation of the "taxable services" Section 67(m) and (n) are as under : "67(m) in relation to service provided by a tour operator to a client shall be the gross amount charged by such operator from the client for services in relation to a tour and includes the charges for any accommodation, food or any other facilities provided in relation to such tour; 67(n) in relation to the services provided by a rent-a-cab scheme operator to any person shall be gross amount charged by such operator from such person for services in relation to the r....
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.... that would be helpful. 72."Grant of Stage carriage permits. - Subject to the provisions of section 71, a Regional Transport Authority may,(1) on an application made to it under section 70, grant a stage carriage permit in accordance with the application or with such modifications as it deems fit or refuse to grant such a permit : Provided that no such permit shall be granted in respect of any route or area not specified in the application. The Regional Transport Authority, if it decides(2) to grant a stage carriage permit, may grant the permit for a stage carriage of a specified description and may, subject to any rules that may be made under this Act, attach to the permit any one or more of the following conditions, namely: - (i) … … … (ii) … … … the vehicles to be kept as reserve by the(xvii) holder of the permit to maintain the operation and to provide for special occasions;" 11. All the petitioners in this category are the owners of the vehicles covered under Section 72(2)(xvii), which vehicles are kept as "reserve vehicles" for maintaining the operation of the stage carriage and to provide for special occasion. It is obvious from the plain language o....
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....ed as a "tourist vehicle" under Section 2(43). We can conveniently refer to Rule 128 of the Motor Vehicles Rules, which provides the conditions for a tourist vehicle other than motor cabs, maxi-cab, camper's van, house trailer which a tourist vehicle shall conform to. Number of specifications are given in that rule in respect of dimension, structure, door arrangement, ventilation, luggage space, seating arrangement, painting and furnishing, lighting, fitting and accessories, etc. In short, Rule 128 specifies the standard of comforts which are required to be there in a vehicle for being recognised as the "tourist vehicle" under the Central Motor Vehicles Rules. We have, therefore, no hesitation first to hold that the first and foremost condition for a person to be held as a "tour operator" within the meaning of Section 65(52) of the Finance Act is that he must be engaged in the business of operating tours in a "tourist vehicle" in terms of Section 2(43) of the Motor Vehicles Act and in no other type of vehicle and, therefore, necessarily such vehicle must conform to the conditions prescribed under Rule 128 of the Central Motor Vehicles Rules. 15. However, the matter does not stop t....
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....ssengers not included in the contract would not be able to board into or get down from the bus anywhere in the midway. In case of "stage carriage" vehicle and more particularly the "reserve vehicle" covered under Section 72(2)(xvii), the permit can be issued for the user of such spare vehicle under Section 88(8) of the Motor Vehicles Act, which runs as under : "88. Validation of permits for use outside region in which granted. - (1)… …… (2)… …… Notwithstanding anything contained in (8) sub-section (1), but subject to any rules that may be made under this Act by the Central Government, the Regional Transport Authority of any one region or, as the case may be, the State Transport Authority, may, for the convenience of the public, grant a special permit to any public service vehicle including any vehicle covered by a permit issued under section 72 (including a reserve stage carriage) or under section 74 or under sub-section (9) of this section for carrying a passenger or passengers for hire or reward under a contract, express or implied, for the use of the vehicle as a whole without stopping to pick up or set down along the line of route passengers not in....
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....e." 19. The provision clearly provides that under Section 72 itself, under which the Regional Transport Authority gets a power to grant a stage carriage permit, the said authority can make the stage carriage permit conditional. If under that very section, sub-section (2) (xviii) provides the conditions subject to which the said vehicle may be used as a "contract carriage" then it is obvious that there is nothing like a watertight compartment between the "stage carriage" and "contract carriage". It is to be seen that under clause (xvii) the Regional Transport Authority can provide for keeping the reserve vehicle for maintaining the stage carriage operations as also to provide for special occasions. Immediately thereafter follows clause (xviii) under which, the vehicle can be allowed to be used as a contract carriage. When we read these two conditions along with Section 88(8) of the Motor Vehicles Act, it becomes clear that though the reserve vehicle is ordinarily a stage carriage and is covered by a permit for stage carriage, it can be allowed to be used as a contract carriage and Section 88(8) is nothing but a special kind of permission. The language of Section 88(8) of the Motor ....
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....et a permit under Section 63(6) of the old Motor Vehicles Act, which is comparable to Section 88(8) of the present Act. In that case, State of Maharastra had floated a scheme under Section 68(d) of the old Act providing for exclusive operation of contact carriages on the said routes by the State Transport Corporation to the complete exclusion of all other persons including the petitioners in that case. There were, however, seven exceptions carved out. The petitioner, who was not covered under any of those exceptions applied for a special permit under Section 63(6) of the Act in relation to his motor vehicle on one particular route for a period of five days. His application was rejected on the ground that the said route, under the scheme, exclusively belonged to the State Transport Corporation and in the absence of No Objection Certificate from the Corporation, the said petitioner could not be permitted to operate on that route. His application was, therefore, rejected by the Regional Transport Authority. An appeal came to be filed against it before the Tribunal who allowed the appeal of the said petitioner on the ground that the special permit issued under Section 63(6) of the Act ....
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....the Act, a special permit can be issued only for a specific period which may be for a few days only as in the present case in accordance with the rules prescribed for that purpose. (4) A contract carriage permit is renewable under S.58 (2) of the Act, but there is no corresponding provision providing for renewal of a special permit. Thus it is seen that a contract carriage permit and a special permit are not one and the same. A special permit is ordinarily taken to meet a need that exists for a few days like carrying a marriage party or persons going on a pilgrimage etc." From this, the learned Counsel pointed out that the two kind of permits are entirely different. We have absolutely nothing to say about the proposition. There can be a least doubt that a special permit under Section 88(8) and a contract carriage permit are two different things. 24. However, it must be remembered that in the present case, we are not concerned with the two kind of permits. The question posed before us is whether a vehicle covered under Section 72(2)(xvii) of the Motor Vehicles Act can be viewed as a tourist vehicle. The question is not as to whether a permit under Section 88(8) would ipso facto be....
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....herefore, that the decision is any manner helpful to the petitioners. The first contention to the effect that a spare bus operating under a permit under Section 88(8) of the Motor Vehicles Act can never be a contract carriage and, therefore, can never become a "tourist vehicle" is rejected. 26. The learned Counsel thereafter contended that the permit contemplated under Section 65 (52) of the Finance Act is essentially a "tourist permit" and since the spare bus owned by the petitioners could be operated only under Section 88(8) of the Motor Vehicles Act by way of a special permit and not on the basis of the tourist permit as contemplated under Section 88(9) of the Motor Vehicles Act, the provisions of Section 65(52) of the Finance Act would not be applicable and the petitioners plying their spare buses under the special permit could not be treated as the "tour operators". It will be better to firstly see what is contemplated by a "tourist permit". 27. Section 88(9) read with Section 88(11) of the Motor Vehicles Act would be the relevant provisions. They are as under : 88. Validation of permits for use outside region in which granted. - . .. . .. . . . Notwithstanding anything c....
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....tions 88(9) and (14) of the Motor Vehicles Act. In short, their contention is that in order that a person could be termed as a "tour operator" within the meaning of Section 65(52) of the Finance Act, he must have a permit either under Section 88(9) or under 1993 Rules or Rules 82 to 85 of the Motor Vehicles Rules. Unless he has such a permit and operates on the basis of these permits, he can never come under the mischief of the Finance Act via Section 65(52). 29. The acceptance of this argument would cause violence to the language of Section 65(52) of the Finance Act. When we consider the language of Section 65(52) what will be seen very prominently would be that the section does not speak of a "tourist permit". It only speaks of a "tourist vehicle" covered by a permit granted under the Act or the rules framed thereunder. The thrust is not on the nomenclature or the classification of the permit but it is on the user of a tourist vehicle by a "tour operator" and the only other condition is that such a tourist vehicle should be covered by a permit granted under the Central Motor Vehicles Act, 1988 or the rules framed thereunder. It, therefore, cannot be said that the permit contempl....
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....tions. Prior to its amendment by Finance (No. 2) Act of 1998 with effect from 16-10-1998, "tour operator" was defined by Section 65(44) and it was as under : ""65(44) tour operator" means a person who holds a tourist permit granted under the rules made under the Motor Vehicles Act, 1988 (59 of 1988)". The learned Senior Counsel for the Department, Mr. Chandrasekaran, points out that the language of the unamended section very certainly provided that a "tour operator" must hold only a "tourist permit" contemplated under the Rules made under the Motor Vehicles Act. However, the amended provision now in vogue does not contemplate a "tourist permit" granted under the rules but contemplates "a permit granted under the Central Motor Vehicles Act or the Rules made thereunder" covering the "tourist vehicles" used by the "tour operator". 31. The contention is undoubtedly correct. While in the unamended provision, there is no reference to a "tourist vehicle" at all, the concept of "tourist vehicle" is now introduced in Section 65(51) and a subtle change has been introduced contemplating only a permit granted under the Act and the Rules in contradistinction to a tourist permit granted under....
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...."tourist permit" is granted only for a "tourist vehicle". He relies on the following sentences, viz. "The term "tour operator" covers any person who holds a "tourist permit" in respect of any vehicle. The service tax on tour operators is on operators who run/operate a tour on a motor vehicle provided that the tour operator holds a tourist permit under the Motor Vehicles Act, 1988 in respect of any motor vehicle." 34. The learned Counsel very heavily realised on this circular, which is dated 22-8-1997. We have already pointed out that such is not the requirement any more because of the substitution of the old provisions of Sec. 65 by the new provisions by Finance (No. 2) Act, 1998 with effect from 16-10-1998. This is apart from the fact that the circulars will not govern the main provisions of the Act. The argument is, therefore, rejected. 35. We have, therefore, no hesitation in dismissing the petitions of the petitioners who are the holders of the "State Carriage Permits" and are the owners of the spare buses, covered under "spare bus permits" as per Section 72(2)(xvii) of the Motor Vehicles Act, 1988. Even if the notices to these petitioners were given under the unamended prov....
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....n raised by Mrs. Gopalan is akin to what she had raised in respect of the "State Carriage Operators", i.e. the permit granted under Section 74 of the Motor Vehicles Act for contract carriage operators would not attract the provisions of Section 65(52) of the Finance Act unless it is a "tourist permit". 41. We have already rejected that argument holding that a permit contemplated under Section 65(52) of the Finance Act need not necessarily be a "tourist permit". We have also clarified therein that the only condition is that the vehicle should be a "tourist vehicle" under Section 2(43) of the Motor Vehicles Act; it should be used by the concerned tour operator for the purposes of a "tour" and the said "tourist vehicle" should have been covered by any permit granted under the Motor Vehicles Act and/or the Rules framed there under. We do not see as to how the cases of the holders of contract carriage permits would be in any manner different from the holders of the stage carriage permits and the owners of the spare buses thereunder. The same rationale would apply even to the contact carriage vehicles covered by the permit under Section 74 of the Motor Vehicles Act. In fact, the most of....
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....le the definition of "maxi cab" has been literally lifted from Section 2(22) of the Motor Vehicles Act so also the definition of "motor cab" has been lifted from Section 2(25) of the Motor Vehicles Act. 47. The most important provision in this behalf is Section 35(38) of the Finance Act which suggests that "rent-a-cab scheme operator" means any person engaged in the business of renting of cabs. This definition is extremely general and wide. Any person who is in the business of renting the cabs, meaning "motor cab" and "maxi cab", would be deemed to be a "rent-a-cab scheme operator" as per this section. Immediately thereafter, it would be worthwhile to see that under Section 65(48)(o) of the Finance Act, the services provided to any person by a rent-a-cab scheme operator in relation to renting of a cab has been declared to be a "taxable service" and this service is made taxable under Section 66(3) as amended. The only other provision which would be worth seeing would be Section 67(n) under which, the taxable service provided by a rent-a-cab scheme operator shall be the gross amount charged by such operator from such persons for services in relation to the renting of a cab and inclu....
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....business of renting of motor cabs or maxi cabs. 52. It was further tried to be argued that number of petitioners did not have a licence or a permit under Rent-a-cab Scheme, 1989 under the Motor Vehicles Act. The argument is clearly erroneous. That was a requirement only under the unamended provisions of Section 65 and more particularly under the definition clause which then was Section 65(32). It ran as under : "rent-a-cab scheme operator" means a person who is a holder of a licence under the Rent-a-Cab Scheme, 1989 framed by the Central Government under Motor Vehicles Act, 1988 (59 of 1988). We have already pointed out that the scope of amended provision, which is as per Section 65(38), has been widened by deleting the requirement of holding a licence under Rent-a-Cab Scheme, 1989. Under the amended provision any person engaged in business of renting of cabs becomes a rent-a-cab scheme operator. 53. We have, therefore, no hesitation in holding that if the petitioners are plying the motor cabs or maxi cabs and the services are provided by them to any person in relation to the renting of the cabs, such service becomes a "taxable service" and, therefore, comes within the ambit of....
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.... the imposition of such a tax would completely push out the small cab-owners who more often than not are the self-employed youth. It would be for the petitioners to persuade the authorities for "exemption". It is not for us to grant those exemptions. It would be open for the petitioners to make such efforts as they are entitled within the four corners of law. 58. Mr. V. Prakash, learned Counsel appeared for the petitioners in W.P. No. 14724 of 2000, which has been filed by sixty-nine petitioners, all of who deal in "taxi business". Some of them have purchased the cabs or have leased them under the hire purchase scheme. The business of these persons is of leasing the cabs to the tourist taxi suppliers. All of them were brought into the service tax-net, with effect from 16-7-1997 and 1-9-1997 respectively under Notifications of Government of India No. 27/97 dated 11-7-1997 and 37/97, dated 22-8-1997 respectively. Their further case is that the services rendered by them were under exemption from 1-3-1999 to 31-3-2000 under Notification No. 3/99, dated 28-2-1999. It is their case that since the said exemption has not been extended beyond 31-3-2000, the respondents have started demandi....
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....ion of India. It was then pointed out that since there is no specific entry in List-I covering the subject of the impugned legislation, the Central Government would have to fall back upon the residuary entry under Entry 97 in List-I. If that is so then, it would have to be first established that the concerned legislation did not fall under any of the State Legislation entries. 62. Entry 56 of List-II of VII Schedule to Constitution of India is as under : "Tax on goods and passengers carried by road or on inland waterways". The learned Counsel reiterated that this tax was nothing but the tax on passengers who were carried by road. According to the learned Counsel, the tax was charged because a passenger was carried in the motor cab or maxi cab and, therefore, that fact was the integral part of the service tax levied against a "tour operator" or as the case may be, "rent-a-cab scheme operator" because both these persons were bound to pay the tax on account of their carrying the passengers by road in "tourist vehicles". 63. The learned Counsel also argued relying on the "doctrine of pith and substance" that in reality though the tax was nomenclatured as "service tax" and was being....
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....ly was the requirement but, that is not necessary any more in view of the clearest possible language of the amended provisions like Section 65(38) of the Finance Act, which we have already shown earlier. The argument, therefore, that the provisions of the Finance Act do not apply to the petitioners or the members of the association in the absence of a permit under the "Rent-a-cab Scheme, 1989" floated under the Motor Vehicles Act, 1988 cannot be accepted. 67. The learned Senior Counsel also argued the question of these operators not having a "tourist permit". We have already discussed that subject earlier and rejected the contention. The learned Senior Counsel, however, thereafter raised the question of "legislatives competence" in respect of the provisions of the Finance Act. We have, in paragraphs 61 and 62, mentioned the challenge to the "legislative competence" raised by Mr. Prakash, according to whom, the subject covered by this legislation was, in fact, covered under Entry 56 of List-II of VII Schedule to the Constitution of India. 68. Shri R. Thiagarajan, however, did not rely on Entry 56 of List-II but, chose to rely on Entry 60 of List-I of VII Schedule to the Constituti....
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....xcept National Highways and National Waterways, so declared by law made pursuant to Entry 23 and Entry 24 of List-I. The omission of reference to National Highways in Entry 30 and Entry 89 indicates that the subject of passengers and goods carried on National Highways is reserved for inclusion in the State List. Taxes on passengers and goods carried on National Highways also fall directly and squarely within and are included in Entry 56 of List-II. The Haryana Passengers and Goods Taxation Act is a law made pursuant to the power given to the State Legislature by Entry 56 of List-II. The power exercisable under Entry 56 of List-II is the power to impose taxes which are in the nature of regulatory and compensatory measures. But to say that the nature of a tax is of a compensatory and regulatory nature is not to say that the measure of the tax should be proportionate to the expenditure incurred on the regulation provided and the services rendered. If the tax were to be proportionate to the expenditure on regulation and service it would not be a tax but a fee. The State of Haryana incurs considerable expenditure for the maintenance of roads and providing facilities for the transport of....
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....ntries 1-96, List-I. It is true that the field of legislation is demarcated by Entries 1-96, List-I, but demarcation does not mean that if Entry 97 List-I confers additional powers, we should refuse to give effect to it. At any rate, whatever doubt there may be on the interpretation of Entry 97, List-I is removed by the wide terms of Article 248. It is framed in the widest possible terms. On its terms the only question to be asked is: Is the matter sought to be legislated included in List-II or in List-III: No question has to be asked about List-I. If the answer is in negative then it follows that Parliament has power to make laws with respect to that matter or tax." 73. These two decisions, therefore, clearly bring out a position that in this case where the competing entries are Entry 97 of List-I and Entries 56 and 60 of List-II. We will have to enquire as to whether the impugned legislation could be covered by Entry 56 or as the case may be Entry 60. 74. The learned Counsel, Mr. Prakash, earnestly argued that while deciding as to whether the impugned legislation falls under Entry 56 of List-II, we would have to give the widest scope to Entry 56 and we will have to also examine....
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....t be always a service provided to a passenger at least in case of a "rent-a-cab scheme operator" though the carrying of passengers may be a part of the exercise. We wish to clarify that the tax under Entry 56 is because a passenger is carried by road while this challenged service tax is because of the service provided in locating or making available by engaging a taxi. The tax under Entry 56 will not be payable by a person who does not own or ply a vehicle while such would not be a necessity in case of a person who is merely in the business of engaging a cab for that, such person need not also own any taxi. It is enough if he is in the business of engaging taxis for his customers and giving them this service. 77. It was the contention of the learned Senior Counsel, Mr. R. Thiagarajan, that in pith and substance, the impugned provisions amounted to a tax on profession, trade and calling and is covered under Entry 60 of List-I of the VII Schedule to the Constitution. Learned Counsel especially relies on the words "trades and callings" and contends that to run the motor cab/maxi cab and doing the business of engaging taxis for customers and giving them this service was nothing but a ....
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....g on a profession, trade or calling in a particular State and it can never be said that the two aspects are identical and amount to one and the same thing and that both the Parliament as well as the State Legislatures are taxing on the same aspects. 78. This aspect and more particularly as to what is precisely meant by the "professional tax" has been considered by the Supreme Court in Western India Theatre Ltd. v. Cantonment Board, Poona(AIR 1959 SC 582). In fact, in this case, the Supreme Court was considering the entries under the Government of India Act, 1935 under Sec 100. However, the observations made regarding the "professional tax" would be extremely telling. They are : "The entry, as we have said, contemplates a law with respect to these matters regarded as objects and a law which imposes tax on the act of entertaining is within the entry whether it falls on the giver or the receiver of that entertainment. Nor is the impugned tax a tax imposed for the privilege of carrying on any trade or calling. It is a tax imposed on every show, that is to say, on every instance of the exercise of the particular trade, calling or employment. If there is no show, there is no tax. A law....
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.... a basic error is being committed in this and that is the "nature of the tax" is being decided on the basis of the "measure of the tax". He points out that provisions in Section 67(m) and (n) are the measures of the tax and the "measure of the tax" could never be used for deciding the nature of the tax. The learned Counsel relies on the celebrated decision reported in A.I.R. 1961 S.C. 1480 (Sainik Motors case), cited supra, and points out that the principle in that case has been followed throughout right up to the decision in Federation of Hotels and Restaurants case, cited supra, wherein in paragraph 17, the Supreme Court held as under : "The subject of a tax different from the measure of the levy. The measure of the tax is not determinative of its essential character or of the competence of the Legislature. In Sainik Motors v. State of Rajasthan (1962) 1 SCR 517; A.I.R. 1961 S.C. 1480, the provisions of a State law levying a tax on passengers and goods under entry 56 of List were assailed on the ground that theState was, in the guise of taxing passengers and goods, in substance and reality taxing the income of the stage carriage operators or, at any rate, was taxing the "fares a....
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.... was being imposed under Entry 97 of List-I under Article 248 of the Constitution of India was beyond the legislative competence as in fact, this expenditure tax was squarely covered under Entry 62 of List-II which pertained to the taxes on luxuries, including taxes on entertainments, amusements, betting and gambling and also could be covered under entry 54 of List-II as the transaction in question also amounted to "sale of food stuff (goods)" to the customers. The Supreme Court upheld the validity of the levy of the tax. The Supreme Court accepted that the said tax could have and had "distinct aspects". 83. The Apex Court recognised the said "distinct aspect". viz., the "expenditure aspect" of the transaction and held the same to be falling within the "Union Power". It held that that aspect had to be distinguished from the aspect of luxury or sale of goods. The following observations in paragraph 19 are apposite : "The submissions of the learned Attorney General that the tax is essentially a tax on expenditure and not on luxuries or sale of goods falling within the State power, must, in our opinion, be accepted. As contended by the learned Attorney General, the distinct aspect n....