Kalyana Mandapam Assn. Vs. Union of India
& Ors  Insc 272 (15 April 2004)
Babu & Dr. Ar. Lakshmanan Dr. Ar. Lakshmanan, J.
present appeal is directed against the judgment and order dated 30.04.2001 in
Writ Petition No. 1617 of 1998 passed by the High Court of Judicature at Madras
whereby the Division Bench of the Madras High Court dismissed the writ petition
of the appellant-Association and held Sections 66, 67 (o) of the Finance Act,
1994 and Rule 2(1)(d)(ix) of the Service Tax Rules, 1994 and other provisions
related to Kalyana Mandapams and Mandap-Keepers to be intra vires of the
Constitution of India.
appellant is an Association of various Kalyana Mandapams bearing Registration
No. 513 of 1992. The appellant-Association has been formed to protect the
interest of the owners of Kalyana Mandapams in the city of Madras and elsewhere in the State of Tamil Nadu. The owners of Kalyana Mandapams/Mandap-Keepers
let out mandapas/premises to the clients. In addition to letting out the Kalyana
Mandaps, the Mandap Keepers also provide other facilities such as catering,
electricity, water etc. to their clients.
Tax was introduced in India vide the Finance Act, 1994. Service
Tax is legislated by the Parliament under the residuary entry i.e. Entry 97 of
List I of the Seventh Schedule of the Constitution of India. The service tax
provisions have the following scheme.
Section 65 of the Act provides for taxable services;
Section 66 of the Act provides for the charge of service tax by the person
designated as 'the person responsible for collecting the service tax" for
Section 67 of the Act provides for the value of taxable service which is to be
subjected to 5% Service tax, and
Section 68 of the Act provides for the collection and payment mechanism for
tax is an indirect tax and is to be paid on all the services notified by the
Government of India for the said purpose. The said tax is on the service and
not on the service provider. However, under Section 68 of the Finance Act, 1994
as amended by the Finance Act, 1997 read with Rule 2(1)(d)(ix) of the Service
Tax Rules, 1994, the service provider (in the present case the Mandap-Keeper)
is expected to collect the tax from the client utilizing his services.
1997, the scope of the service sector was proposed to be widened and a number
of services were sought to be made exigible to service tax. Amongst other
services, Chapter VI of the Finance Act, 1997 made the services rendered by the
Mandap-Keepers exigible to service tax.
enable the Government to widen its net of service tax, certain changes were
sought to be made to the Finance Act, 1994.
clauses were added to Section 65 of the Finance Act, 1994. The clauses which
are relevant for the purposes of the present appeal are reproduced hereinbelow:-
'Caterer' means any person who supplies, either directly or indirectly, any
food, edible preparations, alcoholic or non-alcoholic beverages or crockery and
similar articles or accoutrements for any purpose or occasion;
means any immovable property as defined in Section 3 of the Transfer of
Property Act, 1882 and includes any furnitures, fixtures, light fittings and
floor coverings therein let out for consideration for organising any official,
social or business function;
means a person who allows temporary occupation of a mandap for consideration
for organising any official, social or business function."
Clause (41) of Section 65 of the Finance Act, 1994, few sub-clauses were
inserted and insofar as they are relevant to this appeal, they are reproduced
herein- below:- "(41) (p) 'Taxable Service' means any service provided to
a client, by a mandap- keeper in relation to the use of a mandap in any manner
including the facilities provided to the client in relation to such use and
also the services, if any, rendered as a caterer." It is relevant to
mention here that some of the sub-sections of Section 65 were renumbered by the
Finance Act 2 of 1998, which came into force from 16.10.1998.
65(19) was renumbered as S.65(22), while S.65(20) was renumbered as S.65(23). S.65(41)(p)
was renumbered as S.65(48)(m). However, by the Finance Act, 1998 only the
numbers were changed and the language of the provisions remained the same.
of the Finance Act, 1994 was sought to be replaced by a new Section which is
reproduced hereinbelow:- "S.66(1) On and from the commencement of this
Chapter, there shall be charged a tax (hereinafter referred to as service tax)
@ 5% of the value of the taxable services referred to in sub-clauses (a), (b)
and (d) of Clause 41 of S.65, which are provided to any person by the person
responsible for collecting the service tax.
With effect from the date notified under S.85 of the Finance Act (No.2) 1996
there shall be charged a service tax at the rate of five percent of the value
of taxable services referred in sub-clauses (c) (e) and (f) of Clause (41) of
Section 65 which are provided to any person by the person responsible for
collecting the service tax.
With effect from the date notified under Section 84 of the Finance Act, 1997
there shall be charged a service tax at the rate of five percent of the value
of taxable service referred to in sub clauses (g)(h)(i)(j)(k)(l)(m)(n)(o)(p)(l)
and (4) of Clause (41) of Section 65 which are provided to any person by the
person responsible for collecting the service tax." Changes were also made
to Section 67 of the Finance Act, 1994. The relevant sub-section (i) of S.67
which is relevant for the purpose of the present appeal is reproduced hereinbelow:
Valuation of taxable services for charging service tax.- For the purposes of
this chapter, the value of taxable services, (i) in relation to service provided
by a mandap keeper to a client, shall be the gross amount charged by such
keeper from the client for the use of mandap including the facilities provided
to the client in relation to such use and also the charges for catering, if
any." The Central Government in exercise of the power conferred on it by
S.93 of the Finance Act, 1994 issued a Notification dated 26.06.1997. Under the
said Notification, the Central Government exempted an amount of service tax leviable
on a mandap- keeper, in excess of the amount of service tax calculated on 60%
of the gross amount charged from the client by the Mandap-Keeper for the use of
the mandap including the facilities provided to the clients in relation to such
use and also for certain charges. The said Notification also provided that the
exemption shall apply only in such cases where the Mandap-Keepers also provide
catering services i.e. supply of food and drinks and the bill issued for this
purpose indicates that it is inclusive of charges for catering services. The
said Notification came into force on 01.07.1997.
exercise of the power conferred on it by S.88 of the Finance Act, 1994, the
Central Government issued a Notification No.19/97, whereby the Central
Government appointed the 1st day of July, 1997 as the date on which the service
tax on taxable services specified in sub clauses (i) and (p) of Clause 41 of
Section 65 of the Finance Act, 1994 will come into force.
basis of the said Notification, the Commissioner of Central Excise, Service Tax
vide Trade Notice No.9/97 dated 01.07.1997 informed all the concerned persons
that as per Clause 19 of S.65 of the Finance Act, 1994 'Mandap' means any
immovable property as defined in S.3 of the Transfer of Property Act, 1882 and
includes any furniture, fixtures, light fittings and floor coverings therein
let out for consideration for organising any official, social or business
function. The Trade Notice further stated that the scope of the said Notice was
very wide and it included within its scope places like Kalyan Mandap, Marriage
Halls, Banquet Halls, Conference Halls etc. and hotels and restaurants
providing any such facilities would also be included in the coverage of service
said Notice also mentioned that where a Mandap-Keeper was providing catering services
i.e. supply of food, in addition to letting out of a Mandap and charges the
customer for supply of foods, service tax would be levied on 60% of the total
amount of the Bill in such cases.
appellant-Association submitted representations dated 29.03.1997 and 09.06.1997
to Respondent No.2 citing out in detail the various problems and complication
that might arise as a result of the said Notification and requested to desist
from including the mandap-keepers within the Finance Act. Even though the said
representations were duly acknowledged by Respondent No.2, the same were not
04.02.1998, the appellant filed Writ Petition No.1617 of 1998 challenging the
provisions relating to mandap-keepers in the Finance Act, 1997 whereby the mandap-
keepers were sought to be brought within the net of service tax.
prayer in the writ petition runs as follows:- "It is prayed that this
Court may be pleased to issue a Writ of Declaration or any other appropriate
Writ, order or direction in the nature of a Writ of Declaration declaring that
the provisions of Chapter V of the Finance Act, 1994 and, in particular,
Sections 66, 67(o) and Rule 2(1)(d)(ix) of the Service Tax Rules, 1994 and
other provisions insofar as it relates to Kalyana Mandapams and Mandap-Keepers
are illegal, ultra vires and unenforceable and liable to be struck down as
unconstitutional and pass such further or other orders as this Court may deem
fit and proper and thus render justice."
17.11.1999, the Additional Commissioner - Service Tax, issued Service Tax
Notice No.4/99 whereby it was clarified that service tax would be levied on any
open land/ground if the same is let out for organizing any official, social or
business function, even if no accompanying/incidental services were rendered by
the mandap-keeper to the clients hiring the open land/ground for any of the
three years of the writ petition having been filed, respondents filed a common
Counter Affidavit on 04.12.2000.
Division Bench of the High Court dismissed the batch of writ petitions
including the writ petition filed by the appellant-Association herein vide
order dated 30.04.2001.
against the dismissal of the writ petition, the present appeal was filed.
heard the arguments of Mr. Mohan Parasaran, learned senior counsel assisted by
Mr. Krishnamurthi Swami, learned counsel for the appellant and Mr. Jaideep
Gupta, learned senior counsel assisted by Mr. K.C. Kaushik, learned counsel for
Mohan Parasaran, learned senior counsel appearing for the appellant, submitted
Service tax on the mandap-keepers is clearly a colourable legislation and
unconstitutional as the said tax is not on services but is in pith and
substance only a tax on 'goods' and/or 'land'. ;
very definition of 'Mandap' and 'Mandap-Keepers' would amply demonstrate that
the impugned provisions are not within the domain of the Union and that only
the State Legislatures have the competence to levy taxes of this nature in
exercise of its legislative powers under Entries 54, 49 and 18 of List II of
the Seventh Schedule read with Article 246 of the Constitution;
definition of 'Mandap' and 'Mandap Keepers' are reproduced hereinbelow:- Sec.
65(19) 'Mandap' means any immovable property as defined in Section 3 of the
Transfer of Property Act, 1882 and includes any furnitures, fixtures, light
fittings and floor coverings therein let out for consideration for organizing
any official, social or business function.
65(20) 'Mandap-Keeper' means a person who allows temporary occupation of a mandap
for consideration for organizing any official, social or business function;
Under Service Tax Notice No.4/99, any open land/ground is exigible to service
tax if the same is let out for organizing any official, social or business
function, even if no services whatsoever are rendered by the mandap-keeper.
Therefore, the service tax levied on the mandap- keepers, is in fact a tax on
land per se which is a subject specifically earmarked for the State
Legislatures under Entries 18 and 49 of List II of the Constitution.
Furthermore, on a bare perusal of the yardstick prescribed in the Finance Act,
1994 for charging service tax from the mandap-keepers, it would become amply
clear that in the garb of taxing services, the Parliament has in fact imposed a
tax on sale of goods including food items, drinks etc., over which the
Parliament does not have the Constitutional sanction to legislate particularly
in the light of the 46th Amendment to Article 366(29A)(f) of the Constitution.
the Parliament intended to levy a tax on the services rendered by the mandap-keepers,
then the Parliament would have devised a formula for segregating the service
component from the transaction and levied tax on that component alone. However,
under the formula contained in the Finance Act, 1994, service tax is levied on
60% of the gross amount charged by the mandap-keepers from their clients, in
cases where the mandap keepers are also providing catering services.
amount charged by the mandap keepers from their clients is a composite amount
which consists mainly of the expenses towards food, electricity, furniture,
tents etc. and the services incidental thereto;
service component in the composite amount charged by the mandap-keepers is a
very small percentage of the same and cannot be segregated.
Article 366(29A)(f) of the Constitution deems any service in any manner
whatsoever related to providing food, articles for human consumption and drinks,
to be only a sale of goods.
the fact that there is an element of service in it but still it deems that
transaction only to be transaction of 'Sale of Goods'. Hence no question of
service tax being imposed when by a specific amendment of the Constitution such
service has been deemed to be sale of good. Furthermore, no recourse can be had
to the residuary Entry 97 of List-I, for imposing such a tax, in light of the
several pronouncements of this Court. Article 366(29A)(f) of the Constitution
is reproduced hereinbelow:- "Article 366(29A) "tax on the sale or purn
chase of goods" includes (f) a tax on the supply, by way of or as a part
of any service or in any other manner whatsoever, of goods, being food or any
other article for human consumption or any drink (whether or not intoxicating),
where such supply or service, is for cash, deferred payment or other valuable
consideration. and such transfer, delivery or supply of any goods shall be
deemed to be a sale of those goods by the person making the transfer, delivery
or supply and a purchase of those goods by the person to whom such transfer,
deliver or supply is made;"
Though the High Court appreciated this position, it erroneously invoked the
'Aspect Doctrine' as evolved by this Court in the case of Federation of Hotel
and Restaurant vs. Union of India & Ors. AIR 1990 SC 1637 and upheld the
levy of service tax thus allowing the Parliament to encroach upon the subjects
specifically demarcated for the State Legislatures under the Constitution.
the reasonings given by the High Court were accepted, then it would empower the
Parliament under Entry 97 of List-I to legislate even on the legislative fields
specifically demarcated for the state legislatures in the Constitution, merely
because such transactions have some element of providing service aspect in
them. Therefore, this would lead to a violation of the federal taxing structure
as envisaged in the Constitution.
conclusion, he submitted that the Division Bench of the Madras High Court is
not correct in its conclusion in the light of the scheme in the Constitution
and has erroneously dismissed the batch of writ petitions, which compelled the
appellant-Association approaching this Court by way of this appeal.
Mohan Parasaran, learned senior counsel for the appellant placed strong
reliance on the following decisions in support of his contention.
Khandelwal Metal and Engineering Works and Another vs. Union of India and
Others [(1985) 3 SCC 620 at 641]
Ujagar Prints and Others (II) vs. Union
of India and Others etc. [(1989) 3 SCC 488
at 513] 3. S.P Mittal vs. Union of India and Others etc. [1983 (1) SCC 51,
78, 79, 82]
Goodyear India Ltd. and Others vs. State of Haryana and Another etc. [(1990) 2 SCC 71]
and Chemicals Ltd. and Others vs. State of U.P.
and Others [(1990) 1 SCC 109]
Prithvi Cotton Mills Ltd. and Another vs. Broach BoroughMunicipality and Others
[1969 (2) SCC 283]
Ram vs. The Province of East Punjab [AIR 1949 FC 81]
Government of Andhra Pradesh and Another vs. Hindustan Machine Tools Ltd. [1975
(2) SCC 274]
9. K. Damodarasamy
Naidu & Bros. and Others vs. State of T.N.
and Another [(2000) 1 SCC 521 para 8 & 9 Countering the argument of learned
senior counsel for the appellant, Mr. Jaideep Gupta, learned senior counsel for
the respondents submitted that the levy and collection of service tax by the
Union Parliament on Mandap-Keepers is correct and is in accordance with law and
not violative of Articles14 and 19(g) of the Constitution. It is submitted that
service tax on Mandap-Keepers is a tax on the consideration received for
allowing temporary occupation of the Mandap for organizing any official, social
or business function and that it is not a tax on "good" and/or
"land", both of which are state subjects under Entries 18, 49 and 54
of List II of the Seventh Schedule to the Constitution.
also contended by learned senior counsel that the Entry 49 of List II, tax on
land and/or building does not concern with levy and collection of service tax
on Mandap-Keepers, because the tax on land/or building is charged because such
land and/or building exists irrespective of the fact whether they are used or
not. Their very existence is taxable, whereas it is the use of the immovable
property in a particular manner, which amounts to providing of service has been
also further submitted that the inclusion of the service rendered as a caterer
in the definition is clearly beyond the "legislative competence" of
the Parliament as that subject is covered in Entry 54 of List II. The learned
senior counsel submitted that it is the service provided by the Mandap-Keeper
as a Caterer' which is taxable and not the supply made by him of the food or
drinks etc. and thus it is clear that the levy of service tax on Mandap-Keepers
is not covered under Entry 54 of List II as contended by learned senior counsel
for the appellant.
would further urge that the term "Mandap" under service tax has been
defined to mean any immovable property as defined in Section 3 of the Transfer
of Property Act, 1882. Accordingly, any open land or ground is also an
immovable property qualifying as mandap and when the same is let out for a
specified purpose, service tax is chargeable and that the levy of service tax
is not a subject matter covered under List II and is very much covered under
residual power of the Union Parliament under Entry 97 of List I and Union
Parliament is competent to levy service tax by virtue of Entry 97 of List I. It
is also contended that Entries 18, 49 and 54 of List II of Seventh Schedule to
the Constitution are not at all concerned with the levy of service tax on Mandap-
Keepers and the same is imposed by the Parliament by virtue of the residual
powers vested with it by Entry 97 of List I of Seventh Schedule to the
reply to the argument of the learned senior counsel for the appellant that this
Court in the case of Federation of Hotel and Restaurant vs. Union of India
& Ors. (supra) has not considered Article 366 (29A) (f), which case was
relied upon by the High Court of Madras and applied the aspect theory to
distinguish the service aspect from the supply aspect of food and drink etc.
senior counsel for the respondents invited our attention to para Nos. 31 and 32
of the Judgment of the High Court in which the service aspect was distinguished
from the supply aspect. In view of this, it is submitted that the contention of
the appellant that Article 366 (29A) (f) of the Constitution was not considered
by this Court and the High Court has not differentiated between service and
supply is not at all correct. In conclusion, he submitted that the Mandap-Keepers
are required to pay the service tax during the following month or the quarter,
as the case may be, depending upon whether they are limited company or
individual/partnership, of the month during which the service was rendered. So,
the question of payment of service tax even before rendering the service does
not arise and hence the cancellation of bookings, if any, will not affect the
appellant in any way. Further, refund in terms of Sec. 11B of the Central
Excise Act, 1944 as well as suo moto adjustment of excess service tax paid by
the appellants themselves on fulfilling certain conditions are very much
available under sub-rule 3 of Rule 6 of the Service Tax Rules, 1994.
senior counsel for the respondents, relied on the following judgments in
support of his arguments:-
India Cement Ltd. and Others vs. State of Tamil Nadu and Others [(1990) 1 SCC
J.K. Jute Mills Co. Ltd. vs. The State of Uttar Pradesh and Another  2
Gannon Dunkerley and Co. and Others vs. State of Rajasthan and Others [(1993) 1
SCC 364] 4. The State of Madras vs. Gannon Dunkerley & Co., (Madras) Ltd.  SCR 379
Sales Tax Officer, Pilibhit vs. Messrs. Budh Prakash Jai Prakash  1 SCR
George Oakes (P) Ltd. vs. State of Madras  2 SCR 570
Systems Pvt. Ltd. vs. Union of India and Others [1988 (Supp) SCC 792]
Regional Director, Employees' State Insurance Corporation vs.
Land Coffee Works of P.F.X. Saldanha and Sons and Another [(1991) 3 SCC 617]
Power Co. Ltd. vs. General Electric Company and Another [(1984) 4 SCC 679] 10. Thyssen
Stahlunion GMBH vs. Steel Authority of India Ltd. [(1999) 9 SCC 334]
Udyog Bharati vs. Union of India [1999 (112) E.L.T 365]
Industries Ltd. and Others vs. Union of India and Others [(1997) 5 SCC 536]
above factual and legal submissions made by both the parties, the following
questions of law would emerge for our consideration:-
Whether the High Court was correct in coming to the conclusion that the
provisions in the Finance Act, 1994 imposing service tax on the services
rendered by the Mandap-Keepers are intra vires of the Constitution?
Was the High Court correct in not construing the specific entries in List II
viz. Entries 18, 49 and 54 by giving the widest amplitude, particularly when
the Union was seeking to justify the levy
under the residuary Entry 97 in List I of the Seventh Schedule of the
Has not the impugned judgment of the High Court virtually rendered the 46th
Amendment of the Constitution, creating a deeming fiction of a transaction
which otherwise is not a sale transaction, to be a sale transaction, redundant,
in particular, Article 366(29A)(f) of the Constitution?
Whether the High Court was correct in applying the 'Aspect Theory' laid by this
Court in the case of Federation of Hotel and Restaurant vs. Union of India & Ors. (supra) to the facts of the
present case, when it is amply clear that the application of the 'Aspect
Theory' to the facts of the present case would break down the Federal Taxing
Structure provided for in the Constitution?
Whether the High Court was correct in coming to the conclusion that the
impugned provisions in the Finance Act, 1994 are not violative of Article 14
and 19(1)(g) of the Constitution?
Whether the High Court has correctly appreciated the Service Tax Notice
No.4/99, whereby the Parliament under the garb of levying service tax has in
fact imposed a tax on land per se which is a subject specifically earmarked for
the State Legislatures under Entry 18 of List II of the Constitution? We have
carefully analysed the rival submissions made by learned senior counsel for the
respective parties with reference to the pleadings and the judgments cited by
both the parties.
regard to Legislative competence, Mr. Mohan Parasaran, learned senior counsel
for the appellant, relied on M/s Khandelwal Metal & Engg. Works & Anr. vs.
Union of India & Ors [1985 (3) SCC 620 at 641] "With respect to"
brings in the doctrine of pith and substance, he placed reliance on M/s Ujagar
Prints & Ors. vs. Union of India & Ors. [1989 (3) SCC 488 at 513] and
S.P. Mittal vs. Union of India & Ors. [1983 (1) SCC 51, 78, 79 and 82].
case of Goodyear India Ltd. & Ors. vs. State of Haryana & Anr. [1990
(2) SCC 71] was relied upon by learned senior counsel for the appellant for the
proposition that nomenclature of tax not conclusive for determining the true
character or nature of a particular tax and that the Court will look into its
pith and substance. He also relied on Synthetics & Chemicals Ltd. &
Ors. vs. State of U.P. & Ors. [1990 (1) SCC 109 at 153, 154] for the
proposition that the taxing power can be derived only from specific taxing taxing
entry in the legislative lists.
following three decisions were cited on Entry 49, List II Taxes on Land and
Prithvi Cotton Mills Ltd. & Anr. vs. Broach Borough Municipality & Ors.
[1969 (2) SCC 283]
Ram vs. The Province of East Punjab [AIR 1949 FC 81]
Govt. of A.P. & Anr. vs. Hindustan Machine Tools Ltd. [1975 (2) SCC 274]
judgment in the case of K. Damodarasamy Naidu & Bros. and Ors. vs. State of
T.N. & Anr. reported in 2000 (1) SCC 521 at 528 para 8 & 9 was relied
on for the proposition 'Sale' Article 366 (29A) (b).
present case, service tax levied on services rendered by Mandap-Keeper as
defined in the said Act under Sections 65, 66 and 67 of the Finance Act has
been challenged by the appellants on the following two grounds:
That it amounts to the tax on land and, therefore, by reason of Entry 49 of
List 2 of the Seventh Schedule of the Constitution, only the State Government
is competent to levy such tax and;
Insofar as it levies a tax on catering services, it amounts to a tax on sale
and purchase of goods and, therefore, is beyond the competence of Parliament, particularly
in view of the definition of tax on sale and purchase of goods contained in
Article 366 (29A) (f) of the Constitution.
regard to the first aspect, it is submitted that in order to constitute a tax
on land, it must be a tax directly on land and a tax on income from land cannot
come within the purview of the said Entry. This was affirmed by a Seven-Judge
Bench of this Court in India Cement Ltd. & Ors. vs. State of Tamil Nadu
& Ors/ (1990) 1 SCC 12 para 22 relying upon several judgments of this Court
including S.C. Nawn vs. W.T.O., Calcutta (1969) 1 SCR 108; Asstt. Commissioner
of Urban Land Tax vs. Buckingham & Carnatic Co. Ltd. (1970) 1 SCR 268 at
278; Second Gift Tax Officer vs. D.H. Nazareth (1971) 1 SCR 195; Union of India
vs. H.S. Dhillon (1971) 2 SCC 779 at 792; Bhagwan Dass Jain vs. Union of India
(1981) 2 SCR 808 and Western India Theatres Ltd. vs. Cantonment Board, Poona
Cantonment (1959) Supp. 2 SCR 63 at 69. The proposition has been followed in
several judgments of this Court.
view, if no Entry is found in List 2 and List 3 of the Schedule, which could
cover the tax levied, the question of Parliament lacking legislative competence
to do so would not arise.
catering services does not amount to tax on sale & purchase of goods 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.
cannot enlarge the definition of sale so as to bring within the ambit of
taxation transactions, which could not be a sale in law. The following
judgments and the principles laid down therein can be very well applied to the
case on hand.
M/s. J.K. Jute Mills Co. Ltd. vs. The State of U.P. & Anr.  2 SCR 1;
Gannon Dunkerley & Co. and Ors. vs. State of Rajasthan & Ors. (1993) 1
State of Madras vs. Ganon Dunkerley & Co. (Madras) Ltd.  SCR 379;
Sales Tax Officer, Pilibhit vs. M/s. Budh Prakash Jai Prakash  1 SCR 243;
George Oakes (P) Ltd. vs. State of Madras  2 SCR 570.
regard to the submission made on Article 366(29A) (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 includes the supply to 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 is supply of goods and it is
only supply of food and drinks and other articles for human consumption that is
deemed to be a sale or purchase of goods.
concept of catering admittedly includes the concept of rendering service.
fact that tax on the sale of the goods involved in the said service can be
levied does not mean that a service tax cannot be levied on the service aspect
Mohan Parasaran, learned senior counsel for the appellant submitted that the
High Court before applying the aspect theory laid down by this Court in the
case of Federation of Hotel and Restaurant vs. Union of India & Ors. (supra)
ought to have appreciated that in that matter Article 366 (29A) (f) of the
Constitution was not considered which is of vital importance to the present
matter and that the High Court ought to have differentiated the two matters. In
reply, our attention was invited to paras 31 and 32 of the judgment of the High
Court in which service aspect was distinguished from the supply aspect. In our
view, reliance placed by the High Court on Federation of Hotel and Restaurant
(supra) and, in particular, on the aspect theory is, therefore, apposite and
should be upheld by this Court. In view of this, the contention of the
appellant on this aspect is not well founded.
well settled that the measure of taxation cannot affect the nature of taxation
and, therefore, the fact that service tax is levied as a percentage of the
gross charges for catering cannot alter or affect the legislative competence of
Parliament in the matter.
legislative competence of Parliament also does not depend upon whether in fact
any services are made available by the Mandap-Keepers within the definition of
taxable service contained in the Finance Act. Whether in the given case taxable
services are rendered or not is a matter of interpretation of the statute and
for adjudication under the provisions of the statute and does not affect the vires
of the legislation and/or the legislative competence of Parliament. In fact, a
wide range of services are included in the definition of taxable services as
far as Mandap-Keepers are concerned. The said definition includes services
provided "in relation to use of Mandap in any manner" and includes
"the facilities provided to the client in relation to such use" and
also the services "rendered as a caterer". The phrase "in
relation to" has been construed by this Court to be of the widest
amplitude. In M/s Doypack Systems Pvt. Ltd. vs. Union of India and Others
(1988) 2 SCC 299 at 302, this Court observed as under:
expressions 'pertaining to', 'in relation to' and 'arising out of', used in the
deeming provision, are used in the expansive sense. The expression 'arising out
of' has been used in the sense that it comprises purchase of shares and lands
from income arising out of the Kanpur Undertaking. The words "pertaining
to" and "in relation to" have the same wide meaning and have
been used interchangeably for among other reasons, which may include avoidance
of repetition of the same phrase in the same clause or sentence, a method
followed in good drafting. The word 'pertain' is synonymous with the word
'relate'. The term 'relate' is also defined as meaning to bring into
association or connection with. The expression 'in relation to' (so also
'pertaining to'), is a very broad expression which presupposes another subject
matter. These are words of comprehensiveness which might have both a direct
significance as well as an indirect significance depending on the
context." In Renusagar Power Co. Ltd. vs. General Electric Company and
Another (1984) 4 SCC 679, this Court observed as under:
such as "arising out of" or "in respect of" or "in
connection with" or "in relation to" or "in consequence
of" or "concerning" or "relating to" the contract are
of the widest amplitude and content and include even questions as to the
existence validity and effect (scope) of the arbitration agreement." In Thyssen
Stahlunion GMBH vs. Steel Authority of India Ltd. (1999) 9 SCC 334, this Court
observed as under:
phrase "in relation to arbitral proceedings" cannot be given a narrow
meaning to mean only pendency of the arbitration proceedings before the
arbitrator. It would cover not only proceedings pending before the arbitrator
but would also cover the proceedings before the court and any proceedings which
are required to be taken under the old Act for the award becoming a decree
under Section 17 thereof and also appeal arising thereunder. The contention
that if it is accepted that the expression "in relation to arbitral proceedings"
would include proceedings for the enforcement of the award as well, the second
limb of Section 85(2)(a) would become superfluous and cannot be accepted."
The phrase "including" has also been construed to expand the definition
as held by this Court in Regional Director, Employees' State Insurance
Land Coffee Works of P.F.X. Saldanha and Sons & Anr. (1991) 3 SCC 617 at
618 observed as under:
word "include" in the statutory definition is generally used to
enlarge the meaning of the preceding words and it is by way of extension, and
not with restriction. The word "include" is very generally used in
interpretation clauses in order to enlarge the meaning of words or phrases
occurring in the body of the statute; and when it is so used, these words or
phrases must be construed as comprehending, not only such things as they
signify according to their natural import but also those things which the
interpretation clause declares that they shall include." Taxable services,
therefore, could include the mere providing of premises on a temporary basis
for organizing any official, social or business functions, but would also
include other facilities supplied in relation thereto. No distinction from
restaurants, hotels etc which provide limited access to property for specific
be noted that in recent times the service sector has grown phenomenally all
over the world and, therefore, it was recommended by Dr. Raja Chelliah
Committee in the early 90s that it should be taxed. Pursuant thereto, service
tax was first levied in 1994 by way of the Finance Act. The power to levy such
tax can be traced to Sl.No. 97 of List I of Seventh Schedule and this Court in Laghu
Udyog Bharati vs. Union of India (1999) 112 E.L.T. 365 found no lack of
legislative competence as far as the levy of service tax was concerned.
also emphasized that a tax cannot be struck down on the ground of lack of
legislative competence by enquiring whether the definition accords what the
layman's view of service. It is well settled that in matters of taxation laws,
the court permits greater latitude to pick and chose objects and rates for
taxation and has a wide discretion with regard there to. We may in this context
refer to the decision of Mafatlal Industries Ltd. and Others vs. Union of India
and Others (1997) 5 SCC 536 para 343 at page 740 "In the matter of
taxation laws, the court permits a great latitude to the discretion of the
legislature. The State is allowed to pick and choose districts, objects, persons,
methods and even rates for taxation, if it does so reasonably. The courts view
the laws relating to economic activities with greater latitude than other
matters." Therefore, a levy of service tax on a particular kind of service
could not be struck down on the ground that it does not conform to a common
understanding of the word "service" so long as it does not transgress
any specific restriction contained in the Constitution.
fact, making available a premises for a period of few hours for the specific
purpose of being utilized as a Mandap whether with or without other services
would itself be a service and cannot be classified as any other kind of legal
concept. It does not certainly involve transfer of moveable property nor does
it involve transfer of moveable property of any kind known to law either under
the Transfer of Property Act or otherwise and can only be classified as a
fact, mandap-keepers provide a wide variety of services apart from the service
of allowing temporary occupation of mandap. As per Section 65 (19) of the
Finance Act, 1994, Mandap means any immovable property as defined in Section 3
of the Transfer of Property Act, 1882 and includes any furniture, fixture,
light fittings and floor coverings therein let out for consideration for organising
any official, social or business function. A mandap-keeper apart from proper
maintenance of the mandap, also provides the necessary paraphernalia for
holding such functions, apart from providing the conditions and ambience which
are required by the customer such as providing the lighting arrangements,
furniture and fixtures, floor coverings etc. The services provided by him cover
method and manner of decorating and organising the mandap. The mandap-keeper
provides the customer with advice as to what should be the quantum and quality
of the services required keeping in view of the requirement of the customer,
the nature of the event to be solemnized etc. In fact the logistics of setting
up, selection and maintenance is the responsibility of the mandap keeper. The
services of the mandap-keeper cannot possibly be termed as a hire purchase
agreement of a right to use goods or property. The services provided by a mandap-keeper
are professional services which he alone by virtue of his experience has the
wherewithal to provide. A customer goes to a mandap-keeper, say a star hotel,
not merely for the food that they will provide but for the entire variety of
services provided therein which result in providing the function to be
solemnized with the required effect and ambience.
the services rendered by out door caterers is clearly distinguishable from the
service rendered in a restaurant or hotel inasmuch as, in the case of outdoor
catering service the food/eatables/drinks are the choice of the person who
partakes the services.
free to choose the kind, quantum and manner in which the food is to be served.
the case of restaurant, the customer's choice of foods is limited to the menu
in the case of outdoor catering, customer is at liberty to choose the time and
place where the food is to be served. In the case of an outdoor caterer, the
customer negotiates each element of the catering service, including the price
to be paid to the caterer. Outdoor catering has an element of personalized
service provided to the customer. Clearly the service element is more weighty,
visible and predominant in the case of outdoor catering. It cannot be
considered as a case of sale of food and drink as in restaurant. Though the Service
Tax is leviable on the gross amount charged by the mandap-keeper for services
in relation to the use of a mandap and also on the charges for catering, the
Government has decided to charge the same only on 60% of the gross amount
charged by the mandap-keeper to the customer.
case of Additon Advertising vs. Union of India [1998 (98) E.L.T. 14 (Guj HC
DB)], the High Court of Gujarat rejected the contention that levy of tax on
advertising services is ultra vires and observed that "the tax is not on
advertisement but on the services rendered. It results in an advertisement
which can be published and republished and copied". Extending the same
analogy, it is submitted that there is a difference between the food and
beverages supplied by outdoor caterers and outdoor catering services. As a
result of the outdoor catering services rendered, the food and beverages
desired by the customer, are caused to be prepared or procured, transported to
the place specified by the customer at the time desired by him and served in
the manner required. Therefore, the contention of the appellant that there is
no service element in outdoor catering is not based on fact. In such catering
services the person who participate and avail the service give more importance
to the manner of service than the quality of food provided for consumption.
on services rendered by mandap-keepers and outdoor caterers is in pith and
substance, a tax on services and not a tax on sale of goods or on hire purchase
activities. Section 65 clause 41 sub clause (p) of the Finance Act, 1994,
defines the taxable service (which is the subject matter of levy of service
tax) as any service provided to a customer by a mandap-keeper in relation to
use of a mandap in any manner including the facilities provided to a customer
in relation to such use also the services, if any, rendered as a caterer. The
nature and character of this service tax is evident from the fact that the
transaction between a mandap-keeper and his customer is definitely not in the
nature of a sale of hire purchase of goods. It is essentially that of providing
a service. In fact, as pointed out earlier, the manner of service provided
assumes predominance over the providing of food in such situations which is a
definite indicator of the supremacy of the service aspect. The legislature in
its wisdom noticed the said supremacy and identified the same as a potential
region to collect indirect taxes. Moreover, it has been a well established
judicial principle that so long as the legislation is in substance, on a matter
assigned to a legislature enacting that statute, it must be held valid in its
entirety even though it may trench upon matters beyond its competence.
Incidental encroachment does not invalidate such a statute on the grounds that
it is beyond the competence of the legislature (Prafulla Kumar vs. Bank of
Commerce). Article 246(1) of the Constitution specifies that the Parliament has
exclusive powers to make laws with respect to any of the matters enumerated in
List I in the Seventh Schedule to the Constitution. As per Article 246(3), the
State Government has exclusive powers to make laws with respect to matters
enumerated in List II (State List). In respect of matters enumerated in List
III (Concurrent List) both Parliament and State Government have powers to make
laws. The service tax is made by Parliament under the above residuary powers.
impugned Act was challenged on the ground that it infringed on the State's
power to levy tax on luxury vide Entry 62 of the State List.
be appropriate to quote Mr. Justice Venkatachelliah who ruled that "the
law with respect to a subject might incidentally affect another subject in some
way, but that is not the same thing as the law being on the latter subject.
There might be overlapping, but the overlapping must be in law. The transaction
may involve two or more taxable events in its different aspects. But the fact
that there is an overlapping does not detect from the distinctiveness of the
aspects. The consequences and facts of the legislation are not the same thing
as legislative subject matter." For the foregoing reasons, the appellants
have not made out any case either on facts or on law and there is no merit in
this appeal. We, therefore, have no hesitation in dismissing this appeal by
confirming the judgment of the High Court for our own reasons recorded in this
judgment. No costs.
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