TaxTMI 
TaxTMI 
2019 (9) TMI 1315
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....s prayed for the following reliefs; "(A) That Your Lordships may be pleased to issue a writ of Mandamus or any other appropriate writ, order or direction thereby striking down Rule 2(1)(d) (EEC) of the Service Tax Rules and Notification Nos.15/2017-ST and 16/2017-ST as ultra vires Sections 66B, 67 and 94 of the Finance Act, 1994, and ultra vires Articles 14 and 265 of the Constitution of India; (B) That Your Lordships may be pleased to issue a Writ of Mandamus or any other appropriate writ, order or direction striking down Rule (7CA) of the Rule 6 of the Service Tax Rules, 1994 and Explanation-V of Notification No.30/2012-ST dated 20.6.2012 as ultra vires Sections 66B, 67 and 94 of the Finance Act, 1994 and ultra vires Articles 14 and 265 of the Constitution of India; (C) That Your Lordships may be pleased to issue a writ of Mandamus or any other appropriate writ, order or direction thereby quashing and setting aside Circular No.206/4/2017-ST dated 13.4.2017 and Show Cause Notice No.VI(a)/8-38/CEA/CIR-VI/Gr.29/2017-18 dated 28.6.20189; (D) Pending hearing and final disposal of the present petition, Your Lordships may be pleased to stay the adjudi....
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....y service tax on services by way of transportation of goods by a vessel from a place outside India upto the Custom station of clearance in India even in case of cost, insurance and freight (CIF) contracts, even though the local importer in such CIF transactions is neither the service provider nor the service recipient for imported goods. The service provider is the vessel owner/operator whereas the service receiver is the overseas seller/supplier of the goods, and the entire service of transporting goods from a foreign location to an Indian Port is provided and consumed outside India. Under the provisions of the Finance Act, 1994, service tax can be charged and collected either from the service provider or from the service receiver, but not from a third party; and therefore the Notifications and the Rules made thereunder laying down that the importer was the person liable to pay service tax for ocean freight are ultra vires the charging section as well as the machinery section of the said Finance Act, and also beyond the rule making power of the Central Government. A fictional value at the rate of 1.4% of sum of cost, insurance and freight (CIF) of imported goods is laid down as th....
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....such sellers/suppliers. 5. In international trade, goods are bought and sold by way of two different modes/methods, namely, CIF contract and FOB contract. FOB (i.e. Free on Board) is a contract of sale between the foreign supplier and the local importer, where the importer would engage the vessel/ship owner or operator for importing goods into India. In FOB contract, the service of transportation of goods by ship or vessel is received by the importer in India, whereas such service is rendered by the owner/operator of the foreign going vessel. In case of CIF contract, the overseas supplier would engage the vessel owner/operator for transportation of goods to India. The appointment of the vessel/ship and also payment of transportation charges i.e. ocean freight of such vessel owner/operator are made by the overseas supplier in CIF contract. The service of transportation of goods by vessel is thus received by the overseas supplier from the foreign going vessel owner/operator in CIF contract. 5.1 Thus, the basic difference between FOB and CIF contract is that the service of transportation of goods by vessel/ship is received by the importer in FOB con....
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....from time to time. Under Rule 2(1)(d) of the Service Tax Rules, the expression "person liable for paying service tax" has been defined. By virtue of Notification No.2/2017-ST dated 12.1.2017, the Central Government has inserted Clause (EEC) under Rule 2(1)(d) thereby laying down that the person in India who complied with Section 29, 30 or 38 read with Section 148 of the Customs Act, 1962 with respect to goods transported by a vessel from a place outside India upto the Custom Station of clearance in India was the person liable to pay service tax on such services. For ready reference, extracts of Service Tax Rule (including Rule 2 and 6) with the relevant amendments including Clause (EEC) are enclosed and marked as Annexure-"C". 8.1 Section 29 of the Customs Act refers to the obligations of the person-in charge of a vessel or an aircraft entering India from any place outside India. Section 30 of the Customs Act also refers to the obligations of such person for submitting Import General Manifest and the like documents. Section 38 refers to the powers of the proper Customs officer for requiring person-incharge of any conveyance carrying imported goods for production o....
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....ertain Explanations in the original Notification No.30/2012-ST dated 20.6.2012. Explanation-V so substituted/inserted vide this Notification No.15/2017-ST provides that the importer as defined under Section 2(26) of the Customs Act shall be the person liable to pay service tax in respect of services provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India upto the Custom station of clearance in India. By virtue of Explanation-V so inserted, it would mean that the importer of goods would be liable for paying service tax on ocean freight in case where the service of transportation of goods in a vessel was provided by the vessel owner/operator to the overseas supplier-seller in CIF transactions. By Notification No.16/2017-ST, Clause (EEC) of Rule 2(1) (d) of the Service Tax Rules has been substituted, and there also the importer as defined under Section 2(26) of the Customs Act is made liable to pay service tax on ocean freight in cases like CIF transactions. A new Sub Rule i.e. Sub Rule (7CA) has also been inserted in Rule 6 of the Service Tax Rules by this Noti....
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....ting Sub Rule (7CA), thereby laying down that the person liable for service tax for ocean freight shall have option to pay service tax on 1.4% of sum of cost, insurance and freight (CIF) value of the imported goods. Thus, the Central Government has extended an option to pay service tax @1.4% of CIF value of the goods in case the person liable to pay service tax did not propose to discharge service tax on the actual value of ocean freight. 14. As aforesaid, the Petitioner's contracts are on CIF basis, and therefore the Petitioner had not been liable to pay service tax on ocean freight, because the importer who had not received the service of transportation of goods in a vessel from the owner/operator of such ocean going vessel was not the person liable to pay service tax in this case till 23.4.2017. But since the importer of the goods is made liable to pay service tax by virtue of Notification Nos.15/2017 and 16/2017, both dated 13.4.2017, from 23.4.2017, the Central Excise and Service Tax authorities initiated enquiry against the Petitioner as a result of audit verification of the Petitioner's records. The Audit officers noticed the imports made by the Petitioner and also ....
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....r recovering service tax on ocean freight from the importer in respect of CIF transactions are ultra-vires the provisions of the Finance Act, 1994 as amended from time to time, and also ultra vires the Constitution of India, inasmuch as no tax in the nature of "service tax" can be levied and collected by the Union of India on the activities which occur outside the territory of India, and no recovery of a tax in the nature of "service tax" can be made from a person who is neither service provider nor service recipient. There is no machinery provision also for determining value of the service in the nature of transportation of goods by vessel from a place outside India to a Custom Station in India, and therefore also the provisions made by the Central Government for seeking to charge service tax from an importer like the Petitioner on a fixed rate of 1.4% of the CIF value of the imported goods are ultra vires Articles 14 and 265 of the Constitution of India. The Petitioners are therefore constrained to approach this Hon'ble Court challenging such provisions for being declared unconstitutional and ultra vires on following main amongst other grounds that may be urged at the time of hea....
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....e of a taxable service is conferred upon the Central Government under the Finance Act, 1994, and therefore Rule 6(7CA) of the Service Tax Rules inserted vide Notification No.16/2017- ST is ultra vires the rule making powers and also the machinery provision of Section 66." 7. Submissions on behalf of the respondents Nos.1 to 4; 7.1 The power of the Parliament to levy service tax under Entry No.97 of List 1 is not in dispute. 7.2 Under Section 64 of the Finance Act, 1994 read with Section 66B of the Finance Act, 1994, Service Tax is applicable on taxable services provided in India, except the State of Jammu and Kashmir. Section 66C empowers the Central Government to make rules for determination of place of provision of service and Place of Provision of Services Rules, 2012 have been made accordingly. 7.3 Further, Section 66C(2) specifically provides that any rule made under sub-section (1) of Section 66C shall not be invalid merely on the ground that either the service provider or the service receiver or both are located at a place being outside the taxable territory. 7.4 Section 66C and the Place of Provision of Service Rules, 2012 are within the powers vested with th....
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....n conflict with the taxing incidents of service tax on transportation services (Entry 97 of List I) . 7.10 There is no constitutional bar in levying of taxes under different statutes on different aspects, if there are distinct taxable events, eligible to different taxes (e.g. Central Excise and VAT on manufacture and sale of goods respectively, entertainment tax and service tax on entry to entertainment and service aspect, service tax and Central Excise/VAT on contract manufacturing, service tax and luxury tax on hotel stay etc.). The only question is whether demand of tax is sustainable under the particular statute or not. 7.11 In the instant case, the value of transportation services is includible in the assessable value of the goods in terms of the Customs Act, 1962 and the Rules made there under [Customs Valuation of imported goods, Rules, 2007]. However, there is no provision under Service tax provisions (Finance Act, 1994) wanting non-levy of service tax on service of transportation of imported goods on the grounds that Custom duty has been levied on ouch value being included in the value of goods under a different statute viz. Customs Act, 1962. Vice. Versa, there is n....
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....nditional exemption has been extended for the reason that out of the full value of such services, the exempted value of service has already suffered taxes (Central Excise) which would have been available as Cenvat credit to set off service tax on full value of service In effect, the service tax is levied on the added value only. However, in case of foreign shipping lines, their services being exports from their home country, are zero-rated in their home country and thus have suffered no taxes. Further the foreign shipping lines do not get registered in India and do not follow the provisions of the Cenvat Credit Rules. 7.15 Vide notification Nos 15/2017-ST and 16/2017-ST respectively dated 13th April, 2017, the importer of goods as defined in the Customs Act, 1962 has been made liable for paying service tax in cases of services of transportation of goods by sea provided by a foreign shipping line to a foreign charterer with respect to the goods destined for India. This change has come into effect from 23rd April, 2017. The Shipping/steamer agents are no longer liable to pay the service tax for the services provided on or after 23rd April, 2017. 8. On 27th December, 2018, a Coo....
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....section 65B(52) which defines "taxable territory" to mean the territory to which the provisions of that Chapter apply. Referring to Chapter V of the Act, it was contended that by virtue of sub-section (2) of section 64 thereof, the same extends to the whole of India except to the State of Jammu and Kashmir. It was submitted that, therefore, no service tax can be levied to service provided outside India. 4. It was submitted that, therefore, the impugned notifications to the extent they seek to make the importer liable for payment of service tax in respect of ocean freight is ultra vires the provisions of section 66B and section 68(2) of the Finance Act, 1994. 5. The attention of the court was invited to section 94 of the Finance Act which provides for "Power to make rules". It was submitted that in none of the items enumerated thereunder, is the Central Government empowered to fix the tariff value of any service. It was submitted that, therefore, the impugned notification dated 13.4.2017 which provides for an option to pay the amount calculated at the rate of 1.4% by way of sum of cost, insurance and freight value of the imported goods is de hors the powers conferr....
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.... "Service for which tax is payable or partially payable by persons receiving the service- Service Tax payable by Reverse Charge system in relation to insurance business, GTA, sponsorship, Arbitral Tribunal, legal services by Advocates, support services provided by Govt. or local authorities (except specified services), renting of motor vehicles on abated value, renting of motor vehicles on unabated value (partially also payable by service provider), manpower supply (partially also payable by service provider), work contract (partially also payable by service provider), service provide from nontaxable territory but received in taxable territory (partially also payable by service provider)- Notification Nos.15/2012-S.T. & 36/2004-S.T. Superseded. In exercise of the powers conferred by sub-section (2) of section 68 of the Finance Act, 1994 (32 of 1994), and in supersession of (i) notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 15/2012-Service Tax, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i),vide number G.S.R 213(E), dated the 17th March, 2012, and (ii) ....
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....e portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory; (B) provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory; (II) The extent of service tax payable thereon by the person who provides the service and the person who receives the service for the taxable services specified in paragraph I shall be as specified in the following Table, namely:- TABLE Sr. No. Description of a service Percentage of service tax payable b the person providing service Percentage of service tax payable by the person receiving the service 1 in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business Nil 100% 2 In respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road. Nil 100% 3 in respect o....
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....he purposes of this notification, "non-assessee online recipient" has the same meaning as assigned to it in clause (ccba) of sub-rule 1 of rule 2 of Service Tax Rules, 1994. Explanation V.- For the purposes of this notification, in respect of services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, person liable for paying service tax other than the service provider shall be the importer as defined under clause (26) of section 2 of the Customs Act, 1962 (52 of 1962) of such goods. 2.This notification shall come into force on the 1st day of July, 2012." 12. Mr. Dave, thereafter, invited our attention to Chapter-V of the Finance Act, 1994 and Chapter- VA of the Finance Act, 2003. Section 65(52) defines the term "taxable territory". It reads thus; "(52) 'taxable territory' means the territory to which the provisions of this Chapter apply." 13. Section 66B is with regard to the charge of service tax on and after the Finance Act, 2012. It reads thus; ....
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.... of return under sub-section (1) of section 70 (cc) the manner of provisional attachment of property under sub-section (1) of section 73C; (ccc) publication of name of any person and particulars relating to any proceeding under sub-section (1) of section 73D; (d) the form in which appeal under section 85 or under sub-section (6) of section 86 may be filed and the manner in which they may be verified; (e) the manner in which the memorandum of cross objections under sub-section (4) of section 86 may be verified; (ee) [* * * * ] (eee) the credit of service tax paid on the services consumed or duties paid or deemed to have been paid on goods used for providing a taxable service;] (eeee) the manner of recovery of any amount due to the Central Government under section 87; (f) provisions for determining export of taxable services; (g) grant of exemption to, or rebate of service tax paid on, taxable services which are exported out of India; (h) rebate of service tax paid or payable on the taxable services consumed or duties paid or deemed to have been paid on goods used for providing taxable services ....
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....otification should not be issued, the rule or notification shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or notification." 16. Since the challenge is to the provisions empowering the Central Government to collect and recover service tax on Ocean Freight and the Petitioners have challenged such provisions only in respect of the CIF contracts, it is necessary to consider what is "ocean freight", what is "CIF", and how the CIF is different from the FOB contracts. 17. In the international trade, the goods are bought and sold by way of two different modes/methods, namely, the CIF contract and FOB contract. Therefore, we must give a fair idea about both these modes/methods. 18. FOB (i.e. Free on Board) is a contract of sale between the foreign supplier and the local importer, where the importer would engage the vessel/ship owner or operator for importing goods into India. In the FOB contract, the service of transportation of goods by ship or vessel is received by the importer in India, wherea....
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....he contract. Third, to procure (There might be added the words "on shipment, see ante, '7") a contract of affreightment under which the goods will be delivered at the destination contemplated by the contract. Fourth, to arrange for an insurance upon the terms current in the trade which will be available for the benefit of the buyer. Fifthly, with all reasonable despatch to send forward and tender to the buyer these shipping documents, namely, the invoice, bill of lading and policy of assurance, delivery of which to the buyer is symbolical of delivery of the goods purchased, placing the same at the buyer's risk and entitling the seller to payment of their price........". 22. Section 26 of the 1930 Act upon which reliance was placed by the learned senior counsel for the sellers reads as follows : "S. 26. Risk prima facie passes with property.-- Unless otherwise agreed, the goods remain at the seller's risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not: Provided that, where delivery has been delayed thro....
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....who are Indian importers/buyers of the goods) and the shipping line for sea transportation. Thus, Ocean freight is admittedly paid by the overseas suppliers/sellers to the shipping line, and therefore the overseas suppliers i.e. the sellers of the goods located in foreign country are the persons who have received service of sea transportation from the shipping line, and the value of such service i.e. ocean freight is also paid by such overseas suppliers/sellers for receiving such service. 23. "Ocean freight" is the colloquial expression; but the service for which service tax is proposed to be collected under the impugned provisions is described as the "transportation of goods by a vessel from a place outside India upto the Customs station of clearance in India..........." in all the impugned provisions under Rule 2(1)(d)(EEC) of Service Tax Rules, Rule 6(7CA) of Service Tax Rules and also in Explanation V of reverse charge Notification No.30/2012-ST. The service for which tax is proposed to be collected under the impugned provisions is thus admittedly rendered and consumed outside the country, because the service is that of transportation of goods by a vessel from a place outsid....
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....ed provisions for service tax. 27. Section 64(1) of the above Finance Act provides that Chapter V extends to the whole of India, except the State of Jammu & Kashmir. 28. The charging provision i.e. Section 66B provides for levy of service tax on the value of services provided or agreed to be provided in the taxable territory by one person to another. Section 65B(52) defines "taxable territory" to mean the territory to which the provisions of this Chapter apply. As seen above, the provisions of this Chapter i.e. Chapter V, apply to the whole of India by virtue of Section 64(1) of the Finance Act; and thus it is the mandate of the Parliament for applying the provisions of Chapter V of the Finance Act for service tax to whole of India, and not to extraterritorial events occurring outside the land mass of India. 29. It is a settled legal position as held by a Constitution Bench of the Supreme Court in the case of GVK Industries Ltd. vs. Income Tax Officer, 2017 (48) STR 177 (SC) that the Parliament has power to enact laws for extraterritorial events subject to three conditions as referred to in para 41 of the judgement; but the Executives having delegated powers under any Act ....
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....t paras 44, 47, 48 and 53 that a Rule made by the Central Government has to necessarily be only in relation to taxable services, namely, services provided in the taxable territory of India, and an essential legislative function of taxing an activity in non-taxable territory could not have been delegated to the Central Government. Rule 6A has been struck down as ultra-vires the Rule making power of Section 94 by the Delhi High Court. 33. The impugned provisions are also ultra vires the Rule making power of Section 94 of the Finance Act. 34. As observed above, the person receiving service of sea transportation in CIF contracts is the seller-supplier of the goods located in a foreign territory. The Indian importers like the writ applicants are not the persons receiving sea transportation service, because they receive the "goods" contracted by them, and they have no privity of contract with the shipping line nor does the Indian importer make any payment of ocean freight to the service provider. But the impugned provisions make such "importer" liable to pay service tax; and therefore such provisions allowing the Central Government to recover service tax from a third party are ultr....
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....mpugned provisions i.e. Rule 2(1)(d)(EEC) and Explanation-V to Notification No.30/2012-ST are ultra vires Section 65B(44) defining "service" and Section 68, and also Section 94 of the Finance Act. Strict Interpretation of the charging Section: 40. It is not the case of the Respondents that importers like the Petitioners have received services of sea transportation from the shipping lines. The Respondents have however pleaded that in case of the Indian importers receiving goods on the land mass of the country by virtue of CIF arrangements, they "indirectly" receive sea transportation service also; and therefore obligation to pay service tax can be shifted to them. 41. First, the Indian importers like the Petitioners have contracted for purchase and delivery of goods, and under CIF contract where the lump sum amount is paid for delivery of the goods on the land mass of the country; and what the importers receive in India is the goods, and not any service. Secondly, liability to pay tax cannot be fastened on a person if the charging provision does not charge or levy the tax; because a charging section has to be strictly interpreted, and not by way of inferences or presumption....
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....ging provision and the machinery provision are two sides of the same coin. A substantial provisions of chargeability and the machinery provisions of valuation have a navel relationship of cause and effect with the result that one cannot survive without the other, and they are inseparable pillars of an integral tax code. The observations of the Mumbai High Court at para 41 in Satellite Television Asian Region Ltd. reported in MANU/IU/0002/2006, and by the Supreme Court at para 10 in CIT Bangalore V/s. B.C. Srinivas Setty, AIR 1981 SC 972 are relevant in this regard, because it is held in these cases that if the computation provision cannot be applied, then the substantial provisions of chargeability become redundant. 46. In the present cases, since the value of ocean freight is not available, Sub Rule (7CA) is inserted in Rule 6 of the Service Tax Rules thereby giving an option to the importer to pay service tax on 1.4% of CIF value of imported goods. But this insertion of Sub Rule (7CA) in Rule 6 is also ultra vires the machinery provision of Section 67, and also rule making power of Section 94. 47. There is no power conferred upon the Central Government under Section 94 to f....
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....orted from the 'landmass' of India. Once this view is taken in the context of exportation from India, the expression 'imported into' which forms a part of the expression 'imported into or exported from India cannot carry any other meaning; the expression India must mean landmass of India whether it is in the context of 'exportation from India' or 'importation into India' of goods within the meaning of dutiable goods in the context of section 12(1) of the Act. To construe the expression 'goods exported from India' to mean goods exported from the landmass of India on the one hand and to interpret the expression following on its heels the goods imported into India' to mean goods imported into territorial waters of India and not the landmass of India would introduce an anachronism and so incongruity. Section 12 must, therefore, be read in a consistent manner so that the same meaning can be assigned to the expression 'India' when it is used in the context of exportation of goods from India as also when it is used in the next breath in the context of importation of goods into India. We have, therefore, no hesitation in holding that ....
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....s Act pertaining to valuation of goods for the purposes of assessment. As per the analysis made by us, the price of the goods has to be determined (1) on the basis of the price at which ordinarily such goods are offered for sale, (2) such price is required to be determined with reference to the time and place of importation of goods (i.e., when they are unloaded on the landmass of India), (3) the price must be the price at which the goods are ordinarily sold or offered for sale in accordance with the international trade, and (4) the price must be genuine price between a commercial seller and a commercial buyer unrelated to each other. Such being the position, proposition Nos. (2) & (3) must be called into aid for the purpose of determination of assessable value of the goods. And the goods will have to be valued at the point of time of being unloaded on the landmass of India and at the place where they are unloaded. Since the landing charges have to be paid to the Port authorities as soon as the goods are landed, and the sale can take place only after they are landed, the price at which the goods are sold or offered for sale would of necessity include the landing charges payable bef....
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....ncerned for such a long time is thrown overboard and a new and revolutionary construction which unsettles every settled position is accepted on the basis of a fancy or disingenuous argument. There is authority for the proposition that a different interpretation should not be placed on the words of a provision which disturbs the course of construction which has continued unchallenged for a considerable length of time and has acquired the sanction of the continued decisions over a very long period [see Empress Mills v. Municipal Committee, Wardha, A.I.R. 1958 Supreme Court 341 (para 19)]. No doubt the proposition is adverted to in the context of sanction of continued decisions over a long period. So also no doubt the Supreme Court came to the conclusion that the said principle was not attracted in the case before the Court because the interpretation in question had not been acquiesced in for a long time. All the same this principle can be extended to a situation like the present one as well where sanctity must be accorded to an interpretation which has found acceptance by all concerned over such a long time without making any one unhappy (let alone considerations regarding desirabili....
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.... that practice are charged on those articles only which are intended for sale of consumption in the country. Thus sea-stores goods imported and re-exported in the same vessel, goods landed and carried over land for the purpose of being reexported from some other port, goods forced in by stress of weather and landed, but not for sale are exempted from the payment of duties. The whole course of legislation on the subject shows that in the opinion of the legislature the right to sell is connected with the payment of the duties." Continuing, the learned Chief Justice at p. 447 observed : "Sale is the object of importation, and is an essential ingredient of that intercourse, of which importation constitutes a part. It is as essential an ingredient, as indispensable to the existence of the entire thing, than as importation itself................ This supports the contention raised that import is not merely the bringing into but comprises something more i.e., incommorating and mixing up of the goods imported with the mass of the property in the local areas. The concept of import as implying something brought for the purpose of sale or being kept is supported by the obser....
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....7 and, therefore, the customs duty was not playable on the goods. The question arose in a different context and the question as to whether the landing charges were includible in the assessable value was not before the Bombay High Court. Besides, the considerations which we have outlined in the earlier part as our judgment were not highlighted before the Bombay High Court. We are not prepared to uphold the contention of the petitioners on the basis of the aforesaid decision rendered by the Bombay High Court. The learned standing counsel for the Union of India in this context called our attention to the decision in Prakash Cotton Mills (P.) Ltd. v. B. Sen, A.I.R. 1979 Supreme Court 75 = 1979 E.L.T. (J 241), wherein the Supreme Court has taken the view that the rate and valuation of goods for the purpose of section 15(1)(b) of the Customs Act was the rate and valuation in force on the date on which the warehoused goods were actually cleared from the warehouse. It was contended that the ratio of this decision lends support to the view point canvassed by the revenue. Since the question before us was not directly before the Supreme Court, we do not propose to dwell at length on the quest....
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....ows :- S. 3(2) "The limit of the territorial waters is the line every point of which is at a distance of twelve nautical miles from the nearest point of the appropriate baseline". We may also refer to Section 4 of the 1976 Act which may be relevant to the question which has arisen before us. Under Section 4, there is a statutory right on all foreign ships to enjoy the right of innocent passage into the territorial waters. The explanation in section 4(1) explains what is innocent passage and says that the passage is innocent so long as it is not prejudicial to the peace, good order or security of India. Section 4(1) with its explanation reads as follows :- "S. 4 : Use of territorial waters by foreign Ships. - (1) Without prejudice to the provisions of any other law for the time being in force, all foreign ships (other than warships including submarines and other underwater vehicles) shall enjoy the right of innocent passage through the territorial waters. Explanation. - For the purpose of this section, passage is innocent so long as it is not prejudicial to the peace, good order or security of India." We are not concerned with the concept....
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....of the Act, the duty is payable at the rate of duty and tariff valuation applicable to any export goods in the case of goods entered for export under section 50, on the date on which a shipping bill or a bill of export in respect of such goods is presented under that section, and in the case of any other goods, on the date of payment of duty. The proviso says that if the shipping bill has been presented before the date of entry outwards of the vessel by which the goods are to be exported, the shipping bill shall be deemed to have been presented on the date of such entry outwards. Sections 50 and 51 of the Act which deal with clearance of export goods, read as follows :- "S. 50(1) : The exporter of any goods shall make entry thereof by presenting to the proper officer in the case of goods to be exported in a vessel or aircraft, a shipping bill, and in the case of goods to be exported by land, a bill of export in the prescribed form. (2) The exporter of any goods, while presenting a shipping bill or bill of export, shall at the foot thereof make and subscribe to a declaration as to the truth of its contents. S. 51. Where the proper officer is satisfied that....
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....be allowed in respect of such goods in accordance with, and subject to, the rules made and subject to, the rules made under sub-section (2)." This section, therefore, clearly provides that drawback is permitted in respect of goods which are manufactured in India and exported to any place outside India. The question now is when section 75(1) of the Act refers to goods exported outside India, what is the point of time when it can be said that the goods have been exported to any place outside India. Normally when once the goods are put in the ship, they will reach the country of destination. In this process, they will undoubtedly cross the territorial waters. But in a certain contingency such as the one which has arised in this case, namely, after having been loaded on the vessel after being cleared by the proper officer under section 51 and after having left the landmarks territory of India and were undoubtedly in the process of being carried to the country of destination, could it be said that the goods have been exported to any place outside India. 15. The Drawback Rules made under Section 75(2) of the Act are themselves not determinative of the controversy which ....
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....ound which is covered by the decisions while construing the concept of import. The question as to when goods can be said to have been imported came up for consideration for the first time in this Court in K.R. Ahmed Shah v. Additional Collector of Customs, Madras & Others [1981 ELT 153 (Mad.)]. The learned Judge (Padmanabhan, J.) after referring to the decision of the Supreme Court in Express Mills v. Municipal Committee and an unreported Division Bench decision of this Court in Writ Appeal No. 84 of 1968, culled out the following principles with regard to the meaning the word "import" in Sections 2(23) of the Act. In paragraph 11, the learned Judge observed as follows :- "The principles that could be deducted from the above decisions can be summarised as follows :- (1) Goods can be said to be imported to the country only when they are incorporated in and mixed up with the mass of goods in the country. (2) It cannot be said that the moment an aircraft lands at an international airport in this country, the goods are imported and to hold otherwise would create inconvenience and confusion and would render the goods which are in the aircraft meant to be carri....
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....orial waters before landing the goods on the landmass of India, would also have to be considered as importing goods into India. There it was the importer who took the stand that the import takes place when the ship entered the territorial waters. The question arose in the context of the valuation of the goods for the purpose of assessment to import duty. The department wanted certain landing charges to be included as a part of the assessable value of the articles. The argument of the assessee was that since the goods were imported as soon as they crossed the territorial waters the taxable event occurs at the point of time when the goods enter the Indian territorial water and the price of the goods has to be determined in the context of the said circumstance. Thus, according to the importer, the goods would have to be valued at the point of time when the vessel entered the Indian Customs water, and so the valuations to be made on the basis of the price at which the same would be sold and offered for sale on the vessel before the goods are unloaded on the port, and since the valuation will have to be made on the basis of the valuation as on board of the ship at the point of time when....
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....m India, it does not mean goods exported from the territorial water of India. The export of the goods clearly takes place on the landmass of the country. If the construction canvassed on behalf of the respondents is to be accepted, then there is nothing in the Customs Act to indicate what is the position of the goods from the time of loading the goods on the ship till they cross the boundary line of the territorial waters. Within the region between the boundary of the landmass of India on one side and the outer limit of the territorial waters the goods are beyond the control of the exporter. The customs duty is payable on export, and if export takes place only at the place where the territorial waters of India cease, then strictly speaking the customs duty will have to be collected only at that place which is almost an impossibility. 19. We may also refer the decision of the Kerala High Court in Shri Ramalinga Mills (P) Ltd. v. Assistant Collector of Customs [1983 ELT 65 (Ker.)]. The learned Judge after elaborate discussion of the provisions of the Act and the decision of the Supreme Court in In re : Sea Customs Act (1878) (AIR 1963 SC.1760) observed as follows :- ....
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....e an exemption notification was in operation on that date, the rate of duty should be considered as nil. This argument was rejected. In paragraph 23 of the judgment, the Division Bench observed as follows :- "Import" therefore must necessarily mean at a point of time when the goods are to be off-loaded from the ship so that thereafter they form a part of the mass of goods in the country of consumption". In paragraph 37, while observing that the goods coming within the territorial waters were undoubtedly subject to the control of the customs, the Division Bench pointed out that the entry in the territorial waters though amounting to import, will not for fiscal purposes determine the date and the time for the purpose of calculating the rate of duty which is leviable under section 15 of the Customs Act. The judgment also made it clear that it was settled law that unless the goods are brought into the country for the purpose of use, enjoyment, consumption, sale or distribution or incorporated into or got mixed up with the totality of the properties of the country, they cannot be said to have been imported, and as such it cannot be said that the moment the aircraft pas....
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.... the territorial waters is accepted, then these foreign ships which are enjoying a statutory right will also be brought within the net of the Act, when obviously that is not the intention of the Act at all. 26. Mr. P. Narasimhan relied on a Full Bench decision of the Bombay High Court in Apar Private Ltd. v. Union of India - 1985 (22) ELT 644 (Bom.) = (1985 Vol. 6 Excise & Customs Cases 241). There is no doubt that the Full Bench has taken a positive view that under the Customs Act, 1962, the event of importation occurs when the goods from a place outside India enter the territorial waters of India. This decision undoubtedly is entitled to be noticed. But so far as we are concerned, we are not dealing with the case of import and it is to be pointed out that the Full Bench of the Bombay High Court was not inclined to apply the logic of this decision to a case of export. One of the arguments raised before the Full Bench was that if the goods become imported goods as soon as they entered the territorial waters of India, the goods also cannot become export goods until they are removed from the landmass and pass out of the territorial waters of India. This argument was rejected....
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....me Court in CWT v. Ellis Bridge Gymkhana (supra), held that the rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all. 23. In the facts of the present case, the charging section is Section 66 which provides for charge of Service tax and lays down that there shall be levied a tax at the rate of twelve per cent of the value of taxable services referred to in sub-clause (f) of Clause (105) of Section 65 and collected in such manner as may be prescribed. sub-clause (f) of Clause (105) of Section 65 of the Act provides that "taxable service" means any service provided or to be provided to any person, by a courier agency in relation to door-to-door transportation of time sensitive documents, goods or articles. Thus, for the purpose of being chargeable to Service tax under Section 66 of the Act, taxable services of the nature provided under Clause (105) ....
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....lication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all. In the present case, insofar as the facility for transfer of money as provided by the assessees is concerned, the same has not been brought within the ambit of charging section by clear words and as such, the assessees cannot be taxed in respect of the same. The view taken by the Tribunal, therefore, is in consonance with the statutory provisions and as such, the Tribunal was justified in holding that the tender of Indian currencies and its transmission and compensatory payment would not be covered by the levy of Service tax under heading "courier agency". 26. It may also be pertinent to note that insofar as the actual transportation of currency notes is concerned, the Tribunal held that the same would fall within the ambit of "courier agency" as defined under Clause (33) of Section 65 of the Act. Thus, any transaction which involves transportation of time-sensitive documents, goods or articles would fall within the ambit of Clause (33) of Section 65 of the Act." 53. A Division Bench of the Delhi ....
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....atutory 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." 41. In Union of India v. S. Srinivasan (2012) 7 SCC 683 the above principles were reiterated in the following words: "16. At this stage, it is apposite to state about the rule making powers of a delegating authority. If a rule goes beyond the rule making power conferred by the statute, the same has to be declared ultra vires. If a rule supplants any provision for which power has not been conferred, it becomes ultra vires. The basic test is to determine and consider the source of power which is relatable to the rule. Similarly, a rule must be in accord with the parent statute as it cannot travel beyond it." 42. An essential legislative function cannot be delegated to the executive. It has to be exercised by the legislature. This was emphasized in the decision in Vasu Dev Singh v. Union of India (2006) 12 SCC 753 in the f....
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....ovision of certain services to service tax. Section 94 (2) (hhh) also permits making rules regarding the 'date for determination of rate of service tax' and 'place of provision of taxable service'. It does not provide for making rules on determination of taxability of a service. 'Subjecting certain types of services to tax is an essential legislative function. In this case, since the FA envisages Chapter V applying only to taxable services, bringing non-taxable services within the ambit of service tax, is impermissible. 45. Section 93 B of the FA states that the Rules made under Section 94 would also apply to any other service "in so far as they are relevant to the determination of any tax liability...or for carrying out the provisions of Chapter V" of the FA. However the whole of Chapter V applies only to taxable service. If by means of rules under Section 94, what is not taxable under the FA cannot be made taxable, equally they cannot even by rules under Section 93 B. The words 'any other service' occurring in Section 93 B is subject to Section 64 (3) of the FA that precedes it. It cannot expand the scope of Chapter V itself. As already noted,....
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....s for the first time under the Constitution (One Hundred and First Amendment) Act, 2016 effective 8th September 2016 amended Article 286 (1) to provide that there will be tax on the export of services out of the territory of India. Article 286 (2) of the Constitution of India has been amended simultaneously to provide that Parliament may by law formulate the principles to determine when an export of services takes place in any of the ways mentioned in Article 286 (1). This is another indication that these tasks cannot be delegated to the central government to determine by rules. 50. While it is one thing to say that tour operator service provided in India is not in the negative list under Section 66 D of the FA and is, therefore, amenable to service tax, it is another to contend that notwithstanding that Chapter V of the FA applies only to taxable services by virtue of Section 64 (3) FA, a non-taxable service that is provided outside the taxable territory can also be included by Rule 6A of the ST Rules in determining what constitutes export of services. Thus not only Rule 6A but even Section 94 (2) (f) of the FA would also be unconstitutional if it were to be interpreted t....
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....for which power has not been conferred, it becomes ultra vires. The basic test is to determine and consider the source of power which is relatable to the rule. Similarly, a rule must be in accord with the parent statute as it cannot travel beyond it. In this context, we may refer with profit to the decision in General Officer Commanding-in-Chief v. Dr. Subhash Chandra Yadav, AIR 1988 SC 876, wherein it has been held as follows:- "......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." 17. In Additional District Magistrate (Rev.) Delhi Administration v. Shri Ram, AIR 2000 SC 2143, it has been ruled that it is a well recognised principle that the conferment of rule making power by an Act does not enable the rule making authority to make a rule which travels beyond the scope of the enabling Act or which is inconsistent therewith or repugnant....
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.... (b) and (f) of Regulation 6-A of the Central Electricity Regulatory Commission (Procedure, Terms and Conditions for Grant of Trading Licence and other Related Matters) Regulations, 2004. In that context, this Court expressed thus:- "It is now a well-settled principle of law that the rulemaking power "for carrying out the purpose of the Act" is a general delegation. Such a general delegation may not be held to be laying down any guidelines. Thus, by reason of such a provision alone, the regulation-making power cannot be exercised so as to bring into existence substantive rights or obligations or disabilities which are not contemplated in terms of the provisions of the said Act." 23. In the said case, while discussing further about the discretionary power, delegated legislation and the requirement of law, the Bench observed thus:- "The image of law which flows from this framework is its neutrality and objectivity: the ability of law to put sphere of general decision-making outside the discretionary power of those wielding governmental power. Law has to provide a basic level of "legal security" by assuring that law is knowable, dependable and shielded from ....
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....the legislation in the year 1994, a task force was constituted to have an overall look on the subjects relating to foreign exchange and foreign trade to suggest the required changes. Considering the significant developments, namely, substantial increase in the foreign exchange reserve, growth in foreign trade, rationalization of tariffs, current account convertibility, liberalization of Indian investments abroad, increased access to external commercial borrowings by Indian Corporates and participation of foreign institutional investors in our stock markets and the spectrum of world economy, the Act was brought into force to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of the foreign exchange market in India. To have a balance in the field of economic growth, the Parliament provided the hierarchical system under the Act itself. Section 20 deals with the composition of the Appellate Tribunal, the highest tribunal under the Act. Section 21 deals with the qualification for appointment of Chairperson, Member and Special Director (Appeals). Section 22 pro....
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.... territory implies being responsible for the welfare of the people inhabiting that territory, deriving the powers to legislate from the same people, and acting in a capacity of trust. In that sense the Parliament belongs only to India; and its chief and sole responsibility is to act as the Parliament of India and of no other territory, nation or people. There are two related limitations that flow from this. The first one is with regard to the necessity, and the absolute base line condition, that all powers vested in any organ of the State, including Parliament, may only be exercised for the benefit of India. All of its energies and focus ought to only be directed to that end. It may be the case that an external aspect or cause, or welfare of the people elsewhere may also benefit the people of India. The laws enacted by Parliament may enhance the welfare of people in other territories too; nevertheless, the fundamental condition remains: that the benefit to or of India remain the central and primary purpose. That being the case, the logical corollary, and hence the second limitation that flows thereof, would be that an exercise of legislative powers by Parliament with regard to extr....