IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN FRIDAY, THE 6TH NOVEMBER 2009 / 15TH KARTHIKA 1931 OP.No. 16463 of 2002(I) -------------------------------- PETITIONER(S): ---------------------- PRECOT MILLS LIMITED, RACE COURSE ROAD, COIMBATORE, REP.BY ITS ADMINISTRATION MANAGER MR.R.MURALI. BY ADV. MR.E.K.NANDAKUMAR MR.A.K.JAYASANKAR NAMBIAR SMT.PRIYA MAHESH SMT.PRIYA MANJOORAN RESPONDENT(S): ------------------------ 1. THE UNION OF INDIA, REP.BY THE SECRETARY, MINISTRY OF FINANCE (DEPARTMENT OF REVENUE) NORTH BLOCK, NEW DELHI-110 001 2. THE COMMISSIONER OF CENTRALL EXCISE COCHIN-II, COMMISSIONERATE, KOZHIKODE. 3. THE SUPERINTENDENT OF CENTRAL EXCISE SERVICE TAX, PALGHAT DIVISION. BY ADV. MR.THOMAS MATHEW NELLIMOOTTIL,SC,CB EXCISE. THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 06/11/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: O.P. NO. 16463/2002-I APPENDIX PETITIONER'S EXHIBITS: EXT.P1: COPY OF THE EXTRACT OF THE FINANCE ACT, 2000. EXT.P2: COPY OF THE SHOW CAUSE NOTICE ISSUED BY THE DY. COMMISSIONER OF CENTRAL EXCISE TO THE PETITIONER DATED 6TH JUNE, 2002. RESPONDENT'S EXHIBITS: EXT.R1(a): COPY OF THE JUDGMENT OF THE HONOURABLE SUPREME COURT DATED 17/03/2005 IN WP(C) NO. 539/2000 (GUJARAT AMBUJA CEMENT LTD. Vs. UNION OF INDIA). //TRUE COPY// P.S. TO JUDGE rs. S. Siri Jagan, J. =-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-= O.P. No. 16463 of 2002 =-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-= Dated this, the 6th November, 2009. J U D G M E N T The petitioner is a Company engaged in the manufacture of cotton yarn. In order to transport cotton yarn so manufactured by the Company, the Company engages the services of transporters. For the first time in 1997, the Parliament introduced levy of service tax on services rendered by goods transport operators. In respect of the same, a question arose as to whether customers engaging in the services of transporters are liable to pay service tax. In the decision in Laghu Udyog Bharathi v. Union of India, 1999 (33) RLT 911, the Supreme Court held that the person who is availing of the services of a transporter could not be made liable for filing returns and paying service tax and that service tax being on the value of services, is payable only by the person who provides the services who only can be regarded as an assessee for the purpose of service tax. In order to overcome the effect of the said decision of the Supreme Court, the Parliament enacted Chapter V and Sections 116 and 117 of Finance Act, 2000. By Section 116, the provisions relating to goods transport operators were re-defined and the persons engaging the service of the goods service operators were made liable to pay service tax during the period between 16-7-1997 and 15-10-1998. By Section 117, certain actions taken under the Service Tax Rules 1944, which were struck down by the Supreme Court as per the above judgment were validated. This original petition is filed by the petitioner challenging the constitutional validity of Sections 116 and 117 and also raising an alternate contention that even if Sections 116 and 117 of the Finance Act, 2000 are valid, only in respect of demand notices issued while the provisions struck down by the Supreme Court were in force can be continued by virtue of the new Sections. According to the petitioner, prior to the introduction of Sections 116 and 117, the O.P.. No. 16463/2002 -: 2 :- petitioner was never served with any notices regarding payment of service tax in respect of availing of services of goods transporters. Therefore, Sections 116 and 117 could not have been invoked against the petitioner for the purpose of demanding service tax for the period from 16-7-1997 to 15-10-1998 when the original levy, which was struck down by the Supreme Court, was in force. The petitioner therefore seeks the following reliefs: “(i) Call for the records leading to Exts. P2 demand notice issued to the petitioner by the third respondent and quash the same by the issuance of a writ of certiorari or such other writ, order or direction; (ii) declare that the amendments to Sections 65 and 66 of Act 32 of 1994 by Sections 116 and 117 of the Finance Act, 2000 with retrospective effect from 16.7.1997 is illegal and unconstitutional; (iii) to grant a stay of the operation of the amendments to Sections 65 and 66 of Act 32 of 1994 by Sections 116 and 117 of the Finance Act, 2000 as also the demand and collection from the petitioner of service Tax, in respect of services rendered by Goods Transport Operators, pursuant to Exts.P2 demand notices, pending disposal of the original petition.” 2. As far as the first contention is concerned, counsel for the petitioner admits that that issue is covered against the petitioner in the decision of the Supreme Court in Gujarat Ambuja Cements Ltd., and another v. Union of India and another, (2005) 4 SCC 214. But, counsel for the petitioner would contend that as far as the second issue is concerned, the Supreme Court has in J.K. Spinning and Weaving Mills Ltd., and another v. Union of India and others, 1987 (32) E.L.T. 234 has held that even if a provision is amended with retrospective effect, the Department can proceed with the demand only if the matter was kept alive at the time when the original provision was in force. Otherwise, no action can be initiated O.P.. No. 16463/2002 -: 3 :- afresh after the amendment was introduced validating action taken under the provisions which were earlier struck down. The petitioner therefore would contend that insofar as the petitioner had not been served with any demand notice during the period between 16-7-1997 and 15-10-1998 and therefore in respect of that period, the petitioner could not have been mulcted with liability to pay service charges based on the validating provisions introduced by Finance Act, 2000. 3. I have heard the learned standing counsel appearing for the Department of Central Excise and Customs. 4. After hearing both sides, I am satisfied that the issue is squarely covered by the decision of the Supreme Court in J.K. Spinning and Weaving Mills's case (supra) in favour of the petitioner. That being so, to that extent, the petitioner is entitled to the reliefs prayed for. Accordingly, Ext. P2 demand is quashed and it is declared that the petitioner is not liable to pay service charges as demanded therein. The original petition is allowed as above. Sd/- S. Siri Jagan, Judge. Tds/