Full Judgment Text
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CASE NO.:
Appeal (civil) 5832 of 2007
PETITIONER:
M/s. Kerala State Electricity Board
RESPONDENT:
Commr. of Central Excise,Thiruvananthapuram
DATE OF JUDGMENT: 12/12/2007
BENCH:
S.B. SINHA & HARJIT SINGH BEDI
JUDGMENT:
J U D G M E N T
(Arising out of SLP (C) NO.3724 of 2007)
S.B. Sinha, J.
Leave granted.
1. A limited notice was issued to the effect as to whether the appellant\026
Kerala State Electricity Board, the service recipient, within the meaning of
provisions of Finance Act, 1994, levying service tax, is liable to pay any
interest on the amount of tax due to the respondent.
2. The question involved in this appeal arises out of a judgment and
order dated 25.7.2006 passed by a Division Bench of the High Court of
Kerala at Ernakulam whereby the appeal filed by the respondent herein from
the judgment and order of the Customs Excise & Service Tax Appellate
Tribunal, Circuit Bench at Cochin in Final Order No.477 of 2005, Appeal
No.ST/36/2004 was allowed.
3. The basic fact of the matter is not in dispute. Appellant herein entered
into an agreement with M/s. SNC Lavlin Inc. Montreal, Canada (Foreign
company) in relation to various projects for obtaining consultancy services
from them.
The relevant clauses of the said agreement are as under :-
\02316.1 \026 SNC Lavaline and all its expatriate
personnel shall be responsible for timely and
prompt filing of all returns, estimates, accounts,
information and details complete and accurate in
all respects as may be required under the
applicable laws/regulations in India before the
appropriate authorities in India. In case SNC
Lavaline or any of its expatriate personnel do not
comply with the above tax requirements, which
results in any penalty, interest or additional
liability, the same shall be borne by SNC Lavaline.
16.2 \026 SNC Lavaline shall provide KSE Board the
relevant orders/notices of demand, invoices,
appellate orders and other relevant information as
the proof of the actual tax liability to be borne by
KSE Board, sufficiently in advance to enable
KSEB to take appropriate action in this
connection.
16.3 \026 SNC Lavaline and its expatriate personnel,
if required by KSEB, shall contest appeals against
any assessment/demand of an appropriate authority
before such authority at the request of and cost
expenses of KSEB\024.
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4. Despite the said contractual commitments, the appellant failed and/or
neglected to pay service tax on behalf of foreign company. It, on the other
hand, raised a dispute that having regard to the purported statutory
obligations of the service provider as contained in the Act and the Rules
framed, it was not liable to pay any service tax.
5. By reason of the impugned judgment, the Division Bench of the
Kerala High Court construing the provisions of the Act in the light of the
terms of the contract entered into by and between the appellant and the
foreign company opined that the liability in that regard was on the appellant
and not on the foreign company.
6. Mr. T.L.V. Iyer, learned senior counsel, in support of this appeal, inter
alia, urged that the liability to pay interest and penalty being statutory one,
the service provider was responsible therefor and not the service recipient.
7. Mr. R.G. Padia, learned senior counsel appearing on behalf of the
respondent, on the other hand, would support the impugned judgment.
8. The period for which the service tax was due is August 1998 to
September 2002. Under the agreement, indisputably, the appellant was
responsible to make payment of the service tax on behalf of the foreign
company.
9. Section 65 of the Finance Act, 1994 provides for levy of service tax
on the services specified therein. Section 66 of the Act provides that the rate
of tax shall be twelve per cent of the value of taxable services specified
therein and collected in such manner as may be prescribed. Section 68 of
the Act puts the burden of payment of tax on the service provider.
Sections 68(2), 69(1), 71 and relevant parts of Sections 73 and 75 of
the Finance Act, 1994 which are material for the purposes of this case, read
as under :
\02368.(2) Notwithstanding anything contained in
sub-section (1), in respect of any taxable service
notified by the Central Government in the Official
Gazette, the service tax thereon shall be paid by
such person and in such manner as may be
prescribed at the rate specified in section 66 and all
the provisions of this Chapter shall apply to such
person as if he is the person liable for paying the
service tax in relation to such service.
69. Registration.--(1) Every person liable to pay
the service tax under this Chapter or the rules
made thereunder shall, within such time and in
such manner and in such form as may be
prescribed, make an application for registration to
the Superintendent of Central Excise.
71. Verification of tax assessed by the assessee,
etc.\027
(1) The Superintendent of Central Excise may, on
the basis of information contained in the return
filed by the assessee under section 70, verify the
correctness of the tax assessed by the assessee on
the services provided.
(2) The Superintendent of Central Excise may
require the assessee to produce any accounts,
documents or other evidence as he may deem
necessary for such verification as and when
required.
(3) If on verification under sub-section (2), the
Superintendent of Central Excise is of the opinion
that service tax on any service provided has
escaped assessment or has been under-assessed, he
may refer the matter to the Assistant
Commissioner of Central Excise or, as the case
may be, the Deputy Commissioner of Central
Excise, who may pass such order of assessment as
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he thinks fit.
73. Recovery of Service Tax Not Levied or Paid
or Short lived or Short-paid or Erroneously
Refunded.
(1) Where any service tax has not been levied or
paid or has been short-levied or short-paid or
erroneously refunded, the Central Excise Officer
may, within one year from the relevant date, serve
notice on the person chargeable with the service
tax which has not been levied or paid or which has
been short-levied or short-paid or the person to
whom such tax refund has erroneously been made,
requiring him to show cause why he should not
pay the amount specified in the notice:
XXX XXX XXX
(1A) Where any service tax has not been levied or
paid or has been short-levied or short-paid or
erroneously refunded, by reason of fraud, collusion
or any wilful mis-statement or suppression of facts,
or contravention of any of the provisions of this
Chapter or the rules made thereunder, with intent
to evade payment of service tax, by such person or
his agent, to whom a notice is served under the
proviso to sub-section (1) by the Central Excise
Officer, such person or agent may pay service tax
in full or in part as may be accepted by him, and
the interest payable thereon under section 75 and
penalty equal to twenty-five per cent. of the
service tax specified in the notice or the service tax
so accepted by such person within thirty days of
the receipt of the notice.;
75. Interest on delayed payment of service tax
Every person, liable to pay the tax in accordance
with the provisions of section 68 or rules made
thereunder, who fails to credit the tax or any part
thereof to the account of the Central Government
within the period prescribed, shall pay simple
interest at such rate not below ten per cent and not
exceeding thirty-six per cent. per annum, as is for
the time being fixed by the Central Government,
by notification in the Official Gazette, for the
period by which such crediting of the tax or any
part thereof is delayed.\024
10. The Central Government in exercise of its power conferred upon it by
sub-section (1) of Section 69 of the Finance Act, 1994 made Service Tax
Rules, 1994 for the purpose of assessment and collection of service tax.
Service tax was imposed on Consultancy Engineering Services w.e.f.
07.07.1997 by a Notification No.23 of 1997 dated 02.07.1997. Consulting
Engineer as defined in Section 65(31) of the Finance Act, 1994 is a
professionally qualified or any body corporate or any other firm but that
directly or indirectly render any advice, consultancy or technical assistance
in any manner to a client in one or more disciplines of engineering.
11. Clause (g) of sub-section 105 of Section 65 of the Finance Act, 1994,
as amended, provides for the definition of taxable services rendered by a
consulting engineer to mean \021any service provided to a client by consulting
engineer in relation to advice, consultancy or technical service in any
manner to client in one or more disciplines of engineering\022.
12. Sub-rule (1) of Rule 6 of Service Tax Rules, as applicable at the
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relevant time, stipulated that in case of a person who was from outside India
and did not have any office in India, the service tax due on the service
rendered by him should be paid by such person or on his behalf by any other
person authorized by him should submit to the Commissioner of Central
Excise in whose jurisdiction the taxable services have been rendered by him
a return containing specific details with necessary enclosures. Such returns
along with a demand draft have to be submitted within a period of 30 days
from the date of raising the bill on the client for the taxable services
rendered.
13. We may furthermore notice that in terms of the proviso appended to
sub-rule (1) of Rule 6 of Service Tax Rules, it is provided that in case of a
person who was a non-resident or was from outside India and who did not
have any office in India, the service tax due on the service rendered by him
should be paid by such person or on his behalf by another person authorized
by him who should submit to the Commissioner of Central Excise in whose
jurisdiction the taxable services had been rendered, a return containing
specific details with necessary enclosures.
14. The High Court has arrived at a finding of fact that the foreign
company did not have any office in India. It is not in dispute that the terms
of the agreement entered into by and between the appellant and foreign
company at all material time, show that the responsibility of meeting the
service tax liability was on the service recipient and despite the amendment
of Rule 6 (1) w.e.f. 16.8.2002 agreement still held good as the service
recipient being the appellant had taken up the responsibility of meeting the
liability of the foreign company.
15. Clause 16.1 of the contract obligated the foreign company responsible
only for filing of returns, estimates, accounts, information and details
complete and accurate in all respects as may be required by any law or
regulation. Only in the event the foreign company did not comply with the
said requirements resulting in imposition of any penalty, interest or
additional liability, the same shall be borne by it. Clause 16.1 did not cast
any obligation upon the foreign company to make the payment of tax; the
same is being the liability of the appellant.
16. Submissions of Mr. Iyer that the payment of interest was the statutory
liability of the service provider must be considered in the aforementioned
context. If Appellant itself was liable for payment of tax, it was also liable
for payment of statutory interest thereupon, if the same had not been
deposited within the time stipulated by the statute. The liability to pay tax
was not on the foreign company. Only on default on the part of the
appellant the interest was leviable. Appellant was clearly liable therefor. In
other words, the liability being that of the appellant, it must accept the
liability of payment of interest leviable thereupon in terms of statute
occasioned by the breach on its part to deposit the amount of tax within the
prescribed time.
17. Proviso appended to Rule 6 which has been inserted w.e.f. 28.2.1999
cast a liability upon a person authorized by the foreign company to do it in
that behalf. The details were to be furnished by a person who was
authorized. Clause (2) of the proviso provides for submission of the demand
draft within 30 days from the date of raising the bill. Appellant being the
person authorized to make payment of the service tax, Section 75 would
come into operation in the event of its failure to do so.
18. We may further notice that it was the appellant who had provided
space and accommodation to the personnel of M/s SNC Lavalin in their
office premises and borne expenditure related thereto. The service provider
did not have any independent office.
19. We may at this juncture notice the decisions cited by Mr. Iyer. In
Laghu Udyog Bharati and Anr. v. Union of India and Ors. [(1999) 6 SCC
418] this Court held that keeping in view the statutory scheme as they
existed in the amended rules providing for payment of tax on the service
recipient was illegal. The said provision, however, were amended with
retrospective effect. Challenge of the constitutional validity of the said
amendment, came up for consideration in Gujarat Ambuja Cements Ltd. and
Anr. v. Union of India and Anr. [(2005) 4 SCC 214] wherein a Division
Bench categorically held that the basis of reconsideration of the decisions in
Laghu Udyog Bharati\022s case was taken away stating:
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\02322. As we have said, Rules 2(1)(d)(xii) and (xvii)
had been held to be illegal in Laghu Udyog
Bharati only because the charging provisions of
the Act provided otherwise. Now that the charging
section itself has been amended so as to make the
provisions of the Act and the Rules compatible, the
criticism of the earlier law upheld by this Court
can no longer be availed of. There is thus no
question of the Finance Act, 2000 overruling the
decision of this Court in Laghu Udyog Bharati as
the law itself has been changed. A legislature is
competent to remove infirmities retrospectively
and make any imposition of tax declared invalid,
valid. This has been the uniform approach of this
Court. Such exercise in validation must of course
also be legislatively competent and legally
sustainable. Those issues are considered
separately. On the first question, we hold that the
law must be taken as having always been as is now
brought about by the Finance Act, 2000. The
statutory foundation for the decision in Laghu
Udyog Bharati has been replaced and the decision
has thereby ceased to be relevant for the purposes
of construing the present provisions [vide Ujagar
Prints (II) v. Union of India]. Therefore subject to
our decision on the question of the legislative
competence of Parliament to enact the law, and
assuming the amendments in 2003 to be legal for
the time being, we reject the submission of the writ
petitioners that by the amendments brought about
by Sections 116 and 117 of the Finance Act, 2000,
the decision in Laghu Udyog Bharati has been
legislatively overruled.
23. The next question is whether the levy of
service tax on carriage of goods by transport
operators was legislatively competent. Laghu
Udyog Bharati did not consider the question of
legislative competency. Before we consider the
scope of the impugned Act, it is necessary to
determine the scope of the two legislative entries
namely Entry 97 of List I and Entry 56 of List II. It
has been recognised in Godfrey Phillips that there
is a complete and careful demarcation of taxes in
the Constitution and there is no overlapping as far
as the fields of taxation are concerned. This mutual
exclusivity which has been reflected in Article
246(1) means that taxing entries must be construed
so as to maintain exclusivity. Although generally
speaking, a liberal interpretation must be given to
taxing entries, this would not bring within its
purview a tax on subject-matter which a fair
reading of the entry does not cover. If in substance,
the statute is not referable to a field given to the
State, the court will not by any principle of
interpretation allow a statute not covered by it to
intrude upon this field.
24. Undisputedly, Chapter V of the Finance Act,
1994 was enacted with reference to the residuary
power defined in Entry 97 of List I. But as has
been held in International Tourist Corpn. v. State
of Haryana : (SCC pp. 325-26, para 6-A)
\023Before exclusive legislative competence can be
claimed for Parliament by resort to the residuary
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power, the legislative incompetence of the State
Legislature must be clearly established. Entry 97
itself is specific in that a matter can be brought
under that entry only if it is not enumerated in List
II or List III and in the case of a tax if it is not
mentioned in either of those lists.\024
25. In that case Section 3(3) of the Punjab
Passengers and Goods Taxation Act, 1952 was
challenged by transport operators. The Act
provided for the levy of the tax on passengers and
goods plying in the State of Haryana. According to
the transport operators, the State could not levy tax
on passengers and goods carried by vehicles plying
entirely along the national highways. According to
them this was solely within the power of the
Centre under Entry 23 read with Entry 97 of List I.
The submission was held to be patently fallacious
by this Court. It was held that Entry 56 of List II
did not exclude national highways so that the
passengers and goods carried on national highways
would fall directly and squarely within Entry 56 of
List II. It was said that the State played a role in
the maintenance of the national highway and there
was sufficient nexus between the tax and
passengers and goods carried on the national
highway to justify the imposition.
26. The writ petitioners in this case have, relying
on this judgment, argued that the Act falls squarely
within Entry 56 of List II and therefore could not
be referred to Entry 97 of List I. We do not agree.
27. There is a distinction between the object of tax,
the incidence of tax and the machinery for the
collection of the tax. The distinction is important
but is apt to be confused. Legislative competence
is to be determined with reference to the object of
the levy and not with reference to its incidence or
machinery. There is a further distinction between
the objects of taxation in our constitutional
scheme. The object of tax may be an article or
substance such as a tax on land and buildings
under Entry 49 of List II, or a tax on animals and
boats under Entry 58 List II or on a taxable event
such as manufacture of goods under Entry 84 of
List I, import or export of goods under Entry 83 of
List I, entry of goods under Entry 52 of List II or
sale of goods under Entry 54 List II to name a few.
Theoretically, of course, as we have held in
Godfrey Phillips India Ltd. v. State of U.P.
ultimately even a tax on goods will be on the
taxable event of ownership or possession. We need
not go into this question except to emphasise that,
broadly speaking the subject-matter of taxation
under Entry 56 of List II are goods and passengers.
The phrase \023carried by roads or natural
waterways\024 carves out the kind of goods or
passengers which or who can be subjected to tax
under the entry. The ambit and purport of the entry
has been dealt with in Rai Ramkrishna v. State of
Bihar where it was said in language which we
cannot better: (SCR p. 908)
\023Entry 56 of the Second List refers to taxes on
goods and passengers carried by road or on inland
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waterways. It is clear that the State Legislatures
are authorised to levy taxes on goods and
passengers by this entry. It is not on all goods and
passengers that taxes can be imposed under this
entry; it is on goods and passengers carried by road
or on inland waterways that taxes can be imposed.
The expression \021carried by road or on inland
waterways\022 is an adjectival clause qualifying
goods and passengers, that is to say, it is goods and
passengers of the said description that have to be
taxed under this entry. Nevertheless, it is obvious
that the goods as such cannot pay taxes, and so
taxes levied on goods have to be recovered from
some persons, and these persons must have an
intimate or direct connection or nexus with the
goods before they can be called upon to pay the
taxes in respect of the carried goods. Similarly,
passengers who are carried are taxed under the
entry. But, usually, it would be inexpedient, if not
impossible, to recover the tax directly from the
passengers and so, it would be expedient and
convenient to provide for the recovery of the said
tax from the owners of the vehicles themselves.\024
(See also Sainik Motors v. State of Rajasthan)
34. The point at which the collection of the tax is
to be made is a question of legislative convenience
and part of the machinery for realisation and
recovery of the tax. The manner of the collection
has been described as \023an accident of
administration; it is not of the essence of the duty\024.
It will not change and does not affect the essential
nature of the tax. Subject to the legislative
competence of the taxing authority a duty can be
imposed at the stage which the authority finds to
be convenient and the most effective, whatever
stage it may be. The Central Government is
therefore legally competent to evolve a suitable
machinery for collection of the service tax subject
to the maintenance of a rational connection
between the tax and the person on whom it is
imposed. By Sections 116 and 117 of the Finance
Act, 2000, the tax is sought to be levied on the
recipients of the services. They cannot claim that
they are not connected with the service since the
service is rendered to them.
35. In a similar fact situation under an Ordinance
the Central Government was authorised to levy
and collect a duty of excise on all coal and coke
dispatched from collieries. Rules framed under the
Ordinance provided for collection of the excise
duty by the railway administration by means of a
surcharge on freight recoverable either from the
consignor or the consignee. The imposition of
excise duty on the consignee was challenged on
the ground that the consignee had nothing to do
with the manufacture or production of the coal.
Negativing this submission this Court in R.C. Jall
v. Union of India, AIR at p. 1286 said :
\023The argument confuses the incidence of
taxation with the machinery provided for the
collection thereof.\024
36. In Rai Ramkrishna the tax under Entry 56 of
List II was held to be competently levied on the
bus operators or bus owners even though the object
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of levy was passengers (which they were not)
because there was a direct connection between the
object of the tax viz. goods and passengers and the
owners of the transport carrying the goods or
passengers. There is thus nothing inherently illegal
or unconstitutional to provide for service tax to be
paid by the availer or user.
37. The writ petitioners have relying upon the
decision in Dwarka Prasad v. Dwarka Das Saraf
contended that the amendment to Section 68 by the
introduction of a proviso in 2003, was invalid. It is
submitted that as the body of the section did not
cover the subject-matter, there was no question of
creating an exception in respect thereto by a
proviso. According to the writ petitioners, the
proviso cannot expand the body by creating a
separate charge. It is submitted that by merely
amending the definition of the word \023assessee\024 it
could not be understood to mean that thereby all
customers of the services in question were liable.
38. The submission is misconceived for several
reasons. Section 68 is a machinery section in that it
provides for the incidence of taxation and is not
the charging section which is Section 66. The
amendments to Section 66 brought about in 2000
changed the point of collection of tax from the
provider of the service to \023such manner as may be
prescribed\024. Section 68(1-A) as it stood in 1997
provided for the collection and recovery of service
tax in respect of the services referred in sub-
clauses (g) to (r) of Section 65(41), which included
both the services with which we are concerned,
from such person and in such manner as may be
prescribed. The 1998 Finance Act maintained this.
Now the Service Tax Rules, 1994 provided for the
collection and recovery of tax from the users or
payers for the services. This was the prescribed
method. All that the proviso to Section 68(1-A) did
was to prescribe the procedure for collection with
reference to services of goods transport operators
and clearing agents which services had already
been expressly included under the Finance Act,
2000 in the definition of taxable service.\024
20. Reliance placed by Mr. Iyer on Commissioner of Central Excise,
Meerut \026 II v. L.H. Sugar Factories Ltd. and Ors. [(2005) 13 SCC 245] is
also not of much assistance as the decision was rendered in relation to the
provisions of Income Tax Act holding that the said Act also must be
construed having regard to the charging provision.
21. We, therefore, are of the opinion that no case has been made out for
interference with the impugned judgment.
22. The appeal is dismissed with costs. Counsel\022s fee assessed at
Rs.25,000/- (Rupees twenty five thousand only).