AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2009 (6) TMI 16
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....ral assisted by Mr. S. Yashwant Senior Panel Counsel for Respondents in Writ appeal & all writ petitions. [Judgment per A. KULASEKARAN, J.] - The prayer in all the above writ petitions i.e., W.P. Nos. 14905, 15327, 15328, 15559 and 15560 of 2001 are identical, W.A. No. 4119 of 2003 was filed against the vacation of the interim order passed in WP No. 15328 of 2001, hence, all the writ petitions as well as the writ appeal are disposed of by this common judgment. 2. The learned senior counsel Mr. Aravind P. Datar appearing for the petitioners submitted that the writ petitioners are non banking financial companies engaged in the business of hire purchase and leasing; that 46th Amendment inserted Article 366 (29A), of the Constitution of India, in which clauses a to f, particularly clauses c & d, which are relevant to this case, explain the ambit of the expressions of tax on the delivery of goods on hire-purchase or any system of payment by instalment and also a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; that the said expression is also found in the Entry 54 of Li....
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....another, leading to unacceptable arbitrariness. Rules that indicate to Sales Tax Officers how to treat composite charges for lodging and boarding would eliminate substantial differences in their approach and, thus, arbitrariness. 23. Writ Petition No. 9901 of 1983 is made absolute to this extent: The State of Maharashtra is directed henceforth not to make assessments of the tax on the supply of food and drink on hotel-owners who provide lodging and boarding for a composite sum until it frames rules that set out for such assessment which take account of the fact that residential hotels may provide lodging and full or part-board. If the rules are framed by 1-6-2000 the assessments that are not completed only by reason of this order may be proceeded with. If the rules are not framed by the said date, these assessments shall lapse. No proceedings for assessments shall be commenced hereafter until the rules have been framed. At the same time, completed assessments as of today shall not be affected by this order and the assessees would be entitled to adopt proceedings thereagainst, subject to the law." ii) Bharat Sanchar Nigam Ltd. v. Union of India, (2006 (3) SCC 1 wherei....
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....ave the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366(29-A) continues to be: Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is "the substance of the contract". We will, for the want of a better phrase, call this the dominant nature test." iii) Imagic Creative (P) Ltd. v. Commissioner of Commercial Tax, 2008 (2) SCC 614 wherein in Para Nos. 28, 32 and 34, it was held thus:- "28. We have, however, a different problem at hand. The appellant admittedly is a service provider. When it provides for service, it is assessable to a tax known as service tax. Such tax is leviable by reason of a parliamentary statute. In the matter of interpretation of a taxing statute, as also other statutes where the applicability of Article 246 of the Constitution of India, read with the Seventh Schedule thereof is in question, t....
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....), which refers to a service provided by a real estate agent 'in relation to real estate' does not, obviously include the subject matter as a service. This is so because real estate by itself cannot by any stretch of imagination be regarded as a service. Going back to the structured sentence i.e., - service provided or to be provided to 'A' by 'B' in relation to 'C', it is obvious that 'C' can either be a service (such as dry cleaning, hair dressing etc.,) or not a service by itself, such as real estate. The expression ' in relation to' would therefore, have different meanings depending on whether "C" is a service or is not a service. If "C": is a service, then the expression 'in relation to' means the service 'C' as well as any other service having connection with the service 'C'. Where 'C' is not a service, the expression 'in relation to' would have reference only to some service which has a connection with 'C'. But, this would not imply that 'C' itself is a service. 35. From this analysis, it is clear that we have to understand as to whether renting of immovable propert....
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....elation to banking and other financial services. The charging Section 65 of the Finance Act, amended to cover tax on value of taxable service refers to clause (zm) of Section 65 (105). In view of the above sections, the petitioners are liable to pay service tax for leasing and hire purchase transactions so far as service element is concerned and VAT is payable for sale to State Government. The government of India issued a circular dated 4/06-ST dated 01.03.2006 granting exemption of 90% interest income earned on leasing and hire purchase. It is further submitted by the learned Additional Solicitor General that the banking companies, which are carrying on leasing and hire purchase are paying service tax without any protest, since it is well known fact that in the said transaction, service element is involved. In support of his contention, the learned Additional Solicitor General relied on the following decisions:- i) All-India Federation of Tax Practitioners v. Union of India, 2007 (7) SCC 527 wherein in Para No.22 and 33, it was held thus:- 22. As stated above, the source of the concept of service tax lies in economics. It is an economic concept. It has evolved on account of serv....
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....ot by dictionary meaning of the words 'profession' or 'professional' as was sought to be argued on behalf of the appellants, otherwise the distinction between general entries and taxing entries under the three Lists would stand obliterated. The words 'in relation to' and the words 'with respect to' are no doubt words of wide amplitude but one has to keep in mind the context in which they are used." ii) Gujarat Ambuja Cements Ltd. v. Union of India 2005 (182) E.L.T. 33 (S.C.) wherein in Para Nos. 33, 34 and 35, it was held thus:- 33. Since service tax is not a levy on passengers and goods but on the event of service in connection with the carriage of goods, it is not therefore possible to hold that the Act in pith and substance is within the States exclusive power under Entry 56 of List II. What the Act ostensibly seeks to tax is what it, in substance, taxes. In the circumstances, the Act could not be termed to be a colourable piece of legislation. It is not the case of the petitioners that the Act is referable to any other entry apart from Entry 56 of List II. Therefore the negation of the petitioners submission perforce leads to the conclusion tha....
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....ce the service is rendered to them. iii) T.N. Kalyana Mandapam Assn. v. Union of India, 2004 (5) SCC 632 wherein in Para Nos. 43, 44, 45, 46 and 47, it was held thus:- "43. As far as the above point is concerned, it is well settled that for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the Sale of Goods Act, 1930. The legislature cannot enlarge the definition of sale so as to bring within the ambit of taxation transactions, which could not be a sale in law..... 44. In regard to the submission made on Article 366(29-A)(f), we are of the view that it does not provide to the contrary. It only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwise include the supply of services within the definition of sale and purchase of goods. This is particularly apparent from the following phrase contained in the said sub-article 'such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods'. In other words, the operative words of the said sub-article are....
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....er'. The phrase 'in relation to' has been construed by this Court to be of the widest amplitude." 4. This Court considered the submission of counsel on both sides. The relevant Articles in the Constitution of India and the provisions of Law are extracted below:- "Section 65 (12) of Finance Act- Banking and other financial services' means (a) the following services provided by a bankign company or a financial institution including a non-banking financial company or any other body corporate or commercial concern namely:- (1) financial leasing services including equipment leasing and hire-purchase:- Explanation: For the purpose of this item, 'financial leasing' means a lease transaction where- (i) Contract for lease is entered into between two parties for leasing of a specific asset: (ii) such contract is for use and occupation of the asset by the lessee: (iii) the lease payment is calculated so as to cover the full cost of the asset together with interest charges: and (iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after making the lease payment; S.65(14) 'body corporate' has the meaning ....
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....cash, deferred payment or other valuable consideration...................." Entry 54 of List II of VII Schedule: Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I. 5. The appellant/petitioners are engaged in the business of hire purchase/leasing transaction. The hire purchase and leasing are more or less identical. In leasing, the lessee selects the goods with the manufacturer and thereafter, approach the financier to lend loan and after executing the agreement, the amount is paid to the dealer or manufacturer and invoice is raised in the name of the financier, however, goods are being used by the lessee on payment of installments, and later after paying the entire installments, the lessee exercise option to purchase the same. In hire purchase, after agreement with the hirer, the financier purchases the goods from the manufacturer or dealers in the name of the hirer, thereafter the financier name is endorsed in the documents, thereby creating a charge on it. On payment of intallments i.e., the principal and interest, the hirer become the owner of the goods after cancelling the endorsement in the documents. 6. The claus....
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....y person by a banking company or a financial institution including a non-banking company, or any other body corporate or commercial concern, in relation to banking and other financial services." 11. The case of the respondents is that service tax on financial leasing services/hire purchase is not a tax on sale of goods, but it is a tax on the services rendered in relation to the said transactions and the Parliament has legislative competence to levy service tax under the impugned Act. 12. The State legislature cannot enlarge the definition of sale to bring the 'service' which could not be sale in law. The petitioners/appellant admit that in hire purchase/leasing, they collect 1% of service charges which details are not furnished by them. Admittedly, the petitioners/appellant are rendering service and collecting charges therefor. The tax on sale of goods involved in the said service does not mean that no service tax be levied on the service aspect. The ratio laid down in (Federation of Hotel and Restaurant Association of India vs. Union of India) AIR 1990 SC 1637 and aspect theory applies in this case. 13. In Lefroy's Canada's Federal System, the learned aut....
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....tract of service. It has been held in para 47 thus:- "47. Keeping in view the legal fiction introduced by the Forty-sixth Amendment whereby the works contract which was entire and indivisible has been altered into a contract which is divisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services." 18. In Bharat Sanchar Nigam Ltd. v. Union of India, (2006) 3 SCC 1, in Para No. 88 and 89, it was held thus:- 88. No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assess....
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....en & Toubro v. Union of India as well as Bharat Sanchar Nigam case extracted above considered the transaction relating to supply of goods and rendering service and held that the State cannot encroach upon the Union List and tax services by including the same in the value of goods involved. Similarly, the Centre cannot include the value of the goods involved in the cost of the service. 22. The Hire Purchase/Leasing transactions admittedly includes the concept of rendering service. Service tax is an indirect tax and it is to be paid on all the services notified by the Government of India. Service tax is levied on service not on sale or purchase of goods. The said tax is on service and not on the service provider. Service tax is made by Parliament under Entry 92C of List I and Article 268-A, which has legislative competence to levy service tax by way of the impugned Act and Entry 54 of List II and Entry 92C of List I operate on different areas. 23. Hence, the plea of the appellant/petitioners that service tax relating to leasing and hire purchase transaction is contrary to Article 265 and 366 (29A) of Entry 54 List II of VII Schedule of the Constitution is rejected. 24. It is well ....