TaxTMI 
TaxTMI 
2020 (1) TMI 974
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....019 With R/SPECIAL CIVIL APPLICATION NO. 10479 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 10480 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 10957 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 11410 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 11732 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 11885 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 11887 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 11889 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 12681 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 16313 of 2018 With R/SPECIAL CIVIL APPLICATION NO. 652 of 2019 With CIVIL APPLICATION NO.1 of 2019 in R/SPECIAL CIVIL APPLICATION NO. 11410 of 2019 MR SHASHANK SHEKHAR with M/S. PARITOSH GUPTA AND MIHIR GUPTE for the Petitioner(s) in SCA No.11410 of 2019. DR C.MANICKAM with M/s. AJAYKUMAR GUPTA AND GAURAV K.LAKHWANI for the Petitioner(s) in SCA No.6117 of 2019. MR TUSHAR P.HEMANI, SR.ADVOCATE with M/S.VIJAY H.PATEL AND APURVA MEHTA for the Petitioner(s) in SCA Nos.92849282 of 2019. MR V.SRIDHARAN, SR.ADVOCATE with M/S.JIGAR SHAH AND ANAND NAINAWATI for the Petitioner(s) in SCA No.7330 of 2019. MS AMRITA M.THAKORE for the Petitioner(s) in SCA No.11732 of 2019. MR PARESH M....
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....h, Mr.C.Manickam with Mr.Gaurav K.Lakhwani, Mr.Tushar P.Hemani with Mr.Apurva Mehta, Mr.Shashank Shekhar with Mr.Paritosh Gupta and Mr.Uchit Sheth. 6. We also heard Mr.Nirzar S.Desai, Mr.Parth H.Bhatt, Mr.Ankit Shah and Mr.Dhaval D.Vyas, the learned standing counsel appearing for the Union of India. 7. For the sake of convenience, we treat the Special Civil Application No.726 of 2019 as the lead matter. 8. By this writ-application under Article 226 of the Constitution of India, the writ-applicant, a company engaged in the business of import of non-cooking coal from Indonesia, South Africa and U.S.A., has prayed for the following reliefs : "(A) ...this Hon'ble High Court be pleased to issue a writ of certiorari/mandamus or any other appropriate writ/order/direction against the Respondents by quashing the impugned Notification No.8/2017-Integrated Tax (Rate), dated 28.6.2017 and Entry 10 of the Notification No.10/2017-Integrated Tax (Rate), dated 28.6.2017 by declaring that same lack legislative competency, ultra vires to the Integrated Goods and Services Tax Act, 2017 and hence unconstitutional; (B) this Hon'ble High Court be pleased to issue a wri....
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....nt discharges the customs duty on the imported products at the time of each import and such value includes the value of freight on which customs duty is demanded and paid. The writ-applicant is liable to pay integrated tax in terms of provisions of the Integrated Goods and Services Tax Act, 2017 (IGST/Integrated Tax Act) and accordingly the writ-applicant is paying the integrated tax at the time of import itself, which also includes value of Ocean Freight involved in imported coal. 11. The respondent no.1 is responsible for the implementation of the Central Goods and Services Tax Act, 2017 (for short, 'the CGST') and the Integrated Goods and Services Tax Act, 2017 (for short, 'the IGST') and has also issued the Notifications in question under the said Acts. 12. The respondent no.2 is a constitutional body constituted under Article 279A of the Constitution of India, as made applicable w.e.f. 12.9.2016, and it is mandatory on the part of the respondent no.2 to make recommendations on various matters relating to the Goods and Services Tax (GST) and further provisions have been made under the respective GST laws, whereby the respondent no.1 have to act on the reco....
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....e original buyer who purchased the coal. In this case, the writ-applicant neither has any invoice of such freight nor has any idea of payments and the amount of such freight. It is similar to the purchases of coal on CIF basis; 16. The writ-applicant discharges the customs duty on the imported coal at the time of importation and such customs duty is paid on the value of the imported coal which includes the value of Ocean Freight, as determined on the value under Section 14 of the Customs Act, 1962 and Rules made thereunder. IGST PAID ON IMPORT : 17. The writ-applicant, at the time of importation, in addition to the customs duty, pays the 'Integrated Tax' (known as IGST) under the IGST Act, 2017, on the imported coal on the value as determined under the Customs Tariff Act, 1975 (vide proviso to Section 5(1) of the IGST Act, 2017). The said value also includes the value of the Ocean Freight, when the goods are purchased on FOB basis, whereas in case of goods purchased on CIF basis, the cost itself is the sum of cost, insurance and freight basis. SUBMISSIONS ON BEHALF OF THE WRIT-APPLICANT : 18. Mr.Mittal, the learned senior counsel assisted by Mr.Modh made the fol....
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....The same analogy is sought to be extended in the present case also. 22. It is submitted that the provisions of Section 1 of the Customs Act, 1962, as amended by the Finance Act, 2018, extend its operation to offence committed outside India. Therefore, the IGST Act, 2017, which is not extended to the supply made outside India, through the impugned Notifications, cannot be brought to tax. Therefore, the levy has been imposed but for the impugned Notifications, on the supply which happened outside India, which is impermissible under the law. Therefore, the impugned Notifications lack the legislative competency, ultra vires to the IGST Act, 2017, and are liable to be quashed. The principle of extra-territorial levy applies to both; CIF and FOB purchases : 23. In case of purchases made on the CIF basis, indisputably, both, the service provider and the service recipients are outside India and the writ-applicant - purchaser is concerned only with the purchases of goods and having no idea of payments made towards the freight for vessel. Therefore, the supply has happened outside India. Similarly, when purchases are made on FOB basis by the writ-applicant, the Ocean Freight is paid....
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....39; as 10% of the CIF value of the imported goods. In case of import on the CIF value basis, the writ-applicant is not concerned about the freight and is not knowing even about the charges for the same, which is the sole responsibility of the supplier of the coal outside India. 27. First, in the Act, there is no concept of 'taxable service', which has been the concept only in the erstwhile Finance Act, 1994, to levy the service tax. 28. Secondly, through the delegated legislation there cannot be a deeming fiction to ascertain the value on which the tax is payable as it is an essential legislative function (see Indian Association of Tour Operators v. Union of India and others, reported in 2017(5) GSTL (Del.) (para 48). 29. Thirdly, as per the settled law, the vagueness in the measure or value on which the rate will be applied for computing the tax liability makes the levy fatal to its validity (see Govind Saran Ganga Saran v. CST, AIR 1985 SC 1041: 1985 Supp (1) SCC 205 (para 6) and also Mathuram Agrawal v. State of MP, AIR 2000 SC 109 : (1999)8 SCC 667 (para 12)). Therefore, the deeming fiction for the valuation inserted in the impugned Notification is illegal and ....
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....kes place outside the taxable territory, the provisions of the Act itself could not be made applicable and the recipient could not be held liable to pay the tax, as otherwise it will amount to making a non-taxable supply as taxable supply, which is ultra vires to the Act itself. 33. Secondly, under the impugned Entry 10 of the Notification No.10/2017, the tax liability has been shifted on the 'importer' and not on the 'recipient', which is contrary to the provisions of Section 5(3) of the Act, under which the said Notification has been issued. 34. It is submitted that in Govind Saran Ganga Saran v. CST, AIR 1985 SC 1041 : 1985 Supp (1) SCC 205 (para 6), it has been held that any vagueness of the person on whom the levy is imposed and who is obliged to pay the tax make the levy fatal. Also referred to Mathuram Agrawal v. State of MP, AIR 2000 SC 109 : (1999)8 SCC 667 (para 12). 35. Therefore, the impugned Entry 10 of the Notification No.10/2017 - Integrated Tax (Rate), dated 28.6.2017, is ultra vires to sub-section (3) of Section 5 of the Act, under which the said Notification has been issued, and it also makes a non-taxable supply as taxable supply. Therefo....
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....ts have not disputed that in the impugned Notification also the given chapter, section and heading in respect of different services, which is nowhere defined in the Act and neither there is any power to refer to such chapter, section and heading and such scheme of classification has not been provided under the parent Act at all. Thus, the Notifications are beyond the scope of the Act and do not conform to the provisions of the statute under which these are issued. 40. It is argued that in General Officer Commanding-in-Chief v. Subhash Chandra Yadav (1988)2 SCC 351 (para 14), it was held that rule must conform to the statute and come within rule making power, if either of these two conditions is not fulfilled, the rule so framed would be void. 41. In Union of India v. S.Srinivasan, (2012)7 SCC 683, at page 690 (para 21) held that : '21....If a rule goes beyond the rule-making power conferred by the statute, the same has to be declared ultra vires'. However, the Respondents may justify that the impugned Notifications after their issuance have been placed before the Parliament, which is not tenable in law. 42. The Supreme Court in Hukam Chand v. Union of India, AIR 19....
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....ication No.8/2017 has also been issued under sub-section (1) of Section 6 of the IGST Act, 2017, under which the power of exemption has been granted, but the impugned Notification is not for the purpose of exemption, but to specify the 'rate', therefore, is totally misconstrued by the Respondents. (b) the said Notification No.8/2017 has also been issued referring to the power under clauses (iii) and (iv) of Section 20 of the IGST Act, 2017, whereas under these provisions, there is no power to issue any such notification but it only incorporate the provisions by reference of the CGST Act, 2017. (c) the said Notification No.8/2017 has also been issued referring to the provisions of Sections 15(5) and 16(1) of the Central Goods and Services Tax Act, 2017 (CGST Act), whereas under these provisions, there is no power to issue any such notification, but only to make the Rules, which have already been framed separately by the Respondents (Valuation Rules, under Section 15(5) and Input Tax Credit Rules, under Section 16(1) of the said Act) under Chapters IV and V of the CGST Rules, 2017, respectively. (d) the said Notification No.8/2017 has also been issu....
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....he 'entire services having been rendered outside India, the income arising therefrom cannot be attributable to the permanent establishment so as to bring within the charge of tax'. The Court further held that the taxation liability of the oversea services would not arise in India. The Court also observed that 'in cases such as this, where different severable parts of the composite contract is performed in different places, the principle of apportionment can be applied to determine which fiscal jurisdiction can tax that particular part of the transaction'. (iv) The Supreme Court in the case of Mathuram Agrawal v. State of MP, AIR 2000 SC 109, held that : '12... The statute should clearly and unambiguously convey the three components of the tax law, i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law'. (v) The Supreme Court in the case of Govind Saran Ganga Saran v. CST, AIR 1985 SC 1041, held that : '6... The components which enter into the concept of a tax are well k....
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....efore each House of Parliament and that the House has the power to modify the rule'. (x) In General Officer Commanding-in-Chief v. Subhash Chandra Yadav (1988)2 SCC 351, it has been held as follows : '14... before a rule can have the effect of a statutory provision, two conditions must be fulfilled, namely, (1) it must conform to the provisions of the statute under which it is framed; and (2) it must also come within the scope and purview of the rule-making power of the authority framing the rule. If either of these two conditions is not fulfilled, the rule so framed would be void'. (xi) The Supreme Court in the case of Union of India v. S.Srinivasan, (2012)7 SCC 683, at page 690 (para 21) held that : '21... If a rule goes beyond the rule-making power conferred by the statute, the same has to be declared ultra vires'. SUBMISSIONS ON BEHALF OF THE UNION OF INDIA : 50. The learned standing counsel appearing for the Union of India have tendered written submissions. The written submissions are as under : 51. It is a settled legal preposition by now that a subordinate/ delegated legislation can be challenged only on the limited grounds as h....
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.... 2016-17), the services of transportation of goods in a vessel from a place outside India upto the customs station of clearance in India was exempted from service tax. As a result, the Indian shipping lines were unable to avail input tax credit paid on the input goods and services and such tax formed a part of their transportation costs. So they were rendered uncompetitive vis-a-vis foreign shipping lines. In view of the requests from the Indian Shipping Industries and other stakeholders, to provide them the level playing field vis-a-vis the foreign shipping lines, service tax was imposed on the service of inward transportation of goods to enable the Indian shipping lines to use the ITC available with them, which they could not otherwise utilize, as outward transportation of the goods was also exempted from service tax. As per the Place of Provision of Services Rules, 2012, the service of export of goods was not leviable to the service tax as the place of provision of service was outside the taxable territory of India. However, the shipping lines were permitted to avail the ITC of the excise and service tax suffered on the input goods and/or services (i.e. the export of goods/servi....
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....petitioners had challenged the legislative competence of the Centre to impose service tax on transport of goods as the same could only be imposed by the States under Entry 56 of List II, which reads as "taxes on goods and passengers carried by roads or inland waterways". The Supreme Court held that the legislative competence must be determined in accordance with the object of the tax. 58. It is further submitted that the Supreme Court, relying upon the aspect theory, stated that since the tax was a tax on the event of service and not a levy on passengers and goods and since the service tax could only be imposed under Entry 97, List I, the Centre had the legislative competence to enact the law as the same related to taxation on service. Furthermore, the Supreme Court held that the imposition of tax by the Centre did not tantamount to usurpation of power of the State or a colorabale exercise of power and was not in violation of the doctrine of separation powers. The Parliament has the legislative competence to tax the service aspect even if the legislative competence to tax the other aspects involved in the transaction is vested with the State. The Supreme Court upheld the legisla....
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....63. In A.H. Wadia v. CIT [AIR 1949 PC 18], the Supreme Court stated that : 'In the case of a sovereign Legislature, the question of extra-territoriality of any enactment can never be raised in the municipal courts as a ground for challenging its validity.' 64. In GVK Industries Limited v. Income Tax Officer [(2011) 4 SCC 36], the Supreme Court examined the limitation of the Parliament in enacting the legislations with respect to the extraterritorial aspects that do not have any direct or indirect, tangible or intangible impact(s) on or effects in or consequences for :- (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians. It stated that the Parliament is indeed limited with respect to the extra-territorial aspects, however, in 'such extraterritorial aspects or causes, only when such extra-territorial aspects or causes have, or are expected to have, some impact on, or effect in, or consequences for : (a) the territory of India; or (b) the interest of, welfare of well-being of or security of inhabitants of India, and Indians', the Parliament may exercise its legislativ....
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....y require extra-territorial operation. Any laws enacted by the Parliament with respect to the extra-territorial aspects or causes that have no impact on or nexus with India would be ultra vires, as answered in response to the Question 1 above, and would he laws made 'for' a foreign territory." 65. It is submitted that the levy which is introduced by way of the impugned notifications on import freight service does not result in additional cost to the importer as the GST paid by the importer on the invert transportation of goods as well as on the import freight services is available to them as the ITC and are not adversely affected by this measure as it does not add to their cost. The impugned provision is aimed at collection of tax with minimum disruption. Since the importer of the goods is the beneficiary on whose behalf the impugned services are being taken by the foreign exporter from the foreign shipping line, both of which are outside the taxable territory of India, the tax on such services can be collected from the end-beneficiary or recipient of such services in accordance with Section 5(3) of the IGST Act, 2017. 66. The Supreme Court, in Gujarat Ambuja Cements ....
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.... in column no. 4 which is strictly in accordance with and within the meaning of definition of 'recipient' as defined in Section 2(93) of the GST Act which reads as under: "Section 2(93): "recipient" of supply of goods or services or both means- (a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration; (b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and (c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied." 70. If the definition is read closely, after (c) in the later part of the definition, it is very categorically stated as under : "and any reference to a person to whom a supply is made shall be construed as a r....
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....supply and supply of goods is a principal supply." 74. The composite supply is defined in the GST Act. In Section 8, it is specifically mentioned as to how the tax liability on composite and mix supplies are to be determined. Section 8 of the GST Act reads as under : "8. Tax liability of composite and mixed supplies - The tax liability on a composite or a mixed supply shall be determined in the following manner, namely: (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and (b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax." 75. Section 15 of the GST Act which is in respect of the value of taxable supply reads as under : "15. Value of taxable supply.- (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. ....
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....) persons shall be deemed to be "related persons" if-- (i) such persons are officers or directors of one another's businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family; (b) the term "person" also includes legal persons; (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related." 76. It is submitted that if Sections 8 and 15 are read together, it suggests that, in case of a composite supply comprising of two or more supplies, one can be said to be the principal supply and shall be treated as su....
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....saction is liable for tax, and the exporter can get refund of input tax credit used for export. Import Foreign The place of supply of services of transportation of goods, other than by way of mail or courier, shall be place of destination of such goods. [Section 13(9), IGST Act] The transaction will be liable for tax, as the place of supply will be in India. Tax will be paid under reverse charge and can be claimed back as input tax credit. Export Foreign Since the place of supply will be outside India, transaction will not be liable for tax 79. Referring to the aforesaid table, it is pointed out that the service of transportation of goods is taxable both in case of imports as well as exports for the domestic shipping line and for import for the foreign shipping line. Since the exports by the domestic shipping line are already zero rated, the ITC will not be available to Indian shipping lines if the service of inward transportation of goods is not made taxable in India. The domestic shipping lines would be put to disadvantage against the policy objective of 'Make in India'. Thus, there is rational nexus between the levy a....
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....th GST Council Meeting held on 30.06.2017, it was decided to clarify by way of a circular that when goods sold on high sea sales basis are imported for the first time, the IGST would be levied at the time of importation and the value addition due to high sea sales shall be the part of the value on which the IGST is collected. Vide Circular No.33/2017-Cus dated 01.08.2017, it has been clarified that the 'High Sea Sales' is a common trade practice whereby the original importer sells the goods to a third person before the goods are entered for customs clearance. After the high sea sale of the goods, the customs declarations, i.e. Bill of Entry, etc., is filed by the person who buys the goods from the original importer during the said sale. In the past, the CBIC had issued various instructions regarding the high sea sales appropriating the contract price paid by the last high sea sales buyer into the customs valuation [see Circular No. 32/2004-Cus., dated 11.5.2004]. Further, in the Circular dated 01.08.2017, it has been stated that 'The council has decided that the IGST on high sea sale(s) transactions of imported goods, whether one or multiple, shall be levied and collected o....
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....mical or may cause any hardship, the same cannot be a ground for striking down the said levy. 87. Reliance has been placed on the decision of the Supreme Court in the case of Malwa Bus Service (Private) Ltd. and others v. State of Punjab and others, reported in 1983(3) SCC 237, wherein the Supreme Court in paras 21 and 22 observed as under : "21. The next submission urged on behalf of the petitioners is based on Article 14 of the Constitution. It is contended by the petitioners that the Act by levying Rs. 35,000/- as the annual tax on a motor vehicle used as a stage carriage but only Rs. 1,500/- per year on a motor vehicle used as a goods carrier suffers from the vice of hostile discrimination and is, therefore, liable to be struck down. There is no dispute that even a fiscal legislation is subject to Art. 14 of the Constitution. But it is well settled that a legislature in order to tax some need not tax all. It can adopt a reasonable classification of persons and things in imposing tax liabilities. A law of taxation cannot be termed as being discriminatory because different rates of taxation are prescribed in respect of different items, provided it is possible to hold ....
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....oners have not placed before the Court sufficient material to hold that the impugned levy suffers from the vice of discrimination on the above ground. 22. It was lastly urged that the levy is almost confiscatory in character and the petitioners would have to close down their business as stage carriage operators. It is stated that the passenger fares were permitted to be raised by about 43 per cent just before the levy was increased in this case and it is even now open to the operators to move the State Government to increase the rates if they feel that there is a case for doing so. But on the facts and in the circumstances of the case, we feel that it is not possible to hold that the impugned levy imposes an unreasonable restriction on the freedom of the petitioners to carry on business. The considerations similar to those which weighed with this Court in upholding the Mustard Oil Price Control Order, 1977, in Prag Ice and Oil Mills v. Union of India, (1978) 3 SCR 293(AIR 1978 SC 1296), ought to be applied in this case also. Though patent injustice to the operators of stage carriages in fixing lower returns on the tickets issued to passengers should not be encouraged, a re....
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....t concerned with the arrangement of transportation and insurance; and secondly, there is no decipherable component of transportation charges in the price negotiated between the purchaser/importer and the seller in the hands of the purchaser/importer. Thus, in such cases, the only transaction between the foreign seller and the purchaser/importer is of purchase of goods and there is no service element involved as regards the purchaser/importer. As an importer of the goods, the writ-applicant declares the entire CIF value for the purpose of customs Act and pays the appropriate amount towards the customs duty and the integrated tax. Reference was, thereafter, made to Section 2(102) of the CGST Act which defines the term 'services' to mean anything other than goods, money and security for which a separate consideration is charged. It is an admitted fact that there no separate consideration is charged. It is an admitted fact that there is no separate component paid by the purchaser/ importers for transportation of the goods and hence the demand of the department based on the premise that there was service rendered attracting the levy of the IGST is completely baseless and without....
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....he consideration for such services is a matter exclusively between the foreign seller and the shipping line and it is the foreign seller who pays the consideration to the shipping line. In such circumstances, it is clear that there is no import of service and the writ-applicant is not the service recipient to attract any IGST liability on the said component. 92. During the course of hearing of these matters, a query was raised by us as to the scope of the definition of 'recipient of service' provided under Section 2(93) of the CGST Act and a question was put to the learned counsel as to whether the beneficiary of service can be considered as a recipient of service. In reply, the reference was made to the definition of 'recipient' provided under Section 2(93) of the Act and it was highlighted that a person would step into the shoes of the recipient only when he is liable to pay consideration for such services. In the CIF cases, the purchaser/importer of goods does not have any contract or arrangement with the shipping line and therefore, the purchaser/importer can never be said to be the person who has paid the consideration for receipt of any services. Liability ....
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.... show that the provisions of the Act were applicable only to the territories of India. Reference was thereafter made to the fact that the contract for supply of service of transportation whether on case to case basis, vessel basis or annual basis was between the foreign seller and the foreign shipping line. It was submitted that once it is clear that the service transaction did not amount to import of service, as submitted herein above, it would be clear that the service transaction was beyond the purview of the Act and no levy could be imposed on such foreign transaction. 94. A perusal of the Act shows that the liability to pay for supply of goods or services is on the supplier. Departure to the said rule is however, made in sub-section 3 of Section 5 which provides that the Government may, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. In the present case, the writ-applica....
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....ordination, is the guiding spirit. The States and the Union as the constituents have demarcated spheres of legislation and governance. With clearly delineated legislative fields, neither can trespass upon the other's legislative territory-the residuary powers lying with the Union, though. The division of powers is zealously guarded in no other sphere than fiscal. Taxation as the backbone of a welfare nation, which India is; the legislative fields are as distinct, yet interconnected, as the spinal segments do. 101. That said, 101st Constitutional Amendment is the epoch-making federal feat unparalleled in constitutional democracies-almost. It is, I may say, a constitutional coup de grace delivered against the fiscal confusion compounded by conflicting taxation regimes. This amendment, perhaps, marks the crest of cooperative federalism. It has created even a constitutional institution - GST Council. 102. As constitutional democracies have gained experience, Utopian vision of justice has given way to utilitarian view. Material comfort or upliftment has become the hallmark of good governance. So economic analysis of law substitutes the notion of simple justice with that of economi....
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....108. The First Discussion Paper, in fact, explained the rationale for a constitutional amendment to introduce GST. It noted that while the Centre is empowered to tax services and goods up to the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on the supply of services while the Centre does not have the power to levy a tax on the sale. Thus, it suggested for a constitutional amendment that would contain a mechanism for a harmonious structure of GST that would not affect the federal fabric. 109. Then, with the deliberations between the Centre and States, aided by the Empowered Committee, the constitutional amendment process to usher in GST began. It resulted in the "Constitution (One Hundred and Fifteenth Amendment) Bill, 2011" After that one got lapsed, came the 2014 Amendment Bill (as passed by Parliament). Passed on 8 September 2016, this Bill became "the Constitution (One Hundred and First Amendment) Act, 2016". 110. The GST Council, constituted in September 2016, is a constitutional institution comprising as its members the Finance Ministers of the Union and the States including Union Territories with Legisl....
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....utually agreed upon by the Centre and the States. The rates would be notified on the recommendation of the GST Council. To begin with, the GST Council has decided that GST would be levied at four rates viz. 5%, 12%, 18% and 28%. The schedule or list of items that would fall under each slab has been worked out. Besides these rates, a cess would be imposed on "demerit" goods to raise resources for compensating States as States may lose revenue owing to implementing GST. (vii) GST will apply to all goods and services except Alcohol for human consumption. (viii) GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural Gas) be applicable from a date to be recommended by the GSTC. (ix) Tobacco and tobacco products would be subject to GST. Besides, the Centre will have the power to levy Central Excise duty on these products. (x) A common threshold exemption would apply to both CGST and SGST. Taxpayers with an annual turnover not exceeding Rs. 20 lakh (Rs. 10 Lakh for special category States) would be exempted from GST. For small taxpayers with an aggregate turnover in a financial year up to 50 lakhs, a composition scheme is availab....
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....nt Tax and Amusement Tax (except those levied by the local bodies), (g) Tax on advertisements, (h) Tax on lotteries, betting and gambling, (i) State cesses and surcharges in so far as they relate to the supply of goods and services, 115. To have the whole GST system backed by a robust IT system, Parliament has set up the Goods and Services Tax Network (GSTN). It will provide front end services and will also develop back end IT modules for States who chose the same. Constitutional Amendment Act, An Overview: 116. As we shall see, the CA Act inserts, repeals, and amends certain parts of the Constitution. Inserted are the Articles 246A, 269A, and 279A; repealed is the Article 268A; amended are Articles 248, 249, 250, 268, 269, 270, 271, 286, 366, and 279A. Besides that the Sixth and the Seventh Schedules, too, have been amended. 117. Article 246A, inserted through Section 2 of the Amendment Act, is a marvel of the federal fiscal mechanism. By this Article, the State Legislatures now have the power to make laws regarding GST tax imposed by the Union or by that State and to implement them in intra-state trade. The Centre, of course, continues to ha....
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....er the ambit of Article 368. 121. As with the Schedules, the Sixth Schedule has been amended to give power to the District Councils to levy and collect taxes on entertainment and amusements. And the Seventh Schedule has also been amended. In the Union List, petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel, tobacco and tobacco products have been removed from the ambit of GST and have been subjected to Union jurisdiction. Newspapers advertisements, and Service Tax have been brought under GST (entries 84, 92, 92C). Similarly, in the State List, petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel, and alcoholic liquor for the human consumption have been included, unless the sale is in the course of inter-State or International trade and commerce. Entry tax and Advertisement taxes have been removed. Taxes on entertainment are only to be included to the extent of that imposed by local bodies. (entries 52, 54, 55, 62). 122. To be explicit, in Article 366 of the Constitution, after clause (12), clause (12A) was inserted: "Goods and Services Tax" means any tax on supply of good....
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.... 248 Residuary power Amended The Union's residuary legislative power is subjected to Article 246A. 249 Power of Parliament to legislate regarding a matter in the State List in the national interest Amended It gives power to the Parliament to enact any law applicable to states on the matters mentioned even in states list. GST, no mentioned in States list, now explicitly mentioned. 250 Power of Parliament to legislate regarding any matter in the State List if a Proclamation of Emergency is in operation Amended It has a similar impact as does the amended Article 249. 268 Duties levied by the Union but collected and appropriated by the States Amended Additional Duties of Excise (Medicinal and toilet preparations) Stand subsumed into GST. 268A Service tax levied by Union and Collected and appropriated by the Union and the States: Omitted Service tax has been subsumed into GST. So Entry No. 92C of List-I too stands omitted. 269 Taxes levied and Amended The ....
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.... Tribal Areas in the States of Assam, Meghalaya, Tripura, and Mizoram 8. Powers to assess and collect land revenue and to impose taxes. Amended It concerns powers to assess and collect land revenue and to impose taxes in the Tribal Areas of a few States. Seventh Schedule List I : Entry 84 Barring those excluded, the Union could levy excise duty on all other goods, including tobacco, manufactured or produced in India. The excluded ones Amended • Now excise duty is levied only on the enumerated items: petroleum crude; high-speed diesel; motor spirit (commonly are these: alcoholic liquors for human consumption; opium, Indian hemp, and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance in sub-paragraph (b). known as petrol); natural gas; aviation turbine fuel; and f) tobacco and tobacco products" Entry 92 Taxes on the sale or purchase of newspapers and on advertisements published. Omitted Now, taxes on the sale or purchase of newspapers and on advertisements published....
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....of Article 366 to the Constitution of India, where it has been defined as "goods and services tax" means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. 129. In India, on the intra-state supply of goods and services, there shall be dual GST, with equal rate, i.e. Central GST (CGST) and State GST (SGST) but for the inter state supply of goods and services, there shall be integrated GST (IGST), which shall be at the rate which is a sum total of CGST and SGST rate. 130. The real headway to introduce the GST in India was made, when the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 was introduced in the Parliament on 19th December 2014, which paved way to introduce the Goods and Service Tax in India. The said Bill was passed by the Parliament and enacted as the Constitution (One Hundred and First Amendment) Act, 2016, to levy the Goods and Services Tax and received the assent of the President of India on 8th September 2016. The Constitution has been amended to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including the Unio....
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....and Surcharges in so far as they relate to supply of goods and services; c. Dispensing with the concept of 'declared goods of special importance' under the Constitution; d. Levy of Integrated Goods and Services Tax on inter-State transactions of goods and services; e. Conferring concurrent power upon Parliament and the State Legislatures to make laws governing goods and services tax; f. Coverage of all goods and services, except alcoholic liquor for human consumption, for the levy of Goods and Services Tax. In case of petroleum and petroleum products, it has been provided that these goods shall not be subject to the levy of Goods and Services Tax till a date notified on the recommendation of the Goods and Services Tax Council. g. Compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years; h. Creation of Goods and Services Tax Council to examine issues relating to Goods and Services Tax and make recommendations to the Union and the States on parameters like rates, exemption list and threshold limits. The Council shall function under the Chai....
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.... all the writ-applicants that Section 5(3) of the IGST Act provides for the collection of tax under the reverse charge basis only from the recipient of supply. The writ-applicants are not recipients of the ocean freight service. In such circumstances, the writ-applicants cannot be made liable to pay the integrated tax. 136. Section 5 of the IGST Act is the charging section which provides for the levy and collection of the integrated tax on the inter-state supply. Sub-section (1) of Section 5 provides for the levy and collection of tax on all the inter-state supplies of goods or services or both (other than alcoholic liquor for human consumption) and that the tax shall be paid by the taxable person. Thus, sub-section (1) levies tax on the forward charge basis, i.e. from the supplier of goods or services. 137. Sub-section (2) of Section 5 provides that the tax on supply of petroleum crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council. In the litigation on hand, we are not concerned with sub-section (2) of Section 5. 138. Sub-section ....
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....oth, means (a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration; (b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and (c) where no consideration is payable for the supply of a service, the person to whom the service is rendered. and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied." 143. Thus, the term 'recipient is defined as a person liable to pay consideration, where the consideration is payable for the supply or the person to whom the services are rendered, where no consideration is payable for the supply of service. 144. In the present case, the writ-applicant is importing goods on the CIF basis, i.e. the contract is for supply of goods delivered at the Indian port. Thus, the transportation of goods in a vessel is the obligation of ....
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....e. Thus, the writ-applicant cannot be said to be the recipient of the supply of the ocean freight service and no tax can be collected from the writ-applicant. 150. The Notification No.8/2017 - Integrated Tax (Rate) and Notification No.10/2017 - Integrated Tax (Rate) both dated 28.6.2017, makes the importer of the goods as the person liable to pay the integrated tax on the supply of service by a person located in the non-taxable territory to a person located in a non-taxable territory by way of transportation of goods by vessel from a place outside India to a place in India. The impugned notifications have been issued in exercise of the powers conferred by Section 5(3) of the IGST Act. The said section provides power to the Government to specify the categories of supply on which the tax shall be paid by the recipient of the supply. The section does not further provide that the Government may also specify the other person (other than the recipient of supply) liable to pay tax. Under Section 5(3), the person liable to pay can only be the recipient of supply. 151. It is a settled principle of law that if a delegated legislation goes beyond the power conferred by the statute, such....
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....place of supply are in-- (a) two different States; (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce. (4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce. (5) Supply of goods or services or both,-- (a) when the supplier is located in India and the place of supply is outside India; (b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or (c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce. " 156. Section 8 of the IGST Act provides for what is an intra-state supply. The relevant extract of Section 8 is reproduced hereunder for ready reference : "8. (1) Subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union....
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....both the supplier of service and the recipient of service are in India. In the present case, the location of the supplier, i.e. the shipping line, is outside India. Thus, sub-section (3) will also not apply in the present case. 160. The fourth submission canvassed on behalf of the writ-applicants is that sub-section (4) of Section 7 of the Act is not applicable to the cases on hand. 161. Sub-section 4 of Section 7 is not applicable in the present case. Sub-section (4) of Section 7 provides that the supply of services imported into the territory of India shall be treated as inter-state supply. Sub-section (11) of Section 2 of the IGST Act defines the term 'import of services'. The relevant extract of the said section is reproduced as under: "2(11) 'import of services' means the supply of any service, where(i) the supplier of service is located outside India; (ii) the recipient of service Is located in India; and (iii) the place of supply of service is in India;" 162. Thus, the import of services means the supply of service where the supplier of service is located outside India, the recipient of services is located in India; and the place of supply of se....
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....f the recipient is outside India. Sections 12 and 13 of the IGST Act provide for determination of the place of supply in case of supply of services. Section 12 applies for determining the place of supply of services where the location of the supplier of services and the location of the recipient of services is in India. Section 12 applies for determining the place of supply of services where the location of the supplier of service or the location of the recipient of service is outside India. The relevant extract of Sections 12 and 13 are reproduced as under: "12(1) The provisions of this section shall apply to determine the place of supply of services where the location of supplier of services and the location of the recipient of services is in India." "13(1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India." 169. Sections 7 and 8 of the IGST Act determine whether a supply is an inter-state supply or an intra-state supply and the 'place of supply' is an element which has to be considered for such determination. ....
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....sactions of tax evasion. Thus, in a case where the factum of supply has been proved, either by way of inquiry, investigation or audit, but it is not possible to ascertain whether the supply is an inter-state supply or intra-state supply, the law enacts a deeming fiction and treats such supply as an inter-state supply. It is a residual category and it cannot be so broadly construed to cover a substantial transaction, as in the present case, which is not expressly covered by the rest of the provisions of Section 7. 176. Hence, the phrase 'supply of goods or services or both in the taxable territory' shall mean a supply, all the aspects, or majority of the aspects, of which takes place in the taxable territory and which cannot be covered under the rest of the provisions of Section 7 or Section 8 of the IGST Act. Where none of the aspects of supply or only a minuscule part of supply takes place in India, such supply cannot be said to be in the taxable territory. 177. In the present case, the entire transaction takes place outside the taxable territory, i.e. outside India. The supplier is located outside India, the recipient of the supply is located outside India, the cont....
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....y and thus not covered by the charging section, the writ-applicant further submits as under : That there is no provision for determining the time of supply of the ocean freight service. The time of supply of services is determined in accordance with Section 20 of the IGST Act read with Sections 12 and 13 of the CGST Act. Section 12 of the CGST Act deals with the time of supply of goods. Section 13 of the CGST Act deals with the time of supply of services. 185. Sub-section (1) of Section 13 of the CGST Act states that the liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section. Sub-section (2) of Section 13 provides for determination of time of supply when the tax is payable under forward charge basis by the supplier of service. 186. Sub-section (3) of Section 13 of the IGST Act deals with the time of supply of service on which tax is payable under reverse charge basis. The clauses under the section applies only to the person who is the actual recipient of the supply. A person who is not the recipient of supply cannot determine the time of supply under the provisions of Section 13(3) of the CGST Act. T....
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....or the recipient of the supply will not be able to determine the value of supply as such person will not be knowing the price actually paid or payable for the supply. 192. The eight submission canvassed on behalf of the writ-applicant is that the input tax credit can only be availed by the recipient of the supply. 193. Section 16 of the CGST Act provides for taking of Input Tax Credit. Sub-section (1) of Section 16 of the CGST Act reads as under : "16(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person." 194. Thus, Section 16 of the CGST Act provides that every registered person shall be entitled to take input tax credit on any supply of goods or services or both to him, which are used or intended to be used in the course or furtherance of business. 195. Section 2(93) of the CGST Act defines the term 'recipi....
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....ecipient of the supply. If the person is neither a supplier nor a recipient of supply, such provisions do not apply. 201. In view of the above, it is submitted that the scheme of the Goods and Services Tax is that it is a transaction/contract based on value added tax. The tax is levied on each transaction and the tax paid at early stage is available as credit. Hence, it is a tax on consumption and not on business. It is a contract based levy which depends on the contract between the supplier and the recipient. Thus, where the tax is sought to be levied and collected by a person other than the supplier or the supplier of service, distortions and contingency which the Act does not covers, are bound to occur. 202. Hence, it is humbly submitted that the transaction of supply of services by a person located in a non-taxable territory to another person located in a non-taxable territory by way of transportation of goods by a vessel from a place outside India upto the customs station of clearance in India is not leviable to the Goods and Services Tax. 203. The next submission we need to deal is that the impugned notifications are contrary to the provisions of Article 265 of the C....
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....rvices or both; except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person: Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962." 209. Sub-section (7) of Section 3 of the Customs Tariff Act, 1975 reads as under : "(7) Any article which is imported into India shall, in addition, be liable to integrated tax at such rate, not exceeding forty per cent. as is leviable under section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India, on the value of the imported article as determined under sub-section (8) or sub-section (8A), as the case may be." 210. Thus, ....
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....dian Shipping Lines were unable to avail the input tax credit of tax paid on the goods and services and such tax formed part of their transportation cost. To provide them the level playing field, service tax was imposed on the service of inward transportation of goods to enable the Indian Shipping Lines to avail the input tax credit. Further, the services of the outward transportation of goods were treated as export of service and thus the credit of the excise and service tax was available. It is further stated that subsequently, many FOB contracts were being converted into CIF contracts. In order that the tax is suffered by both, the foreign shipping line and the Indian shipping line, the services of the inward transportation of goods provided by a person in a non-taxable territory to a person in a non-taxable territory were made liable to service tax. History of taxation of international transportation service prior to Finance Act, 2016. 218. Chapter V of the Finance Act, 1994, for the first time, introduced taxation of services in India. Till 1.7.2012, the service tax was levied on selected categories of services. Thus, the services which were specifically included within the....
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....h the place of such service was in India, the same was expressly made not leviable to tax by including a specific entry in the negative list. 222. Further, the service of the outward international transportation of goods was not leviable to service tax as the destination of goods was outside India and thus the place of provision of such service was outside India. Rationale for not levying service tax on ocean freight services 223. The rationale behind not levying the tax on service of the inward international transportation is that the value of the imported goods for the purpose of payment of customs duties includes the amount of freight paid on their inward transportation. The tax on such transportation service, instead of being collected from the supplier of service is collected from the importer of goods by including the same in the value of imported goods. 224. Even international, the service of international transportation both relating to imports and exports is GST-free (i.e. no tax is payable on the outward supply and the tax paid on the inward supplies can be claimed as refund). The tax is collected from the importer of goods by including it in the value of impo....
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....ion of goods from a place outside India upto the customs station of clearance is not leviable to service tax, was omitted. 228. Notification No.9/2016-ST dated 1.3.2016 effective from 1.4.2016 was issued, which inserted entry no.53 in the Mega Exemption Notification No.25/2012-ST dated 20.6.2012 as below : "53. Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India." 229. The effect of the above amendment was that the service of transportation of goods in a vessel from a place outside India upto customs station of clearance in India became taxable whereas the same services by an aircraft were made exempted from payment of tax. 230. The amendments were made with the objective that the Indian Shipping Lines which were hitherto not eligible to avail credit of taxes paid on the input side as the services provided by them were not leviable to service, became eligible to avail the credit and pass on the same to the consumer. 231. However, by such an amendment, the Indian Shipping Lines were placed at a disadvantageous position than the Foreign Shipping Lines who were exempted from paying the....
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.... of Section 68 provided that every person providing taxable service shall pay the service tax. Further, sub-section (2) of Section 68 provided that, in respect of such taxable services as may be notified by the Central Government, the service tax shall be payable by such person and in such manner as may be prescribed. The relevant extract of Section 68 is as under : "68. Payment of service tax.-- (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed. (2) Notwithstanding anything contained in sub-section (1), in respect of such taxable services as may be notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service : Provided that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provis....
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....herein it is provided that zero-rated supply can be made either without the payment of tax or with payment of tax along with an option to claim refund of tax later. Further, the person making the zero-rated supply will be eligible to avail the input tax credit and claim refund if the same remains unutilized. The same approach has been adopted even internationally. 243. Alternatively, such services could have been exempted from payment of tax and simultaneously excluded from the value of exempt supply for the purpose of determining reversal of the input tax credit. The said mechanism has been provided in case of services by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India (exempted from payment of tax till 30.09.2019 vide Notification No.9/2017 - Integrated Tax (Rate) dated 28.06.2017). Simultaneously, the said service has been excluded from the aggregate value of exempt supply for the purpose of reversal of input tax credit under Rule 42 and 43 of the Central Goods and Services Tax Rules, 2017 (CGST Rules) via Explanation to Rule 43(2) of the CGST Rules. 244. Further, prior to 1.2.2019, before the amendment of ....
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....uary power, the legislative incompetence of the State legislature must be clearly established. Entry 97 itself is specific in that a matter can be brought under that Entry only if it is not enumerated in List II or List III and in the case of a tax if it is not mentioned in either of those Lists." 25. In that case Section 3(3) of the Punjab Passengers and Goods Taxation Act, 1952 was challenged by transport operators. The Act provided for the levy of the tax on passengers and goods plying in the State of Haryana. According to the transport operators, the State could not levy tax on passengers and goods carried by vehicles plying entirely along the national highways. According to them this was solely within the power of the Centre under Entry 23 read with 97 of List I. The submission was held to be patently fallacious by this Court. It was held that Entry 56 of List II did not exclude national highways so that the passengers and goods carried on national highways would fall directly and squarely within Entry 56 of List II. It was said that the State played a role in the maintenance of the national highway and there was sufficient nexus between the tax and passengers goods c....
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....r this entry. Nevertheless, it is obvious that the goods as such cannot pay taxes, and so taxes levied on goods have to be recovered from some persons, and these persons must have an intimate or direct connection or nexus with the goods before they can be called upon to pay the taxes in respect of the carried goods. Similarly, passengers who are carried are taxed under the entry. But, usually, it would be inexpedient, if not impossible, to recover the tax directly from the passengers and so, it would be expedient and convenient to provide for the recovery of the said tax from the owners of the vehicles themselves." (See also: Sainik Motor Jodhpur v. The State of Rajasthan 1962 (1) SCR 517). 28. Having determined the parameters of the two legislative entries the principles for determining the constitutionality of a Statute come into play. These principles may briefly be summarized thus: a) The substance of the impugned Act must be looked at to determine whether it is in pith and substance within a particular entry whatever its ancillary effect may be. (Prafulla Kumar Mukherjee v. Bank of Commerce Ltd. and others (AIR 1947 PC 60, 65; A.S. Krishna v. State o....
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....j) in relation to service provided by a clearing and forwarding agent to a client, shall be the gross amount charged by such agent from the client for services of clearing and forwarding operations in any manner." "67.(m-a) in relation to service provided by goods transport operator to a customer, shall be the gross amount charged by such operator for services in relation to carrying goods by road in a goods carriage and includes the freight charges but does not include any insurance charges." 30. As far as clause (j) is concerned it does not speak of goods or passengers, nor to carriage of goods nor is it limited to service by road or inland waterways. Clause (m-a) shows that the valuation of the service tax includes the freight charges, but is not limited to it. 31. It is clear therefore that Section 66 read with Section 65(41)(j) and (m-a) Chapter V of the Finance Act, 1994 do not seek to levy tax on goods or passengers. The subject matter of tax under those provisions of the Finance Act, 1994 is not goods and passengers, but the service of transportation itself. It is a levy distinct from the levy envisaged under Entry 56. It may be that both the levi....
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....en urged before this Court by the appellants that Entries 18, 14 and 54 of List II covered the levy in question and, therefore, resort could not be had to Entry 97 in List I of the Seventh Schedule of the Constitution. It was held by this Court that although certain items of the service might have been referable to any other entry, the service element was the "more weighty, visible and predominant". Therefore, the nature and character of the levy of the service tax was distinct from a tax on the sale or hire purchase of goods and from a tax on land. 34. The point at which the collection of the tax is to be made is a question of legislative convenience and part of the machinery for realization and recovery of the tax. The manner of the collection has been described as "an accident of administration; it is not of the essence of the duty" 2. It will not change and does not affect the essential nature of the tax. Subject to the legislative competence of the Taxing Authority a duty can be imposed at the stage which the authority finds to be convenient and the most effective whatever stage it may be. The Central Government is therefore legally competent to evolve a suitable mach....
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.... for the incidence of taxation and is not the charging section which is Section 66. The amendments to Section 66 brought about in 2000 changed the point of collection of tax from the provider of the service to 'such manner as may be prescribed'. Section 68(1A) as it stood in 1997 provided for the collection and recovery of service tax in respect of the services referred in clauses (g) to (r) of Section 65(41), which included both the services with which we are concerned, from such person and in such manner as may be prescribed. The 1998 Finance Act maintained this. Now the Service Tax Rules, 1994 provided for the collection and recovery of tax from the user or payers for the services. This was the prescribed method. All that the proviso to Section 68(1A) did was to prescribe the procedure for collection with reference to services of goods transport operators and clearing agents which services had already been expressly included under the Finance Act, 2000 into the definition of taxable service. 39. The decision in Dwarka Prasad v. Dwarka Das Saraf (supra) relied upon by the writ petitioner does not in any way forbid a proviso from supplementing the enacting clause.....
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....e an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes." 42. In the case before us the discrimination is not, even according to the writ petitioners, by reason of the subject matter of tax. It is also not the writ petitioners' case that within the separate classes of services covered by the different clauses in Section 65(41), there is any discrimination or that the law operates unequally within the classes. According to them the discrimination lies in the method of collection of the tax followed. But as we have said this is not of the essence of the tax and the mere difference in the machinery provisions between the different classes of service cannot found a challenge of discrimination. If the legislature thinks that it will facilitate the collection of the tax due from such specified traders on a rationally discernible basis, there is nothing in the said legislative measure to offend Article 14 of the Constitution. It is therefore outside the judicial ken to determine whether the Parliament should have specified a common mode for recovery of the tax as a....
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....hat arose in the appeal before the Supreme Court questioned the competence of the Parliament to levy service tax on the practicing Chartered Accountants and Architects having regard to Entry 56 of List II of the 7th Schedule to the Constitution and Article 276 of the Constitution of India. The challenge was rejected by the Supreme Court relying upon the aspect theory and it was held that the Parliament has the competence to impose tax on the services rendered by the professionals. The ratio of this decision is also of no avail to the respondents as the pivotal issue in the case on hand is, whether the delegated legislation can travel beyond the scope of the powers conferred by the parent legislation. 251. In Phulchand Exports Limited v. O.O.O. Patriot, (2011)10 SCC 300, the Supreme Court in para 21 has referred to and relied upon the decision in the case of Johnson v. Taylor Brothers and Company Limited, 1920 AC 144 (HL) in the context of determination of rights of the sellers and buyers under the Indian Contract Act, 1872. Johnson (supra) referred to by the Supreme Court explains the nature of a CIF contract. Johnson (supra) lays down the following : (i) To make out an....