{"id":151763,"date":"2005-03-17T00:00:00","date_gmt":"2005-03-16T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/gujarat-ambuja-cements-ltd-anr-vs-union-of-india-anr-on-17-march-2005"},"modified":"2018-07-11T04:28:17","modified_gmt":"2018-07-10T22:58:17","slug":"gujarat-ambuja-cements-ltd-anr-vs-union-of-india-anr-on-17-march-2005","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/gujarat-ambuja-cements-ltd-anr-vs-union-of-india-anr-on-17-march-2005","title":{"rendered":"Gujarat Ambuja Cements Ltd.& Anr vs Union Of India & Anr on 17 March, 2005"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Gujarat Ambuja Cements Ltd.& Anr vs Union Of India & Anr on 17 March, 2005<\/div>\n
Author: R Pal<\/div>\n
Bench: Ruma Pal, Arun Kumar<\/div>\n
           CASE NO.:\nWrit Petition (civil)  539 of 2000\n\nPETITIONER:\nGujarat Ambuja Cements Ltd.& Anr.\t\n\nRESPONDENT:\nUnion of India & Anr.\t   \t\t       \n\nDATE OF JUDGMENT: 17\/03\/2005\n\nBENCH:\nRuma Pal & Arun Kumar\n\nJUDGMENT:\n<\/pre>\n
J U D G M E N T
\nWith<\/p>\n
W.P) Nos. 411, 431, 432, 450,
\n466, 467, 493, 551, 564, and 573 of 2000.\n<\/p>\n
W.P) Nos. 1, 122, 123, 209, 234,
\n283, 311 and  493 of 2001.\n<\/p>\n
W.P) Nos. 606 of 2002<\/p>\n
W.P.(C) Nos.  294, 584, 585 of 2003<\/p>\n
W.P) Nos.26, 328, 329 of 2004  <\/p>\n
C.A. No. 9247 of 2003<\/p>\n
RUMA PAL, J.\n<\/p>\n
        These writ petitions have been filed challenging the
\nconstitutional validity of Sections 116 and 117 of the Finance Act
\n2000 and Section 158 of the Finance Act, 2003 by which the
\ndecision of this Court in Laghu Udyog Bharati & Anr. Vs.
\nUnion of India & Ors. (1999) 6 SCC 418,  striking down Rules
\n2(1)(d), (xii) and (xvii) of the Service Tax Rules, 1994 (as
\namended in 1997) was sought to be overcome.
\n\tThe writ petitioners are the customers or clients of goods
\ntransport operators and forwarding and clearing agents. There
\nare three main grounds on which they have based their
\nchallenge.  They contend that the basis of the decision rendered
\nin Laghu Udyog Bharati  had not been removed or displaced by
\nthe impugned sections and could not therefore overrule, replace
\nor override this Court’s decision.  The second ground of
\nchallenge is that Parliament was legislatively incompetent to
\nenact the law.  It is  stated that the imposition of the impugned
\nlevy encroaches upon the State Government’s power as defined
\nin Entry 56 of List II of the Seventh Schedule to the Constitution
\nwhich pertains to ‘Taxes on goods and passengers covered by
\nroad or on inland waterways’. The submission is that Parliament
\ncould not by resorting to the residuary Entry 97 of List 1 of the
\nSeventh Schedule circumvent Entry 56 of List II and in the guise
\nof levying service tax in fact levy a tax on the transport of goods.
\nThe constitutional validity of the imposition has also been
\nchallenged on the ground that it operated in discriminatory
\nmanner  by singling out only the customers of goods transport
\noperators and clearing and forwarding agents to pay tax whereas
\nthe recipients  of other kinds of similar services were not
\nsubjected to such imposition.\n<\/p>\n
\t  Service tax was introduced for the first time under Chapter
\nV of the Finance Act, 1994.  Section 66 of the Act was  the
\ncharging section and provided for the levy of service tax at the
\nrate of five per cent of the value of the taxable services provided
\nto any person by the person responsible for collecting the service
\ntax.  In other words, the levy was on  the provider of the taxable
\nservices.  “Taxable service” was defined in Section 65 to include
\nonly three services namely any service provided to an investor by
\na stock broker, to a subscriber by the telegraph authority and to a
\npolicy holder by an insurer carrying on general insurance
\nbusiness. Section 68 required every person providing taxable
\nservice to collect the service tax at specified rates.  Section 69 of
\nthe Finance Act, 1994 provided for the registration of the
\npersons responsible for collecting service tax.  Sub-sections (2)
\nand (5) indicated that it was the provider of the service who was
\nresponsible for collecting the tax and obliged to get registered.
\nThese Sections viz., 65, 66, 68 and 69 are pivotal to the present
\nissue. They were amended thrice. The remaining sections of the
\n1994 Act substantially continued as originally enacted with minor
\nchanges. Under Section 70 of the Finance Act, 1994, every
\nperson responsible for collecting the service tax must furnish or
\ncause to be furnished to the Central Excise Officer in the
\nprescribed form and verified in the prescribed manner, a
\nquarterly return. Sections 71, 72, 73 and 74 deal with the filing of
\nreturns, provisions for assessment, reopening of assessments
\nand rectification of mistakes of assessment orders.  Section 75
\nprovides for payment of interest at the rate of one-half per cent
\nfor every month or part of a month by which the person
\nresponsible for collecting the service tax, delays in paying the tax
\nto the credit of the Central Government.  Section 76 deals with
\nthe imposition of penalty for failure to collect the service tax.
\nSection 77 deals with the penalty for failure to furnish the
\nprescribed return. Section 78 deals with the penalty for
\nsuppressing the value of taxable service and Section 79 for
\npenalty for failure to comply with notices. No other section is
\nrequired to be noted except  Section 94 of the Act which
\nempowers the Central Government to make rules for carrying out
\nthe provisions of Chapter V of the Act.  Pursuant to such power,
\nthe Service Tax  Rules, 1994 were framed.\n<\/p>\n
 By the Finance Act, 1997 the first amendments to Section
\n65, of the Finance Act 1994 were made inter alia, by extending
\nthe meaning of ‘taxable service’ from three services to 18
\ndifferent services categorized in Section 65(41), clauses (a) to\n<\/p>\n
(r).  We are only concerned with clauses (j) and (m) of sub-
\nsection (41) to Section 65.  Clause (j) made service to a client
\nby clearing and forwarding agents in relation to clearing and
\nforwarding operations, a taxable service.  Similarly, service to a
\ncustomer of a goods transport operator in relation to carriage of
\ngoods by road in a goods carriage was, by clause (m), also
\nincluded within the umbrella of taxable service. The phrases
\n“clearing and forwarding agent” and “goods transport operator”
\nwere defined as follows:\n<\/p>\n
(j) “clearing and forwarding agent” means any
\nperson who is engaged in providing any
\nservice, either directly or indirectly,
\nconnected with clearing and forwarding
\noperations in any manner to any other
\nperson and includes a consignment agent”\n<\/p>\n
(m) “goods transport operator” means   any
\ncommercial concern engaged in the
\ntransportation of goods but does not include
\na courier agency”\n<\/p>\n
           The charge of service tax in respect of the services
\nrendered by clearing and forwarding agents and goods
\ntransport operates remained on the person responsible for
\ncollecting the service tax under Section 66 (3).\n<\/p>\n
“66(3) With effect from the date notified
\nunder Section 84 of the Finance Act,
\n1997, there shall be charged a service
\ntax at the rate of five per cent of the
\nvalue of the taxable services referred to
\nin sub-clauses (g), (h), (i), (j), (k), (l),\n<\/p>\n
(m), (n), (o), (p), (q),and (r ) of clause
\n(41) of Section 65 which are provided to
\nany person by the person responsible
\nfor collecting the service tax.”\n<\/p>\n
          The ‘person responsible for collecting the service tax’
\nunder this Section was therefore the person providing the
\nservice. The phrase itself was also defined under sub-section
\n(28) of    Section 65 to mean “a person who is required to collect
\nservice tax under this chapter or is required to pay any other sum
\nof money under this Chapter and includes every person in
\nrespect of whom any proceedings under this Chapter have been
\ntaken” and ‘assessee’ was defined in sub-section (5) of Section
\n65 as meaning “a person responsible for collecting the service
\ntax and includes his agent”.  By the 1997 amendment under
\nSection 68-1A the service tax in respect of taxable services from
\nitems (g) to (r ) of Section 65 (41) was directed to be collected
\nfrom “such person and in such manner as may be prescribed”
\nand it was said that all provisions of Chapter V “shall” apply to
\nsuch person as if he is the person responsible for collecting the
\nservice tax in relation to such services.     However, Sub-sections
\n(2) and (5) of Section 69 continued to refer to the persons
\nresponsible for collecting the service as the provider of the
\ntaxable service.\n<\/p>\n
\tWe are told that the goods transport operators as well as
\nthe clearing and forwarding agents went on an all India strike
\nprotesting against the imposition of service tax on them. Perhaps
\nthis might have precipitated an amendment to the Service Tax
\nRules 1994.      Rules 2(1)(d),(xii) and (xvii) of the Service Tax
\nRules, 1994 were amended by imposing the tax in effect on the
\ncustomers of clearing and forwarding agents and goods transport
\noperators.  As far as clearing and forwarding agents were
\nconcerned the relevant amendments to the Rules were carried
\nout and brought into effect by two notifications both dated 16th
\nJuly 1997. As far as the levy of service tax on customers of
\ngoods and transport operators were concerned, the amendments
\nwere made and brought into effect with effect from 16th
\nNovember, 1997.\n<\/p>\n
\tThe imposition of service tax on customers was challenged
\nby many of the present petitioners in Laghu Udyog Bharati.
\nDuring the pendency of writ petitions, on 2nd June 1998
\nnotification No.49\/98 was issued exempting services provided by
\ngoods transport operators from the levy of service tax altogether
\nand by the Finance Act, 1998 all provisions in the Finance Act,
\n1994 including Section 65 (41) sub-clause (m) relating to the levy
\nof service tax on services provided by goods transport operators
\nwere omitted with effect from 16th October, 1998.  By the Finance
\nAct (No. 2), 1998, Section 69 was also amended.   The various
\nsub-sections including sub sections (2) and (5) were omitted. The
\nbody of the sections now require every person liable to pay
\nservice tax to make an application for registration without
\nindicating who was so liable.   The Service Tax Rules, 1994 were
\nconsequently also amended by the Service Tax (Amendment)
\nRules, 1998 to delete the provisions relating to service by goods
\ntransport operators.\n<\/p>\n
These facts were taken into account by this Court in Laghu
\nUdyog Bharati but because the exemption granted on 2nd June
\n1998 was prospective and no exemption had been granted with
\nregard to the period from 16th July, 1997 to 2nd June 1998 and
\nalso because customers of clearing and forwarding agents
\ncontinued to be liable to pay service tax, the writ petitions were
\ndisposed of on merits.\n<\/p>\n
In upholding the challenge to Rule 2(1)(d), (xii) and (xvii),
\nthis Court noted:\n<\/p>\n
“It is clear from the reading of these provisions
\nthat according to the Finance Act  the   charge
\nof tax is on the person who is responsible for
\ncollecting the service tax.  It is he, who by
\nvirtue of the provisions of Section 65(5) is
\nregarded as an assessee.  He is the person
\nwho provides the service.”\n<\/p>\n
It was held that in the circumstances<\/p>\n
     ” the definitions contained in Rule 2(d)\n<\/p>\n
(xii) and (xvii), which seek to make the
\ncustomers or the clients as the assessee, are
\nclearly in conflict with Section 65 and 66 of the
\nAct.”\n<\/p>\n
This Court construed Section 68(1-A) to hold that
\n“Section 68(1-A) cannot be so interpreted as to make a person
\nan assessee even though he may not be responsible for
\ncollecting the service tax”. What the Court in effect said was
\nthat since the charging section (Section 66) provided for the tax
\nto be paid by the provider, Section 68-1A, which was merely the
\nsection which laid the machinery for collecting the tax, would
\nnot change the nature of the tax.\n<\/p>\n
\tFinally this Court said that Sections 70 and 71 clearly
\nshowed “that the return which has to be filed pertains to the
\npayment which are received by the person rendering the
\nservice in respect of the value of the taxable services. Surely,
\nthis is a type of information which cannot, under any
\ncircumstances, be supplied by the customer.  Moreover the
\noperative part of sub-section (1) of Section 70 clearly stipulates
\nthat it is a person responsible for collecting the service tax who
\nis to furnish the return”.\n<\/p>\n
         In the circumstances it was concluded that  “by rules
\nwhich are framed, the person who is receiving the services
\ncannot be made responsible for filing the return and paying the
\ntax.  Such a position is certainly not contemplated by the Act”.\n<\/p>\n
         Striking down the Service Tax Rules 2(1)(d) (xii) and (xvii),
\nthis Court directed that any tax which had been paid by the
\ncustomers or clients of the clearing and forwarding agents or of
\nthe goods transporters should be refunded within 12 weeks from
\ntheir making a demand for refund.  Consequently, the present
\nwrit petitioners made applications for refund of the tax paid by
\nthem.  In some cases, the tax was refunded.  In certain cases the
\nrefund was not made on the ground that the petitioners had failed
\nto prove that the tax paid had not been passed on to other
\npersons.   In some case as in W.P. No. 563 of 2000 the customer
\ndeducted service tax from the freight charges payable to the
\ntransporters\/petitioner.  After the decision in Laghu Bharati
\nUdyog,  the customer refunded the money to the transporter in
\nquestion.\n<\/p>\n
       \t  At this stage on 12th May 2000, the Finance Act 2000
\nsought to amend Finance Act of 1994 in the manner indicated
\nin Section 116:\n<\/p>\n
“116 Amendment of Act 32 of 1994.During
\nthe period commencing on and from the 16th
\nday of July, 1997 and ending with the 16th day
\nof October, 1998, the provisions of Chapter V
\nof the Finance Act, 1994 shall be deemed to
\nhave had effect subject to the following
\nmodifications, namely:-\n<\/p>\n
(a)  In section 65.–\n<\/p>\n
(1)  for clause (6), the following clause had
\nbeen substituted namely:-\n<\/p>\n
      (6) “assessee” means a person liable for
\ncollecting the service tax and includes<\/p>\n
(i)\this agent; or<\/p>\n
(ii)\tin relation to services provided by a
\nclearing and forwarding agent, every
\nperson who engages a clearing and
\nforwarding agent and by whom
\nremuneration  or   commission    (by
\nwhatever name called) is paid for
\nsuch services to the said agent; or<\/p>\n
(iii)\tin relation to services provided by a
\ngoods transport operator, every
\nperson who pays or is liable to pay
\nthe freight either himself or through
\nhis agent for the transportation of
\ngoods by road in a goods carriage;\n<\/p>\n
(ii)\t    after clause (18), the following
\nclauses had been substituted,
\nnamely:-\n<\/p>\n
‘(18A)  “goods carriage” has the meaning
\nassigned to it in clause (14) of section 2 of the
\nMotor Vehicles Act, 1988;\n<\/p>\n
(18B)   “goods transport operator” means any
\ncommercial concern engage in the
\ntransportation of goods but does not include a
\ncourier agency; :\n<\/p>\n
(iii)  in clause (48), after sub-clause (m), the
\nfollowing sub-clause had been inserted
\nnamely:-\n<\/p>\n
“(ma) to a customer, by a goods transport
\noperator in relation to carriage of goods by
\nroad in a goods carriage;\n<\/p>\n
(b)  in section 66, for sub-section (3), the
\nfollowing sub-section had been substituted
\nnamely:-\n<\/p>\n
“(3)  On and from the 16th day of July, 1997,
\nthere shall be levied a tax at the rate of five
\nper cent, of the value of taxable services
\nreferred to in sub-clauses (g), (h), (i),(j),(k) (l),\n<\/p>\n
(m), (ma), (n) and (o) of clause (48) of section
\n65 and collected in such manner as may be
\nprescribed,”;\n<\/p>\n
(c )  in section 67, after clause (k), the
\nfollowing clause had been inserted, namely:-\n<\/p>\n
“(ka) in relation to service provided by goods
\ntransport operator to a customer, shall be the
\ngross amount charged by such operator for
\nservices in relation to carrying goods by road
\nin goods carriage and includes the freight
\ncharges but does not include any insurance
\ncharges;”.\n<\/p>\n
Section 117 of the Finance Act, 2000 seeks to
\nretrospectively validate the taxes earlier collected under the
\nService Tax Rules which this court had directed to be refunded. It
\nreads:-\n<\/p>\n
117. Validation of certain action taken
\nunder Service Tax Rules.–  Notwithstanding
\nanything contained in any judgment, decree or
\norder of any court, tribunal or other authority,
\nsub-clauses (xii) and (xvii) of clause (d) of
\nsub-rule (1) of rule 2 of the Service Tax Rules,
\n1994 as they stood immediately before the
\ncommencement of the Service Tax
\n(Amendment)Rules, 1998 shall be deemed to
\nbe valid and to have always been valid as if
\nthe said sub-clauses had been in force at all
\nmaterial times and accordingly,-\n<\/p>\n
(i)\tany action taken or anything done or
\npurported to have been taken or
\ndone a any time during the period
\ncommencing on and from the 16th
\nday of July, 1997 and ending with the
\nday, the Finance Act, 2000 receives
\nthe assent of the President shall be
\ndeemed to be valid and always to
\nhave been valid for all purposes, as
\nvalidly and effectively taken or done;\n<\/p>\n
(ii)\tany service tax refunded in
\npursuance of any judgment, decree
\nor order of any court striking down
\nsub-clauses (xii) and (xvii) of clause\n<\/p>\n
(d) of sub-rule (1) of rule 2 of the
\nService Tax Rules, 1994 before the
\ndate on which the Finance Act, 2000
\nreceives the assent of the President
\nshall be recoverable within a period
\nof thirty days from the date on which
\nthe Finance Act 2000 receives the
\nassent of the President, and in the
\nevent of non payment of such service
\ntax refunded within this period, in
\naddition to the amount of service tax
\nrecoverable, interest at the rate of
\ntwenty-four per cent, per annum shall
\nbe payable, from the date
\nimmediately after the expiry of the
\nsaid period of thirty days, till the date
\nof payment.\n<\/p>\n
Explanation.For the removal of doubts, it
\nis hereby declared that no act or omission on
\nthe part of any person shall be punishable as
\nan offence which would not have been so
\npunishable if this section had not come into
\nforce.”\n<\/p>\n
                   While   the  writ  petitions  challenging the validity of
\nthe amendments  made  by  the Finance Act  2000 to Chapter V
\nof the Finance Act, 1994 were  pending, the Finance Act, 2003
\nwas assented to by the President on 14th May 2003.  By Section
\n158 of that Act, Sections 68(1), 71 and Section 94 of the 1994
\nAct were further amended.  Section 158 provides:
\n“During the period commencing on and from
\n16th day of July, 1997 and ending with the 16th
\nday of October 1998, the provisions of
\nChapter V of Finance Act, 1994, as modified
\nby Section 116 of the Finance Act, 2000, shall
\nhave effect subject to the following further
\nmodifications, namely: –\n<\/p>\n
(a)\tin section 68, in sub-section (I), the
\nfollowing proviso shall be inserted at the
\nend and shall be deemed to have been
\ninserted on and from the 16th day of July,
\n1997, namely, : –\n<\/p>\n
  Provided that <\/p>\n
(i)\tin relation to services provided by a
\nclearing and forwarding agent, every
\nperson who engages a clearing and
\nforwarding agent and by whom
\nremuneration or commission (by
\nwhatever name called) is paid for such
\nservices to the said agent for the period
\ncommencing on and from the 16th day of
\nJuly, 1997 and ending with the 16th day
\nof October, 1998; or <\/p>\n
(ii)\tin relation to services provided by goods
\ntransport operator every person who
\npays or is liable to pay the freight, either
\nhimself or through his agent for the
\ntransportation of goods by road in good
\ncarriage for the period commencing on
\nand from the 16th day of November, 1997
\nand ending with the 2nd day of June,
\n1998.\n<\/p>\n
shall be deemed always to have been a person
\nliable to pay service tax, for such services provided
\nto him, to the credit of the Central Government.”\n<\/p>\n
\tIn addition, Section 71 which provides for the filing of
\nreturns was amended to provide, with retrospective effect, for the
\ninsertion of Section 71A.    Under the newly inserted section, the
\nprovisions of Sections 69 and 70 do not apply to a person
\nreferred to in the proviso to sub-section (1) of Section 68 as far
\nas the filing of returns in respect of service tax for the period
\ncommencing from 16th July 1997 was concerned.  It seeks to
\nprovide that “such persons shall furnish return to the Central
\nExcise Officer within six months from the day on which the
\nFinance Bill, 2003 receives the assent of the President in the
\nprescribed manner on the basis of the self assessment of the
\nservice tax and the provisions of Section 71 shall apply
\naccordingly”. This period was extended by this Court by order
\ndated 17.11.2003 for a period of two weeks with effect from the
\ndate of the order.\t Section 94 as originally enacted for the rule
\nmaking power of the Central Government was amended to read
\nwith effect from 16th July 1997, that the Central Government
\nwould also have the power to frame rules relating to the manner
\nof furnishing returns under Section 71A.
\nThere cannot be any doubt that the object of these sections
\nis to nullify the effect of this Court’s decision in Laghu Udhyog
\nBharati  by retrospectively amending and validating provisions
\nheld to be illegal.  It is a well settled principle that validation of a
\ntax declared illegal may be done only if the grounds of illegality or
\ninvalidity are capable of being removed and are in fact removed
\nand the tax thus made legal (vide Prithvi Cotton Mills Ltd. vs.
\nBroach Borough Municipality<\/a> : 1970 1 SCR 388 Indian
\nAluminum Co. & Ors Vs. State of Kerala (1996) 7 SCC 637, K.
\nSankaran Nair V. Devaki<\/a> (1996) 11 SCC 428; R.Krishna Bhat
\nv. State of Karnataka (2001) 4 SCC 227; N.A. Cooperative
\nMkg. Federation v. Union of India AIR 2003 SC 1329).  As a
\nproposition of law this cannot be and is not disputed. The
\nquestion is whether by enacting Sections 116 and 117 of the
\nFinance Act, 2000 and Section 158 of the Finance Act 2003,  the
\nbases on  which this Court struck down Rule 2(1)(d), (xii) and
\n(xvii) of the Service Tax Rules, 1994 had been displaced or
\nremoved.\n<\/p>\n
As we read the decision in Laghu Udhyog Bharati, the
\nbasis was the patent conflict between Sections 65, 66 , 68(1)
\nand 71 of the Finance Act, 1994 as amended in 1997 on the
\none hand and Rules 2(1) (d) (xii) and (xvii) of the Service Tax
\nRules 1994 on the other.  Each of these sections of the Finance
\nAct 1994 as amended in 1997 proceeded on the basis that the
\ntax was imposable on the person providing the service. All the
\nother sections regarding the liability to furnish returns,
\nassessments, penalties etc. flowed from that. It was because
\nunamended Section 66 spoke of the liability to pay tax in
\nrespect of services “which are provided to any person  by the
\nperson responsible for collecting the service tax”  and Section
\n65(5) defined “assessee” as meaning “a person responsible for
\ncollecting the service tax”, that this Court held that clauses (xii)
\nand (xvii) of Rule 2(1) (d) of the Service Tax Rules were illegal.
\nAs is apparent from Section 116 of the Finance Act, 2000,
\nall the material portions of the two Sections which were found to
\nbe incompatible with the Service Tax Rules were themselves
\namended so that now in the body of the Act by virtue of the
\namendment  to the word “assessee” in Section 65(5) and the
\namendment to Section 66(3), the liability to pay the tax is not on
\nthe person providing the taxable service but, as far as the
\nservice provided by clearing and forwarding agents and goods
\ntransport operators are concerned, on the person who pays for
\nthe services.  As far as Section 68(1A) is concerned by virtue of
\nthe proviso added in 2003, the persons availing of the services
\nof goods transport operators or clearing and forwarding agents
\nhave explicitly been made liable to pay the service tax.
\nAs we have said, Rule 2(1)(d) (xii) and (xvii) had been
\nheld to be illegal in Laghu Udhyog Bharati  only because the
\ncharging provisions of the Act provided otherwise.  Now that the
\ncharging section itself has been amended so as to make the
\nprovisions of the Act and the Rules compatible, the criticism of
\nthe earlier law upheld by this Court can no longer be availed of.
\nThere is thus no question of the Finance Act, 2000 overruling
\nthe decision of this Court in Laghu Udhyog Bharati as the law
\nitself has been changed.  A legislature is competent to remove
\ninfirmities retrospectively and make any imposition of tax
\ndeclared invalid, valid.  This has been the uniform approach of
\nthis Court. Such exercise in validation must of course also be
\nlegislatively competent and legally sustainable.  Those issues
\nare considered separately.  On the first question, we hold that
\nthe law must be taken as having always been as is now brought
\nabout by the Finance Act, 2000. The statutory foundation for
\nthe decision in Laghu Udhyog Bharati has been replaced and
\nthe decision has thereby ceased to be relevant for the purposes
\nof construing the present provisions (vide Ujagar Prints vs.
\nUnion of India)<\/a> . Therefore subject to our decision on the
\nquestion of the legislative competence of Parliament to enact
\nthe law, and assuming the amendments in 2003 to be legal for
\nthe time being, we reject the submission of the writ petitioners
\nthat by the amendments brought about  by Sections 116 and
\n117 of the Finance Act 2000, the decision in Laghu Udhyog
\nBharati has been legislatively overruled.
\n \tThe next question is whether the levy of service tax on
\ncarriage of goods by transport operators was legislatively
\ncompetent. Laghu Udhyog Bharati did not consider the
\nquestion of legislative competency.  Before we consider the
\nscope of the impugned Act, it is necessary to determine the
\nscope of the two Legislative Entries namely Entry 97 of List I and
\nEntry 56 of List II. It has been recognized in Godfrey Phillips
\n(supra) that there is a complete and careful demarcation of taxes
\nin the Constitution and there is no overlapping as far as the fields
\nof taxation are concerned. This mutual exclusivity which has
\nbeen reflected in Article 246(1) means that taxing entries must be
\nconstrued so as to maintain exclusivity.  Although generally
\nspeaking a liberal interpretation must be given to taxing entries,
\nthis would not bring within its purview a tax on  subject matter
\nwhich a fair reading of the entry does not cover.  If in substance,
\nthe statute is not referable to a field given to the State, the Court
\nwill not by any principle of interpretation allow a statute not
\ncovered by it to intrude upon this field.\n<\/p>\n
Undisputedly, Chapter V of the Finance Tax Act, 1994 was
\nenacted with reference to the residuary power defined in Entry 97
\nof List I.  But as has been held in International Tourist
\nCorporation vs. State of Haryana (1981) 2 SCC 319;
\n“before exclusive legislative competence can be claimed for
\nParliament by resort to the residuary power, the legislative
\nincompetence of the State legislature must be clearly
\nestablished.  Entry 97 itself is specific in that a matter can be
\nbrought under that Entry only if it is not enumerated in List II or
\nList III and in the case of a tax if it is not mentioned in either of
\nthose  Lists”.\n<\/p>\n
In that case Section 3(3) of the Punjab Passengers and
\nGoods Taxation Act, 1952 was challenged by transport
\noperators.  The Act provided for the levy of the tax on
\npassengers and goods plying in the State of Haryana. According
\nto the transport operators, the State could not levy tax on
\npassengers and goods carried by vehicles plying entirely along
\nthe national highways.  According to them this was solely within
\nthe power of the Centre under Entry 23 read with 97 of List I.
\nThe submission was held to be patently fallacious by this Court.
\nIt was held that Entry 56 of List II did not exclude national
\nhighways so that the passengers and goods carried on national
\nhighways would fall directly and squarely within Entry 56 of List
\nII.  It was said that the State played a role in the maintenance of
\nthe national highway and there was sufficient nexus between the
\ntax and passengers goods carried on the national highway to
\njustify the imposition.\n<\/p>\n
The writ petitioners in this case have, relying on this
\njudgment, argued that the Act falls squarely within Entry 56 of
\nList II and therefore could not be referred to Entry 97 of List I. We
\ndo not agree.\n<\/p>\n
There is a distinction between the object of tax, the
\nincidence of tax and the machinery for the collection of the tax.
\nThe distinction is important but is apt to be confused.  Legislative
\ncompetence is to be determined with reference to the object of
\nthe levy and not with reference to its incidence or machinery.
\nThere is a further distinction between the objects of taxation  in
\nour constitutional scheme.  The object of tax may be an article or
\nsubstance such as a tax on land and buildings under Entry 49 of
\nList II, or a tax on animals and boats under Entry 58 List II or on
\na taxable event  such as manufacture of goods under Entry  84
\nof List-I,  import or export of goods under Entry 83 of List-I, entry
\nof goods under Entry 52 of List II or sale of goods under Entry 54
\nList II to name a few.  Theoretically, of course, as we have held
\nin Godfrey Phillips India Ltd. Vs. State of U.P. & Ors. 2005
\nScale Page 367,  ultimately even a tax on goods will be on the
\ntaxable event of ownership or possession.  We need not go into
\nthis question except to emphasise that, broadly speaking the
\nsubject matter of taxation under Entry 56 of List II are goods and
\npassengers. The phrase “carried by roads or natural water ways”
\ncarves out the kind of goods or passengers which or who can be
\nsubjected to tax under the Entry.  The ambit and purport of the
\nentry has been dealt with in Rai Ramakrishna & Ors. Vs. State
\nof Bihar 1963(1) SCR 897 where it was said in language which
\nwe cannot better:-\n<\/p>\n
“Entry 56 of the Second List refers to taxes
\non goods and passengers carried by road or
\non inland waterways.  It is clear that the
\nState Legislatures are authorized to levy
\ntaxes on goods and passengers by this
\nentry.  It is not on all goods and passengers
\nthat taxes can be imposed under this entry;
\nit is on goods and passengers carried by
\nroad or on inland waterways that taxes can
\nbe imposed.  The expression “carried by
\nroad or on inland waterways” is an adjectival
\nclause qualifying goods and passengers,
\nthat is to say, it is goods and passengers of
\nthe said description that have to be taxed
\nunder this entry.  Nevertheless, it is obvious
\nthat the goods as such cannot pay taxes,
\nand so taxes levied on goods have to be
\nrecovered from some persons, and these
\npersons must have an intimate or direct
\nconnection or nexus with the goods before
\nthey can be called upon to pay the taxes in
\nrespect of the carried goods.  Similarly,
\npassengers who are carried are taxed under
\nthe entry.  But, usually, it would be
\ninexpedient, if not impossible, to recover the
\ntax directly from the passengers and so, it
\nwould be expedient and convenient to
\nprovide for the recovery of the said tax from
\nthe owners of the vehicles themselves”.\n<\/p>\n
(p.908)<\/p>\n
(See also: Sainik Motor Jodhpur Vs. The State of
\nRajasthan 1962(1) SCR 517).\n<\/p>\n
Having determined the parameters of the two legislative
\nentries the principles for determining the constitutionality of  a
\nStatute come into play.  These principles  may briefly be
\nsummarized thus:\n<\/p>\n
a)\tThe substance of the impugned Act must be looked at to
\ndetermine whether it is in pith and substance within a
\nparticular entry whatever its ancilliary effect may be.
\n(Prafulla Kumar Mukerjee vs. Bank of Commerce Ltd. &
\nOrs. AIR 1947 PC 60,65; A.S. Krishna Vs. State of
\nMadras  1957 SCR 399; State of Rajasthan v. G. Chawla<\/a>
\n1959 Supp. (1) SCR 904; Katra Education Society v.
\nState of U.P. 1996 (3) SCR 328; D.C. Johar & Sons (P)
\nLtd. v. STO Ernakulam 1971 (27) STC 120; Kanan
\nDevan Hills Produce v. State of Kerala<\/a> (1972) 2 SCC\n<\/p>\n
218).\n<\/p>\n
b)\tWhere the encroachment is ostensibly ancillary but in
\ntruth beyond the competence of the enacting
\nauthority, the statute will be a colourable piece of
\nlegislation and Constitutionally invalid (A.S. Krishna
\nv. State of madras (supra); A.B. Abdul Kadir v.
\nState of Kerala (1976) 3 SCC 219, 232; Federation
\nof Hotel & Restaurant v. Union of India<\/a> (supra at
\np.651). If the statute is legislatively competent the
\nenquiry into the  motive which persuaded Parliament
\nor the State legislature into passing the Act is
\nirrelevant. (Dharam Dutt & Ors. v. Union of India &
\nOrs.<\/a> 2004(1) SCALE 425).\n<\/p>\n
c)\tApart from passing the test of legislative competency,
\nthe Act must be otherwise legally valid and would
\nalso have to pass the test of constitutionality in the
\nsense that it cannot be in violation of the provisions of
\nthe constitution nor can it operate extraterritorially.
\n(See: Poppat Lal Shah v. State of Madras 1953
\nSCR 677).\n<\/p>\n
             The provisions relating to service tax in the Finance
\nAct, 1994 make it clear under Section 64(3) that the Act
\napplies only to taxable services.  Taxable services  has been
\ndefined, as we have already noted, in Section 65(41).  Each of
\nthe clauses of that sub section refers to the different kinds of
\nservices provided.  Most of  the taxable services cannot be
\nsaid to be in any way related to goods or passengers carried
\nby road or waterways.  For example, Section 65(41) (g)
\nprovides for service rendered to a client by a consulting
\nengineer, Section 65(41)(k) refers to service to a client by a
\nmanpower recruitment agency,  Section 65(41) (o) refers to
\nservice by pandal or shamiana contractors and so on.  The
\nrate of service tax has been fixed under Section 66.  Section
\n67 provides for valuation of taxable service for the purposes of
\ncharging tax. The provision for valuation of service rendered
\nby collecting and forwarding agents has been dealt with
\nunder sub-clause (j) and service  provided by goods transport
\noperators has been provided under clauses (l). (subsequently
\nrenumbered as clause (ma)). These clauses read respectively
\nas under:-\n<\/p>\n
    “(j) in relation to service provided by a
\nclearing and forwarding agent to a client,
\nshall be the gross amount charged by such
\nagent from the client for services of clearing
\nand forwarding operations in any manner.”\n<\/p>\n
“(ma) in relation to service provided by
\ngoods transport operator to a customer, shall
\nbe the gross amount charged by such
\noperator for services in relation to carrying
\ngoods by road in a goods carriage and
\nincludes the freight charges but does not
\ninclude any insurance charges”.\n<\/p>\n
\tAs far as clause (j) is concerned it does not speak of goods
\nor passengers, nor to carriage of goods nor is it limited to service
\nby road or inland waterways.  Clause (ma) shows that the
\nvaluation of the service tax includes the freight charges, but is
\nnot limited to it.\n<\/p>\n
            It is clear therefore that Section 66 read with Section
\n65(41)(j) and (ma) Chapter V of the Finance Act 1994 do not
\nseek to levy tax on goods or passengers. The subject matter of
\ntax under those provisions of the Finance Act 1994 is not goods
\nand passengers, but the service of transportation itself.  It is a
\nlevy distinct from the levy envisaged under Entry 56. It may be
\nthat both the levies are to be measured on the same basis, but
\nthat does not make the levy the same. As was held in
\nFederation of Hotel and Restaurant Association of India  etc.
\nv. Union of India & Ors., (1989) 3 SCC 634:\n<\/p>\n
“..subjects which in one aspect and for one
\npurpose fall within the power of a particular
\nlegislature may in another aspect and for
\nanother purpose fall within another legislative
\npower.  Indeed, the law ‘with respect to’
\na subject might incidentally ‘affect’ another
\nsubject in some way; but that is not the same
\nthing as  the law being on the latter subject.
\nThere might be overlapping; but the
\noverlapping must be in law.  The same
\ntransaction may involve two or more taxable
\nevents in its different aspects.  But the fact
\nthat there is an overlapping does not detract
\nfrom the distinctiveness of the aspects.”
\n(pg.652-653)<\/p>\n
Since service Tax is not a levy on passengers and goods
\nbut on the event of service in connection with the carriage of
\ngoods, it is not therefore possible to hold that the Act in pith and
\nsubstance is within the States exclusive power under Entry 56 of
\nList II.  What  the Act ostensibly seeks to tax is what it, in
\nsubstance, taxes.  In the circumstances, the Act could not be
\ntermed to be a colourable piece of legislation.  It is not the case
\nof the petitioners that the Act is referable to any other entry apart
\nfrom Entry 56 of List II.  Therefore the negation of the petitioners
\nsubmission perforce leads to the conclusion that the Act falls
\nwithin the residuary power of Parliament under Entry 97 of List I.
\nIncidentally a similar challenge to the legislative
\ncompetence of Parliament to levy service tax was negatived in
\nTamil Nadu Kalyana Mandapam Assn. V. Union of India<\/a> 2004
\n(167) ELT 3 (S.C) which was a case where the levy  of service
\ntax was challenged by owners of Kalayan Mandapam\/ Mandap
\nKeepers.  By virtue of the 1997 amendment service provided to a
\nclient by  Mandap keepers including the services if any rendered
\nas a caterer was  treated as a taxable service.  The challenge,
\ninter-alia, was that service tax on Mandap keepers was
\ncolourable legislation as the said tax was not on service but was
\nin pith and substance only a tax on the sale of goods and\/or a tax
\non land.  The writ petition filed before the Madras High Court
\nwas rejected and the constitutionality of the levy was upheld.  It
\nwas then urged before this Court by the appellants that Entries
\n18, 14 and 54 of List II covered the levy in question and,
\ntherefore, resort could not be had to Entry 97 in List I of the
\nSeventh Schedule of the Constitution.  It was held by this Court
\nthat although certain items of the service might have been
\nreferable to any other entry, the service element was the “more
\nweighty, visible and predominant”.  Therefore, the nature and
\ncharacter of the levy of the service tax was distinct from a tax on
\nthe sale or hire  purchase of goods and from a tax on land.
\nThe point at which the collection of the tax is to be made is
\na question of legislative convenience and part of the machinery
\nfor realization and recovery of the tax. The manner of the
\ncollection has been described as  “an accident of administration;
\nit is not of the essence of the duty” .   It will not change and does
\nnot affect the essential nature of the tax. Subject to the legislative
\ncompetence of the Taxing Authority a duty can be imposed at the
\nstage which the authority finds to be convenient and the most
\neffective whatever stage it may be.  The  Central Government is
\ntherefore legally competent to evolve a suitable machinery for
\ncollection  of the service tax subject to the maintenance of a
\nrational connection between the tax and the person on whom it is
\nimposed. By Sections 116 and 117 of the Finance Act 2000, the
\ntax is sought to be levied from the recipients of the services.
\nThey cannot claim that they are not connected with the service
\nsince the service is rendered to them.\n<\/p>\n
  In a similar fact situation under an Ordinance the Central
\nGovernment was authorized to levy and collect a duty of excise
\non all coal and coke dispatched from collieries.  Rules framed
\nunder the Ordinance provided for collection of the excise duty by
\nthe railway administration by means of a surcharge on freight
\nrecoverable either from the consignor or the consignee. The
\nimposition of excise duty on the consignee was challenged on
\nthe ground that the consignee had nothing to do with the
\nmanufacture or production of the coal.  Negativing this
\nsubmission this Court in  R.C. Jall V. Union of India AIR<\/a> 1962
\nSC 1281, 1286 said:-\n<\/p>\n
“The argument confuses the incidence of
\ntaxation with the machinery provided for the
\ncollection thereof “.\n<\/p>\n
In Rai Ramakrishna (supra) the tax under Entry 56 of List
\nII was held to be competently levied on the bus operators or bus
\nowners even though the object of levy was passengers ( which
\nthey were not) because there was a direct connection between
\nthe object of the tax viz., goods and passengers and the owners
\nof the transport carrying the goods or passengers.  There is thus
\nnothing inherently illegal or unconstitutional to provide for service
\ntax to be paid by the availer or user.\n<\/p>\n
              The  writ petitioners have relying upon the decision in
\nDwarka Prasad v. Dwarka Das Saraf<\/a> 1976 (1) SCC 128,
\ncontended that the amendment to section 68 by the introduction
\nof a proviso in 2003, was invalid.  It is submitted that as the body
\nof the section did not cover the subject matter, there was no
\nquestion of creating an exception in respect thereto by a proviso.
\nAccording to the writ petitioners, the proviso cannot expand the
\nbody by creating a separate charge. It is submitted that by
\nmerely amending the definition of the word “assessee” it could
\nnot be understood to mean that thereby all customers of the
\nservices in question were liable.\n<\/p>\n
\tThe submission is misconceived for several reasons.
\nSection 68 is a machinery section in that it provides for the
\nincidence of taxation and is not the charging section which is
\nSection 66.  The amendments to Section 66 brought about in
\n2000 changed the point of collection of tax from the provider of
\nthe service to ‘such manner as may be prescribed’.  Section
\n68(1A) as it stood in 1997 provided for the collection and
\nrecovery of service tax in respect of the services referred in
\nclauses (g) to (r) of Section 65(41), which included both the
\nservices with which we are concerned, from such person and in
\nsuch manner as may be prescribed.  The 1998 Finance Act
\nmaintained this.  Now the Service Tax Rules 1994 provided for
\nthe collection and recovery of tax from the user or payers for the
\nservices.  This was the prescribed method.  All that the proviso to
\nSection 68(1A) did was to prescribe the procedure for collection
\nwith reference to services of goods transport operators and
\nclearing agents which services had already been expressly
\nincluded under the Finance Act 2000 into the definition of taxable
\nservice.\n<\/p>\n
The decision in Dwarka Prasad vs. Dwarka Das Saraf<\/a>
\n(supra) relied upon by the writ petitioner does not in any way
\nforbid a proviso from supplementing the enacting clause.  All that
\nthe decision says is that a proviso must prima facie be read and
\nconsidered in relation to the principal matter to which it is a
\nproviso. It is not a separate or an independent enactment.  The
\nintroduction of the proviso to Section 68(1)(A) by the Finance
\nAct, 2003 does not seek in any manner seek to expand that sub-
\nsection.  In fact it gives effect to it.\n<\/p>\n
The final challenge to the 2000 amendment to the Service
\nTax Act, 1994 is that it operated in a discriminatory manner in
\nthat it chose the recipient of the services to be the assessee only
\nin the case of services rendered by goods transport operators
\nand clearing and forwarding agents.  We are unable to accept
\nthe submission. Because of the inherent complexity  of fiscal
\nadjustments of diverse elements in the field of tax, the legislature
\nis permitted a large discretion in the matter of classification to
\ndetermine not only what should be taxed but also the manner in
\nwhich the tax may be imposed.  Courts are extremely
\ncircumspect in questioning the reasonability of such classification
\nbut after a “judicial generosity is extended to legislative wisdom,
\nif there is writ on the statute perversity, madness in the method
\nor  gross disparity, judicial credibility may snap and the measure
\nmay meet with its funeral”. (Vide: Ganga Sugar Corporation vs.
\nState of U.P. )
\n       The same judicial wariness was expressed in Federation of
\nHotel and Restaurant Association of India  etc.  v. Union of
\nIndia & Ors., (1989) 3 SCC 634 where it was said:\n<\/p>\n
“It is now well settled that though taxing
\nlaws are not outside Article 14, however,
\nhaving regard to the wide variety of diverse
\neconomic criteria that go into the formulation
\nof a fiscal policy  legislature enjoys a wide
\nlatitude in the matter of selection of persons,
\nsubject matter, events etc., for taxation.  The
\ntests of the vice of discrimination in a taxing
\nlaw are, accordingly, less rigorous. In
\nexamining the allegations of a hostile,
\ndiscriminatory treatment what is looked into
\nis not its phraseology, but the real effect of
\nits provisions.  A legislature does not, as an
\nold saying goes, have to tax everything in
\norder to be able to tax something.  If there is
\nequality and uniformity within each group,
\nthe law would not be discriminatory.\n<\/p>\n
Decisions of this Court on the matter have
\npermitted the legislatures to exercise an
\nextremely wide discretion in classifying items
\nfor tax purposes, so long as it refrains from
\nclear and hostile discrimination against
\nparticular persons or classes.” (pg.659)
\n     \t\t\t\t       (Emphasis added)<\/p>\n
\tIn the case before us the discrimination is not, even
\naccording to the writ petitioners, by reason of the subject
\nmatter of tax.  It is also not the writ petitioners’ case that
\nwithin the separate classes of services covered by the
\ndifferent clauses in Section 65(41), there is any
\ndiscrimination or that the law  operates unequally within the
\nclasses. According to them the discrimination lies in the
\nmethod of collection of the tax followed. But as we have said
\nthis is not of the essence of the tax and the mere difference
\nin the machinery provisions between the different classes of
\nservice cannot found a challenge of discrimination . If the
\nlegislature thinks that it will facilitate the collection of the tax
\ndue from such specified traders on a rationally discernible
\nbasis, there is nothing in the said legislative measure to
\noffend Article 14 of the Constitution .  It is therefore outside
\nthe judicial ken to determine whether the Parliament should
\nhave specified a common mode for recovery of the tax as a
\nconvenient administrative measure in respect of a particular
\nclass.  That is ultimately a question of policy which must be
\nleft to  legislative wisdom.  This challenge also accordingly
\nfails.\n<\/p>\n
Although the challenge to the constitutional validity and
\nlegality  of the levy of service tax is rejected, the writ petitioners
\nhave some subsidiary complaints.  They say that although the
\nlevy of service tax from the users of the services rendered by the
\ngoods transport operators was introduced with effect from
\n16th November, 1997, the levy was exempted for the period
\nsubsequent to 2nd June, 1998 in view of the notification dated
\n2nd June, 1998 which is still operative.  Yet the respondents had
\nraised demands for service tax for periods subsequent to 2nd
\nJune, 1998.  It has been conceded  by the Union of India that the
\namendments made in the Act would have to be read along with
\nthe notifications so that the levy and collection of service tax
\nwould be only in respect of services rendered by goods transport
\noperators between the period from 16th November, 1997 to
\n2nd June, 1998.  Similarly there can be no tax liability on users  of
\nthe services of the clearing and forwarding agents beyond
\n1.9.1999 when by notification No. 7\/99 dated 23.8.99, the levy of
\nservice tax on the services provided by clearing and forwarding
\nagents were exempted. Furthermore the liability to pay interest or
\npenalty on outstanding amounts will arise only if the dues are not
\npaid within the  period of two weeks from the order passed by
\nthis Court on 17th November, 2003. In those cases in which the
\ntax may have been paid but not refunded to the writ petitioners,
\nfor whatever reason, there is no question of levy of any interest
\nor penalty at all.\n<\/p>\n
With these clarifications, the writ petitions are dismissed
\nwithout any order as to costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Gujarat Ambuja Cements Ltd.& Anr vs Union Of India & Anr on 17 March, 2005 Author: R Pal Bench: Ruma Pal, Arun Kumar CASE NO.: Writ Petition (civil) 539 of 2000 PETITIONER: Gujarat Ambuja Cements Ltd.& Anr. RESPONDENT: Union of India & Anr. DATE OF JUDGMENT: 17\/03\/2005 BENCH: Ruma Pal & […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-151763","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nGujarat Ambuja Cements Ltd.& Anr vs Union Of India & Anr on 17 March, 2005 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/gujarat-ambuja-cements-ltd-anr-vs-union-of-india-anr-on-17-march-2005\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Gujarat Ambuja Cements Ltd.& Anr vs Union Of India & Anr on 17 March, 2005 - 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