TaxTMI 
TaxTMI 
2001 (4) TMI 13
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....s provided by "air travel agents" came to be brought into the tax net by way of an amendment of section 65 of the Finance Act. The "charging section" is section 66(3) while the "measure of tax" is provided by section 67(k). We have deliberately quoted the prayer in the writ petitions because at the argument stage, learned senior counsel did not address us on the constitutional questions raised in the petitions. In the writ petitions, these provisions have been challenged on the ground that they violate article 19(1)(g) and also article 14 of the Constitution. There is also a challenge to be found to the "legislative competence" and on that ground section 65(3) and section 67(k) of the Finance Act have been challenged. However, at the argument stage, learned senior counsel abandoned the challenge regarding the "constitutionality" and restricted himself only to two propositions. The said propositions are: I. That section 67(k) of the Finance Act, 1994, which provides for valuation of taxable services for charging service tax is inconsistent with the provisions of section 65(3) and section 65(48)(1) which provisions define "air travel agents" and "taxable service" respectively. So a....
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.... for "payment of service tax" and sub-rule (7) thereof runs as under: "6. (7) The person liable for paying the service tax in relation to the services provided by an air travel agent, shall have the option, to pay an amount calculated at the rate of 0.25 per cent. of the basic fare in the case of domestic bookings, and at the rate of 0.5 per cent. of the basic fare in the case of international bookings, of passage for travel by air, during any calendar month or quarter, as the case may be, towards the discharge of his service tax liability instead of paying service tax at the rate of five per cent. of the value of taxable service rendered by him and the option, once exercised, shall apply uniformly in respect of all the bookings of passage for travel by air made by him and shall not be changed during a financial year under any circumstances. Explanation.--For the purposes of this sub-rule, the expression basic fare means that part of the air fare on which commission is normally paid to the air travel agent by the airline." In the backdrop of these provisions, it will be our task to test the claim of the petitioners. Mr. C. Natarajan, learned senior counsel, while arguing on the ....
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....the air travel agents to the customers in relation to booking of passages for travel by air, the "measure of the tax" is against the commission which the air travel agents earn not because of the services that they offer under section 65(48)(1) but on the commission that they earn on account of their services to the airlines. Learned counsel argues that the commission is given only to promote the business of the airlines or air carriers on the basis of an agreement between the air travel agents and the airlines. Therefore, the basic submission is that the commission received from the airlines by the air travel agents is basically for the promotion of the business of the airlines and the tax cannot be charged against this commission which has got nothing to do with the services offered by the air travel agents to their customers in booking of passages. The further argument is that section 66, which is the "charging section", levies the tax at the rate of five per cent. "on the value of taxable service" under section 65(48)(1) and it must operate on the taxable service referred to in the definition clause. The further argument is that the tax then should be charged only on the basis....
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....f of the petitioners argues that the commission that the air travel agents earn from the airlines is not on account of the services that they give to the air travellers but because they procure business for the airlines. This is the basic submission. Now, it is obvious that the airlines gives the commission to the air travel agents and undoubtedly the air travel agents provide business for the airlines. However, it has to be noted that unless the air travel agents provide a service to the customers, there would be no question of their getting a commission from the airlines. It is not as if the air travel agents get a fixed commission or income from the airlines irrespective of the passages booked by them in favour of the customers in the nature of a "retainer fee" or "guarantee money", at least that is not the case pleaded before us. Therefore, unless the air travel agents book the tickets and thereby unless they provide the services to the customers, they do not become entitled to any commission. Their commission is entirely dependant on and connected with the passage they book for the customers. It cannot, therefore, be said that the commission that the air travel agents get from....
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....must bear a relationship to the nature of the levy. In the case before us, however, we find that the nexus with the tea estate is lost altogether in the provisions for exemption or reduction of the levy and that throughout the nexus is confined to despatches of tea rather than related to the tea estate...While there must always be a nexus between the subject of the levy and the measure of the levy that nexus extends into different dimensions. Variations considered appropriate for the purpose of determining the measure must correspond to variations in the subject of the levy....When the provisions before us are examined in their totality, we find no such relationship or nexus between the tea estate and the varied treatment accorded in respect of despatches of different kinds of tea." In our opinion, the observations made in Buxa Dooars Tea Company's case [1989] 179 ITR 91 (SC), and more particularly those in paragraph 11 thereof cannot be read out of the context. The situation regarding the levy and the measure of the tax was entirely different. It was found as a fact that the measure of the tax had no nexus with levy therein. In our case, however, such is not the position. We ....
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....e amount calculated at the rate of 0.25 per cent. of the basic fare in case of domestic bookings and at the rate of 0.5 per cent. of the basic fare in case of international bookings of passage of travel by air during any calendar month or quarter towards the discharge of his service tax liability, instead of paying the service tax at the rate of five per cent. of the value of the taxable service rendered by him and such option once exercised is to apply uniformly in respect of the bookings of passages of travel by air made by such agent and is not to be changed during the financial year under any circumstances. This would in short mean that instead of calculating the tax at the rate of 5 per cent. of the commission that the air travel agent receives from the airlines and then paying the tax, the air travel agent can have the option of paying the tax per month or per quarter calculating it in the manner stated above. According to learned counsel, this rule is totally unconnected with and contradictory to the charging section and amounts to a "levy". The argument goes further and suggests that this method amounts to a different levy than what is suggested by the main provision. It is....
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.... rule is provided for giving a benefit to a taxpayer and indeed, the taxpayers have chosen to go by these rules because it is beneficial to them to go by these rules. The further argument is that there is a specific power under section 93 of the Act whereby the Government can grant the exemption and this being a beneficial rule amounts to a partial exemption. Therefore, when section 93 is read with section 94, there is ample power in the Government to enact and an argument that this rule is beyond the "rule making power" is totally incorrect. It is then contended that the rule pertains to only the collection and cannot be said to be an independent levy. According to learned counsel, as per section 94(2)(a), the rule provides for an alternative way of collection which is of beneficial nature. Learned counsel relies on the decision reported in Chandrakant Krishnarao Pradhan v. Jasjit Singh, AIR 1962 SC 204. We will first consider as to whether the petitioners can justifiably challenge the said rule, which is in the nature of an "option". In this behalf, the Supreme Court in Builders Association of India's case [1997] 104 STC 134, while considering the "legislative competence" ....
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....e Supreme Court in Builders Association of India's case [1997] 104 STC 134, are apposite in this behalf: "It must yet be remembered that the method of taxation introduced by sub-sections (7) and (7A), is in the nature of composition of tax payable under section 5(1)(iv). The impugned sub-sections have evolved a convenient, hassle-free and simple method of assessment just as the system of levy of entertainment tax on the gross collection capacity of the cinema theatres. By opting to this alternate method, the contractor saves himself from the botheration of book-keeping, assessment, appeals and all that it means. It is not necessary to enquire and determine the extent or value of goods which have been transferred in the course of execution of a works contract, the rate applicable to them and so on. For example, under sub-section (7), the contractor pays two per cent. of the total value of the contract by way of tax and he is done with all the abovementioned botheration. The rate of two per cent. prescribed by sub-section (7) is far lower than the rates in First, Second and Fifth Schedules referred to in section 5(1)(iv)(a). In short, sub-sections (7) and (7A) evolve a rough and....
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....r attention was invited to the decisions reported in Behram Khurshid Pesikaka v. State of Bombay, AIR 1955 SC 123; Basheshar Nath v. CIT [1959] 35 ITR 190 (SC); AIR 1959 SC 149; Olga Tellis v. Bombay Municipal Corporation, AIR 1986 SC 180 and P.R. Deshpande v. Maruti Balaram Haibatti [1998] 6 SCC 507 and it was suggested that since these cases were not taken into consideration in the aforementioned decision in Builders Association of India's case [1997] 104 STC 134 (SC), it must be taken that the law laid down in Builders Association of India's case [1997] 104 STC 134 (SC), is not correct. It is not for us to comment on the Supreme Court judgment in the manner the petitioners would want us to do. In the decision reported in Mahesh Kumar Saharia v. State of Nagaland [1998] 92 Comp Cas 96 (SC); [1997] 8 SCC 176, 183, the apex court has specifically held and approved the earlier observations to the following effect: "A binding effect of a decision does not depend upon whether a particular argument was considered therein or not provided that the point with reference to which an argument was subsequently advanced was actually decided." Again in the decision reported in Ballab....
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....ntention was that the rules which fell for consideration went beyond the general purpose of the section and the special topics mentioned there for furthering some of the purposes of the other parts of the Act. Learned counsel invited our attention to the following observations: "Thus, if it is necessary that the agents must carry out certain provisions of the Act, a rule can be made in the exercise of the two powers together. Though the impugned rules are headed as framed under section 202 of the Sea Customs Act, they cannot be questioned, if they carry out not only the special purposes of section 202 but also certain other purposes of the Act because the two powers will concur to sustain them. It is only when a rule or rules are pointed out which sub-serve neither the special purpose of the section nor the general purposes of the Act that they can be successfully questioned." Here also, according to learned counsel, rule 6(7) which is more beneficial to the taxpayer serves the purpose of section 93 which is a general power wherein there is a power to grant exemption or concession in the service tax. Learned counsel argues and rightly that the rule is obviously beneficial and, th....