IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN TUESDAY, THE 2ND AUGUST 2011 / 11TH SRAVANA 1933 WA.No. 657 of 2011() -------------------- AGAINST THE JUDGEMENT IN WPC.5800/2005 Dated 11/09/2006 .................... APPELLANTS/RESPONDENTS: 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 CENTRAL EXCISE, CENTRAL REVENUE BUILDINGS, I.S.PRESS ROAD, ERNAKULAM, KOCHI. BY ADV. SRI.JOHN VARGHESE,SC,CEN.BOARD OF EXCIS RESPONDENTS/PETITIONERS: 1. THE HIGHLAND PRODUCE CO. LTD. P.B.4260, PANAMPILLY NAGAR.P.O. COCHIN-682 036, REP. BY ITS CHIEF FINANCIAL OFFICER, MR.R.VENUGOPALAN. 2. THE RAJAGIRI RUBBER & PRODUCE CO. LTD. P.B. NO.4260, PANAMPILLY NAGAR P.O. COCHIN-682 036, REP. BY ITS CHIEF FINANCIAL OFFICER, MR.R.VENUGOPALAN. 3. THE MIDLAND RUBBER & PRODUCE CO. LTD. P.B. NO.4260, PANAMPILLY NAGAR P.O. COCHIN-682 036, REP. BY ITS CHIEF FINANCIAL OFFICER, MR.R.VENUGOPALAN. 4. THE NELLIYAMPATHY TEA & PRODUCE CO. LTD. P.B. NO.4260, PANAMPILLY NAGAR P.O. COCHIN-682 036, REP. BY ITS CHIEF FINANCIAL OFFICER, MR.R.VENUGOPALAN. 5. THE KALPETTA ESTATES LTD., P.B. NO.4260, PANAMPILLY NAGAR P.O., COCHIN-682 036, REP. BY ITS CHIEF FINANCIAL OFFICER, MR.R.VENUGOPALAN. ADV. SRI.E.K.NANDAKUMAR FOR R1 SRI.A.K.JAYASANKAR NAMBIAR DR.K.P.PRADEEP THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ALONG WITH W.A. NO.850/2011 & CONN. CASES ON 02/08/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... Writ Appeal Nos.657 & 850 of 2011, 1360, 1690, 2538, 2568, 2569, 2600, 2611, 2612, 2613, 2693, 1654, 2627, 1664, 1869, 1951 & 2694 of 2007, 622, 649, 2322, 2324 & 2332 of 2008, 118, 162, 239, 288, 310, 384, 412, & 881 of 2009, W.P.(C) Nos.1374 & 8059 of 2005 .................................................................... Dated this the 2nd day of August, 2011. JUDGMENT Ramachandran Nair, J. The connected Writ Appeals are filed by the Central Government along with Commissioner of Service Tax challenging the judgment of the learned Single Judge declaring liability on respondents to pay service tax on payments made to goods transport agencies towards consideration for the transport of goods by road only with effect from 13.5.2005 i.e. after sub-section (2) was introduced to Section 70 of the Finance Act, 1994 (hereinafter called “the Act”). We have heard separate Standing Counsel appearing for the Central Government and the department concerned which together have filed the appeals and also A.K.Jayasankar Nambiar, counsel appearing for respondents, one of which is Chamber of Commerce and the remaining being members WA 657/2011&conn. 2 which are limited companies paying service charges to transport agencies for transport of goods by road. 2. The W.P.(C)s were filed by respondents before this court challenging Rule 2(1)(d)(v) on the ground that the said Rule providing for payment of tax by persons availing transport service is incompatible with statutory provisions which provides for collection and remittance of service tax by service provider which in this case is the transport agency. The learned Single Judge by following judgment of Honourable Supreme Court in LAGHU UDYOG BHARATI VS. UNION OF INDIA reported in 1999(6) SCC 418 held that the infirmities pointed out by the Supreme Court that is, conflict between the statute particularly Section 70 and the Rules, continued to exist until Finance Act, 2005 introducing Section 70(2) of the Act with effect from 13.5.2005 was passed and so much so, Rule providing for payment of service tax by the parties availing service is unenforceable. The respondents have started remitting service tax commencing from 13.5.2005 onwards half yearly and the return in Form ST-3 prescribed in Notification No.31/2005 dated 20.10.2005 under Rule 7 was also WA 657/2011&conn. 3 filed. Standing Counsel appearing for the appellants on the other hand referred to the decision of the Supreme Court in GUJARAT AMBUJA CEMENTS LTD. ANDANOTHER VS. UNION OF INDIA reported in 2005(4) SCC 214 and submitted that after the amendment to Section 66 and introduction of Section 68(2) and Section 69(2) the lacunae pointed out by the Supreme Court in the first above referred judgment does not survive and respondents are liable to pay tax with effect from 1.1.2005. 3. The only question for our consideration is whether the various amendments introduced to the definition clause and the charging section to get over the decision of the Supreme Court in LAGHU UDYOG BHARATI's case are sufficient to levy and demand service tax on the respondents for the payments made for service availed by them from transport agencies for transport of the goods by road from 1.1.2005. The original proposal to levy tax on transport service was on goods transport operators, which though was introduced in 1997, could not be enforced on account of the massive strike by public carriers. Government later gave up the proposal and introduced sub-section WA 657/2011&conn. 4 (50b) to Section 65 in January 2005 which provides as follows: "S.65(50b) Goods transport agency" means any commercial concern which provides service in relation to transport of goods by road and issues consignment note, by whatever name called." While the charging Section namely, Section 66 of the Finance Act, 1994 provides for levy of service tax on all the services covered by Section 65 and collection of the same in such manner as may be specified, Section 68(2) provides for payment of service tax and Section 70 provides for filing of returns which until 13.5.2005, were are as follows: "S.68. Payment of Service Tax: (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed. (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. S.70. Furnishing of Returns: (1) every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the WA 657/2011&conn. 5 Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be specified. Amendment to S.70 w.e.f. 13.5.2005 (2) The person or class of persons notified under sub- section (2) of section 69, shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed. (emphasis supplied) " 4. The case of the respondents that found acceptance with the learned Single Judge is that inspite of amendment of the charging section and the machinery provision providing for collection of tax in the manner provided under the Act and Rules unless provision is introduced requiring the person availing service notified under Section 69(2) to file the return, he has no liability to furnish the return and pay tax. Another important ground raised by the respondents in support of their challenge against the applicability of the Rules for any period prior to coming into force of Section 70(2) of the Act is the want of form for return in ST-3, under which assessees are bound to furnish half yearly returns for payment of tax as provided under the Service Tax Rules. Even though this issue was not considered or decided by the learned Single Judge, we notice that return applicable to the WA 657/2011&conn. 6 respondents was prescribed and notified by the Government under Notification No.31/05 dated 20.10.2005. In other words, even though service tax was leviable on all companies for the transport service availed for transport of goods by road from 1.1.2005, the requirement of filing the return was introduced by sub-section (2) of Section 70 to the Act with effect from 13.5.2005 and the Form for filing the return was prescribed only on 21.10.2005. Consequent upon the introduction of Section 70(2) and Form ST-3 return prescribed by Rule 7, the respondents have furnished the returns for the period commencing from 13.5.2005 and remitted tax on which there is no dispute. 5. Standing Counsel appearing for the department referred to the findings of the Supreme Court in GUJARAT AMBUJA CEMENTS CASE above referred wherein certain Rules have been held illegal by the Supreme Court only because the charging provisions of the Act provide otherwise. Now that the charging section itself has been amended so as to make the provisions of the Act compatible with Rules, the first above referred decision of the Supreme Court has no application is the contention of the appellants. In paragraph 12 of the WA 657/2011&conn. 7 LAGHU UDYOG BHARATI's case the Honourable Supreme Court held as follows: "These sections clearly show that the return which has to be filed pertains to the payment which are received by the person rendering the service in respect of the value of the taxable services. Surely, this is a type of information which cannot, under any circumstances, be supplied by the customer. Moreover the operative part of sub-section (1) of Section 70 clearly stipulates that it is a person responsible for collecting the service tax who is to furnish the return. By rules which are framed, the person who is receiving the services cannot be made responsible for filing the return and paying the tax. Such a position is certainly not contemplated by the Act." Admittedly the service tax liability dealt with in GUJARAT AMBUJA CEMENTS' case by the Supreme Court is on the operator of transport service and not on the receipient of the service. Therefore, the decision as such is not applicable. 6. We have to only consider whether the amendments made prior to introduction of sub-section (2) to Section 70 are sufficient to levy and demand service tax on the respondents for the service charges paid by them for the transport service availed from transport operators i.e. for carriage of goods by road. In this connection we have to consider the scope of Section 68(2) which specifically says that service tax shall WA 657/2011&conn. 8 be paid by such person and in such manner a 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 payment of service tax in relation to service. It is to be noted that Section 70 to which sub- section (2) is introduced by Finance Act, 2005 with effect from 13.5.2005 is in the same Chapter and only by virtue of sub-section (2) so introduced, receipients of service notified under Section 69(2) are required to furnish return and remit the tax. It is to be further seen that what is required in Section 70(2) is that the return should be furnished in such form and in such manner and at such frequency as may be prescribed. Form ST-3 is prescribed under Rule 7 of the Rules and the returns applicable to the respondents were prescribed by the Government only on 21.10.2005 as we have already stated above. Strangely, the Government has not chosen to give retrospectivity to Section 70(2) as well as to the Form prescribed under Rule 7. What the appellants seek to achieve is essentially retrospectivity for Section 70 (2) without which respondents were not required to furnish return and pay tax. In other words, the amendment introduced after LAKHU WA 657/2011&conn. 9 UDYOG BHARATI's case was inadequate to bring the respondents within the scope of the levy in as much as they were not required to furnish any return and the form of return itself was not prescribed. So much so, we feel the respondents rightly started remitting tax only after introduction of Section 70(2) i.e. with effect from 13.5.2005 and no tax could be levied from them for any period prior to that for the value of the transport service availed by them. Even though Standing Counsel for the department relying on decision of the Supreme Court in GUJARAT AMBUJA CEMENTS' case contended that amendment to the definition clause "assessee", the charging section, Section 66, Section 68(2) and Section 69(2) are sufficient to bring the respondents within the scope of the levy with effect from the date of introduction of tax on the transport service i.e. from 1.1.2005, we are of the view that when the charging section requires payment of tax in the manner prescribed, the levy so introduced should be in the manner and in accordance with the procedure prescribed. We do not think the provisions on levy and collection are complete unless provision is introduced requiring assessees to file return and forms are prescribed WA 657/2011&conn. 10 for filing the return for payment of tax. We, therefore, uphold the findings of the learned Single Judge with an additional ground with reference to the Form introduced much later which was not available for filing of return and payment of tax in the first half of the year. Consequently Writ Appeals are dismissed and in view of the judgment in the Writ Appeals and WP(C) Nos.8059 and 1374 of 2005 are allowed on the above lines i.e. declaring liability of the petitioners only with effect from 13.5.2005. Sd/- C.N.RAMACHANDRAN NAIR Judge Sd/- P.S.GOPINATHAN Judge True copy P.S. to Judge pms