WPC9394/2009 Page 1 of 23 REPORTABLE * IN THE HIGH COURT OF DELHI AT NEW DELHI + Writ Petition (Civil) No. 9394/2009 Judgment reserved on: 21st February, 2011 % Date of Decision: 3rd March, 2011 INTEROCEAN SHIPPING (I) PVT. LTD. ……. Petitioner Through Mr. J.K. Mittal, Advocate. VERSUS UNION OF INDIA & ANR. …..Respondents Through Mr. Mukesh Anand and Mr. Satish Kumar for respondent. 2. Writ Petition (Civil) No. 12228/2009 INTEROCEAN SHIPPING COMPANY ……. Petitioner Through Mr. J.K. Mittal, Advocate. VERSUS UNION OF INDIA & ANR. …..Respondents Through Mr. Mukesh Anand and Mr. Satish Kumar for respondent. 2. Writ Petition (Civil) No. 7773/2010 INTEROCEAN SHIPPING (I) PVT. LTD. ……. Petitioner Through Mr. J.K. Mittal, Advocate. VERSUS UNION OF INDIA & ANR. …..Respondents Through Mr. Mukesh Anand and Mr. Satish Kumar for respondent. 2. Writ Petition (Civil) No. 7774/2010 INTEROCEAN SHIPPING COMPNAY ……. Petitioner Through Mr. J.K. Mittal, Advocate. VERSUS UNION OF INDIA & ANR. …..Respondents Through Mr. Mukesh Anand and Mr. Satish Kumar for respondent. 2. WPC9394/2009 Page 2 of 23 CORAM: HON’BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE SANJIV KHANNA 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporter or not ? Yes. 3. Whether the judgment should be reported Yes. in the Digest ? Sanjiv Khanna, J. These four writ petitions have been filed by Interocean Group of Companies/concerns and as common issues/contentions have been raised, they are being disposed of by this common order. For the purpose of convenience, Writ Petition (Civil) No. 9394/2009 filed by Interocean Shipping (I) Pvt. Ltd., is being treated as the lead case. 2. The aforesaid W.P.(C) No. 9394/2009 was filed on 27th May, 2009. Vide order dated 14th July, 2009, notice to show cause was issued in the writ petition and on the interim application, it was directed that the proceedings on the basis of impugned show cause notice could continue but the final order shall not be given effect to without leave of the Court. The said interim order has continued till date. The aforesaid writ petition was amended after the assessment order dated 26th October, 2010 was passed by the Commissioner of Service Tax, Delhi and in WPC9394/2009 Page 3 of 23 the amended writ petition the assessment order has been made subject matter of challenge. It may, however, be noted that in Writ Petition (Civil) Nos. 7773/10 and 7774/10, only show cause notices have been issued but no assessment order has been passed. 3. The petitioner companies/concerns are engaged in ship broking and other activities. It is submitted that as a ship broker the petitioners assists, guides and supports the ship owner and the ship charterer to negotiate a deal and conclude a fixture. Brokerage is paid by the ship owner and sometimes through a charterer. The petitioners also undertake distinct activities like ship agency, services to clients for loading/unloading of cargo, act as port agents, facilitate and procure berth hiring, etc. The petitioners are registered with the Service Tax Department under the category of ‘Steamer Agent Service’ and have been filing returns and paying service tax. ‘Steamer Agent Service’ was brought into the service tax net by the Finance Act, 1997 with amendment and enactment in form of Clause (i) to Section 65(105) read with Section 65(100). The aforesaid Sections have to be read along with Sections 65(96) and 65(97). The said clauses read as under:- “Section 65(105)(i) : Taxable service means any service provided or to be provided, to a shipping line, by a steamer agent in relation to a ship’s husbandary or dispatch or any administrative work related thereto WPC9394/2009 Page 4 of 23 as well as the booking, advertising or canvassing of cargo, including container feeder services.” “Section 65(100): Steamer agent means any person who undertakes, either directly or indirectly, -- (i) to perform any service in connection with the ship’s husbandry or dispatch including the rendering of administrative work related thereto; or (ii) to book, advertise or canvass for cargo for or on behalf of a shipping line; or (iii) to provide container feeder services for or on behalf of a shipping line.” “Section 65(96) : Ship means a sea-going vessel and includes a sailing vessel”. “Section 65(97) : Shipping line means any person who owns or charters a ship and includes an enterprise which operates or manages the business of shipping.” 4. We are not concerned with the said clauses and the liability of the petitioners to service tax under the aforesaid sections. It is accepted by the petitioners that they are liable to pay service tax on the services mentioned therein. 5. The dispute raised pertains to whether the petitioners are covered and liable to pay service tax under the head ‘Business Auxiliary Services’. The said services became taxable by the Finance Act, 2003, whereby sub-section (zzb) to Section 65(105) was enacted. The said WPC9394/2009 Page 5 of 23 clause has to be read with Section 65(19). The aforesaid provisions at the time of enactment were as under:- “Section 65(105)(zzb): any service provided, to a client, by a commercial concern in relation to business auxiliary service.” “Section 65(19) : “business auxiliary service means any service in relation to, -- (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or (iv) any service incidental or auxiliary support service such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer, public relation services, and includes services as a commission agent, but does not include any information technology service.” 6. The Finance (No. 2) Act, 2004, w.e.f. 10th September, 2004, expanded the scope of ‘Business Auxiliary Services’ by including activities relating to procurement of inputs, processing of good (not amounting to manufacture), or provisions of services on behalf of clients by including them in the definition of ‘Business Auxiliary WPC9394/2009 Page 6 of 23 Services’. The Finance Act, 2005, w.e.f. 16th June, 2005, made further amendments and expanded the scope of ‘Business Auxiliary Service’ by including commission agents. Presently Sections 65(105)(zzb) and 65(19) read as under:- “Section 65(105)(zzb) : Taxable services means any services provided or to be provided, to a client, by any person in relation to business auxiliary service.” “Section 65(19) : business auxiliary service means any service in relation to ,-- (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of chance, organized, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo; (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or Explanation –For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client. WPC9394/2009 Page 7 of 23 (v) Production or processing of goods for, or on behalf of the client; or (vi) Provision of service on behalf of the client; or (vii) A service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance or accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944” Explanation.—For the removal of doubts, it is hereby declared that for the purpose of this clause.— (a) “commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person, who, while acting on behalf of another person— (i) deals with goods or services or documents of title to such goods or services; or (ii) Collects payment of sale price of such goods or services; or (iii) Guarantees for collection or payment for such goods or services; or (iv) Undertakes any activities relation to such sale or purchase of such goods or services.” 7. The question raised by the petitioners is whether they were/are providing ‘business auxiliary services’ as defined in the aforesaid WPC9394/2009 Page 8 of 23 clauses. It is their contention that they were/are not acting as commission agents. Their activities and earnings cannot be categorized as activities and earnings of a ‘commission agent’. It is submitted that the term ‘commission agent’ was defined by the Finance Act, 2005 w.e.f. 16th June, 2005 and prior to the said date, the definition as per Section 2(aaa) of the Central Excise Act,1944 was applicable. Another contention in the alternative, raised by the petitioners is that they were/are providing services by way of export. In this connection, it may be noted that Export of Service Rules, 2005, came into force w.e.f. 15th March, 2005. These rules have also been amended from time to time and criteria/conditions have been specified for determination whether an assessee is engaged in export of taxable services. 8. We have examined the contentions raised by the petitioners in the writ petitions, their reply to show cause notice and the defence of the respondents, including the Commissioner of Service Tax, which is reflected in their counter affidavit as well as the assessment order which has been passed. A perusal of the reply and the assessment order shows that the primary and core issue raised was/is with regard the actual nature and character of the activity undertaken by the petitioners. The contention of the petitioners is that they do not act as an agent of any party i.e. ship owner or ship charterer. This necessarily WPC9394/2009 Page 9 of 23 requires a factual examination of the nature of activities undertaken by the petitioners generally or in a particular case. On the basis of the factual finding it has to be decided and determined whether generally or a particular transaction or activity can be classified as a ‘business auxiliary service’ activity as per the provisions of the Finance Act as amended from time to time. This of course, will require interpretation of the provisions of the Finance Act relating to taxability of ‘business auxiliary service’ but without first ascertaining and deciding the factual dispute about the nature of the activity, interpretation will be in vaccum. Some or many issues may remain unanswered. Thus, to fully resolve and decide all matters/issues appellate remedy under the statute is required to be resorted to. It may be noted here that as per the petitioners as well as the assessment order, ship brokerage activities have been classified into three categories, situations 1, 2 and 3. Situation 1 is where the ship owner and the ship charter both are located outside India and it has been held in the assessment order, that the payments received in foreign currency are not taxable. However, in situation 2 when either the ship owner or the ship charterer is located/based in India or in situation 3 when both of them are located in India have been held to be taxable, regardless of fact that the brokerage was received in foreign currency. We do not WPC9394/2009 Page 10 of 23 think that it will be appropriate and proper for a writ court in the present case to examine and go into the factual aspects about the actual nature of activity provided and undertaken by the petitioners. No doubt, certain questions of law have been raised but first and foremost need and requirement is to have clarity on the facts as to the nature of the transactions and the scope of the activity undertaken by the petitioners on which they have earned brokerage. This may require examination of each transaction on case to case basis. This we feel should be undertaken before the appellate authority i.e. the Tribunal. The statutory appellate remedy should not be allowed to be bye- passed/avoided in the present cases. The petitioners should invoke the said remedy and should not be allowed to circumvent the same. 9. It may be noted here that the petitioners have not challenged the constitutional validity of Section 65(105)(zzb) or 65(19) of the Finance Act as amended from time to time. The questions raised relate to interpretation of the said sections and not constitutional validity. Questions relating to interpretation of a section/provisions in tax matters do arise in several cases but the generally parties are not encouraged or permitted to avoid the statutory appellate remedy and seek recourse to Writ remedies or invoke power of judicial review. Article 226 of the Constitution confers wide powers in the matter of WPC9394/2009 Page 11 of 23 issuing writs but the remedy is discretionary and High Courts can refuse to exercise writ jurisdiction if the aggrieved party has an adequate or suitable alternative remedy. The remedy however should not be a mirage, futile exercise or an appeal from “Caesor to Caesor’s wife. Other exceptions carved out are “at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the fundamental rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged” (refer Whirpool Corpn. Vs. Registrar of Trade Marks, (1998) 8 SCC 1). This is not a Rule of Law but a self imposed limitation, a matter of policy. In U.P. State Spg. Co. Ltd. v. R.S. Pandey, (2005) 8 SCC 264, it has been explained : “17. Where under a statute there is an allegation of infringement of fundamental rights or when on the undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess can be the grounds on which the writ petitions can be entertained. But normally, the High Court should not entertain writ petitions unless it is shown that there is something more in a case, something going to the root of the jurisdiction of the officer, something which would show that it would be a case of palpable injustice to the writ petitioner to force him to adopt the remedies provided by the statute. It was noted by this Court in L. Hirday Narain v. ITO that if the High Court had entertained a petition despite availability of alternative remedy and heard the parties on merits it would be ordinarily unjustifiable for the High Court to dismiss the same on the ground of non-exhaustion of statutory remedies, unless the High Court finds that factual disputes are involved and it would not be desirable to deal with them in a writ petition. WPC9394/2009 Page 12 of 23 18. At this juncture, it would be appropriate to take note of the few expressions in R. v. Hillington, London Borough Council which seem to bring out the position well. Lord Widgery, C.J. stated in this case: (All ER pp. 648f-649b) “It has always been a principle that certiorari will go only where there is no other equally effective and convenient remedy. * * * The statutory system of appeals is more effective and more convenient than application for certiorari and the principal reason why it may prove itself more convenient and more effective is that an appeal to (say) the Secretary of State can be disposed of at one hearing whether the issue between them is a matter of law or fact or policy or opinion or a combination of some or all of these ... whereas of course an appeal for certiorari is limited to cases where the issue is a matter of law and then only it is a matter of law appearing on the face of the order. * * * An application for certiorari has however this advantage that it is speedier and cheaper than the other methods and in a proper case therefore it may well be right to allow it to be used ... I would, however, define a proper case as being one where the decision in question is liable to be upset as a matter of law because on its face it is clearly made without jurisdiction or in consequence of an error of law.” 19. After all the above discussion, the following observations of Roskill, L.J. in Hanson v. Church Commrs. may not be welcomed but it should not be forgotten also: “There are a number of shoals and very little safe water in the unchartered seas which divide the line between prerogative orders and statutory appeals, and I do not propose to plunge into those seas....” 20. In a catena of decisions it has been held that writ petition under Article 226 of the Constitution should not be entertained when the statutory remedy WPC9394/2009 Page 13 of 23 is available under the Act, unless exceptional circumstances are made out. 21. In U.P. State Bridge Corpn. Ltd. v. U.P. Rajya Setu Nigam S. Karamchari Sangh it was held that when the dispute relates to enforcement of a right or obligation under the statute and specific remedy is, therefore, provided under the statute, the High Court should not deviate from the general view and interfere under Article 226 except when a very strong case is made out for making a departure. The person who insists upon such remedy can avail of the process as provided under the statute. To same effect are the decisions in.....”. 10. Recently in Raj Kumar Shivhare v. Directorate of Enforcement, (2010) 4 SCC 772, it has been observed: “31. When a statutory forum is created by law for redressal of grievance and that too in a fiscal statute, a writ petition should not be entertained ignoring the statutory dispensation. In this case the High Court is a statutory forum of appeal on a question of law. That should not be abdicated and given a go-by by a litigant for invoking the forum of judicial review of the High Court under writ jurisdiction. The High Court, with great respect, fell into a manifest error by not appreciating this aspect of the matter. It has however dismissed the writ petition on the ground of lack of territorial jurisdiction. 32. No reason could be assigned by the appellant’s counsel to demonstrate why the appellate jurisdiction of the High Court under Section 35 of FEMA does not provide an efficacious remedy. In fact there could hardly be any reason since the High Court itself is the appellate forum. 33. Reference may be made to the Constitution Bench decision of this Court rendered in Thansingh Nathmal v. Supdt. of Taxes, which was also a decision in a fiscal law. Commenting on the exercise of wide jurisdiction of the High Court under Article 226, subject to self-imposed limitation, this Court went on to explain: “7. … The High Court does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under Article 226 trench upon an alternative remedy provided by statute for obtaining relief. Where it is open to the aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining WPC9394/2009 Page 14 of 23 redress in the manner provided by a statute, the High Court normally will not permit by entertaining a petition under Article 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set up.” (emphasis added) The decision in Thansingh is still holding the field. 34. Again in Titaghur Paper Mills Co. Ltd. v. State of Orissa in the background of taxation laws, a three- Judge Bench of this Court apart from reiterating the principle of exercise of writ jurisdiction with the time- honoured self imposed limitations, focused on another legal principle on right and remedies. In para 11, at AIR p. 607 of the Report, this Court laid down: “11. … It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Waterworks Co. v. Hawkesford in the following passage: ‘… There are three classes of cases in which a liability may be established founded upon a statute. … But there is a third class viz. where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it. … The remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to.’ The rule laid down in this passage was approved by the House of Lords in Neville v. London Express Newspapers Ltd. and has been reaffirmed by the Privy Council in Attorney General of Trinidad and Tobago v. Gordon Grant and Co. Ltd. and Secy. of State v. Mask and Co. It has also been held to be equally applicable to enforcement of rights, and has been followed by this Court throughout. The High Court was therefore justified in dismissing the writ petitions in limine.” 35. In this case, liability of the appellant is not created under any common law principle but, it is clearly a statutory liability and for which the statutory remedy is an appeal under Section 35 of FEMA, WPC9394/2009 Page 15 of 23 subject to the limitations contained therein. A writ petition in the facts of this case is therefore clearly not maintainable. 36. Again another Constitution Bench of this Court in Mafatlal Industries Ltd. v. Union of India speaking through B.P. Jeevan Reddy, J. delivering the majority judgment, and dealing with a case of refund of Central excise duty held: “77. … So far as the jurisdiction of the High Court under Article 226—or for that matter, the jurisdiction of this Court under Article 32—is concerned, it is obvious that the provisions of the Act cannot bar and curtail these remedies. It is, however, equally obvious that while exercising the power under Article 226/Article 32, the Court would certainly take note of the legislative intent manifested in the provisions of the Act and would exercise their jurisdiction consistent with the provisions of the enactment.” In the concluding portion of the judgment it was further held: (Mafatlal Industries Ltd. case,) “(x) … The power under Article 226 is conceived to serve the ends of law and not to transgress them.” 37. In view of such consistent opinion of this Court over several decades we are constrained to hold that even if the High Court had territorial jurisdiction it should not have entertained a writ petition which impugns an order of the Tribunal when such an order on a question of law, is appealable before the High Court under Section 35 of FEMA.” In the said case as an appeal under the relevant provisions was maintainable before the High Court and the Supreme Court has held that the Writ Petition should not have been entertained by applying the principle of alternative remedy. 11. Learned counsel for the petitioners, during