THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE S.ANANDA REDDY WRIT PETITIONS No. 1478, 1406, 4449, 4553, 4618, 5816, 7852 AND 10184 OF 2004 WRIT PETITION NO : 1478 of 2004 % 27-01-2005 Between: M/s Nava Bharat Ferro Alloys Limited, "Nava Bharat Chambers", 6-3-1109/1, 3rd Floor, Raj Bhavan Road, Hyderabad - 500 482, rep. by its Executive Director, Mr. P. Trivikram Prasad. ..... PETITIONER AND 1 The Union of India, rep. by its Secretary, Parliamentary Affairs, New Delhi. 2 The Union of India, Ministry of Finance, rep. by under Secretary to Government of India, New Delhi. 3 The Superintendent of Central Excise, O/o Assistant Commissioner of Central Excise, Division-II, Service Tax Cell. Kakinada. 4 The Superintendent of Customs & Central Excise, Bhadrachalam Range, Sarapaka - 507 128, Khammam District. .....RESPONDENTS For the Petitioner : MR.P.SRINIVASA REDDY, Advocate. For the Respondents : MR.A.RAJASHEKAR REDDY (SC FOR CG) < Gist: > Head Note: ? CITATIONS: 1. 1999(6) SCC 418. 2. AIR 1964 SC 925. 3. AIR 1961 SC 1480 4. AIR 1974 SC 436 5. (2001)4 SCC 60 6. AIR 1990 SC 1637 7. 267 ITR 9 C/15 IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) THURSDAY, THE TWENTY SEVENTH DAY OF JANUARY TWO THOUSAND AND FIVE PRESENT THE HON'BLE MR JUSTICE BILAL NAZKI and THE HON'BLE MR JUSTICE S.ANANDA REDDY WRIT PETITIONS No. 1478, 1406, 4449, 4553, 4618, 5816, 7852 AND 10184 OF 2004 WRIT PETITION NO : 1478 of 2004 Between: M/s Nava Bharat Ferro Alloys Limited, "Nava Bharat Chambers", 6-3-1109/1, 3rd Floor, Raj Bhavan Road, Hyderabad - 500 482, rep. by its Executive Director, Mr. P. Trivikram Prasad. ..... PETITIONER AND 1 The Union of India, rep. by its Secretary, Parliamentary Affairs, New Delhi. 2 The Union of India, Ministry of Finance, rep. by under Secretary to Government of India, New Delhi. 3 The Superintendent of Central Excise, O/o Assistant Commissioner of Central Excise, Division-II, Service Tax Cell. Kakinada. 4 The Superintendent of Customs & Central Excise, Bhadrachalam Range, Sarapaka - 507 128, Khammam District. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court may be pleased to issue a Writ or Order or direction more particularly one in the nature of a Writ of Mandamus declaring- that Chapter-V of the Finance Act, 1994 (Central Act) as amended by Finance Act, 1997 and the retrospective and validation provisions in Section 116 and 117 of the Finance Act, 2000 and the Section 158 of Finance Act 2003 in so far as they seek to levy service tax on amounts paid to Goods Transport Operators for carriage of goods by road as ultra vires Entry 56 of List-II of the VII Schedule to Constitution of India and hence unconstitutional; and in any event declare provisions treating entire freight charges as liable to service tax as discriminatory and unconstitutional; and consequently declare that the Petitioner is not liable to pay any service tax as user of Goods Transport Service during the period 16-11-1997 to 2-6-1998. Counsel for the Petitioner:MR.P.SRINIVASA REDDY Counsel for the Respondents : MR.A.RAJASHEKAR REDDY (SC FOR CG) WRIT PETITION NO : 1406 of 2004 Between: M/s.Sagar Cements Limited, 8-2-472/B/2, Road No.1, Banjara Hills, Hyderabad-500 034, rep.by its Executive Director, Dr.S.Anand Reddy. ..... PETITIONER AND 1 The Union of India, rep.by its Secretary, Parliamentary Affairs, New Delhi. 2 The Union of India, Ministry of Finance, rep.by under Secretary to Government of India, New Delhi. 3 The Superintendent of Central Excise, O/o.Superintendent of Central Excise, Kodada Ranga, Kodada, Nalgonda District. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court may be pleased to issue a writ or order or direction more particularly one in the nature of writ of mandamus declaring; that Chapter-V of the Finance Act,. 1994 (Central Act) as amended by Finance Act, 1997 and the retrospective and validation provisions in Section 116&117 of the Finance Act, 2000 and the Section 158 of Finance Act 2003 in so far as they seek to levy service tax on amounts paid to Goods Transport Operators for carriage of goods by road as ultra vires Entry 56 of List-II of the VII Schedule to Constitution of India and hence unconstitutional; and in any event declare provisions treating entire freight charges as liable to service tax as discriminatory and unconstitutional; and consequently declare that the petitioner is not liable to pay any service tax as user of Goods Transport Service during the period 16-11-1997 to 2.6.1998. Counsel for the Petitioner:MR.P.SRINIVASA REDDY Counsel for the Respondents : MR.ARAJASHEKAR REDDY (SC FOR CG) FOR RMAPP. WRIT PETITION NO : 4449 of 2004 Between: M/s Kakatiya Cement Sugar & Industries Limited, 1-10-140/1, Ashoknagar, Hyderabad - 500 020 rep.by its Executive Director, Mr.J.S.R.Prasad. ..... PETITIONER AND 1 The Union of India, rep.by its Secretary, Parliamentary Affairs, New Delhi. 2 The Union of India, Ministry of Finance, rep.by under Secretary to Government of India, New Delhi. 3 The Superintendent of Central Excise, O/o Superintendent of Central Excise, Kodad Range, Kodada, Nalgonda District. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court may be pleased to issue a Writ or Order or direction more particularly one in the nature of a Writ of Mandamus declaring - that Chapter-V of the Finance Act, 1994 (Central Act) as amended by Finance Act, 1997 and the retrospective and validation provisions in Section 116 & 117 of the Finance Act, 2000 and the Section 158 of Finance Act 2003 in so far as they seek to levy service tax on amounts paid to Goods Transport Operators for carriage of goods by road as ultravires Entry 56 of List-II of the VII Schedule to Constitution of India and hence unconstitutional; and in any event declare provisions treating entire freight charges as liable to service tax as discriminatory and unconstitutional; and consequently declare that the Petitioner is not liable to pay any service tax as user of Goods Transport Service during the period 16-11-1997 to 2-6-1998 Counsel for the Petitioner : MR.P.SRINIVASA REDDY Counsel for the Respondents : MR.ARAJASHEKAR REDDY (SC FOR CG) WRIT PETITION NO : 4553 of 2004 Between: Sree Rayalaseema Alkalies and Allied Chemicals Ltd., Represented by its Vice President (Customs and Excise), Sri M.V.Lakshmi Reddy, S/o.Subba Reddy, Aged 79 Yrs, R/o.Kurnool, Kurnool District. ..... PETITIONER AND 1 The Union of India, represented by its Secretary, Ministry of Finance, North Block, New Delhi. 2 The Commissioner of Customs and Central Excise, Tirupathi, Chittoor District. 3 The Delputy Commissioner of Central Excise, Kurnool Division, Kurnool. 4 The Superintendent of Central Excise, Range-II, Kurnool, Kurnool District. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court may be pleased to issue Writ, order or direction, more particularly one in the nature of Writ of Mandamus, declaring the provisions of Sections 68, 70 and 71-A of the Finance Act 2003 requiring the recipient of Goods Transport Services for the period of 16-11- 1997 to 2-6-1998 Service Tax from clearing and forwarding agents for the period 16- 7-1997 to 15-10-1998 as unconstitutional, illegal and opposed to the Law laid down by the Honourable Supreme Court and to consequently set aside the Notice issued by the 4th respondent vide OC No.918/2003 dated 4-11-2003 and pass such other order or orders. Counsel for the Petitioner:MR.K.V.UPENDRA GUPTA Counsel for the Respondents : MR.ARAJASHEKAR REDDY (SC FOR CG) WRIT PETITION NO : 4618 of 2004 Between: M/s Sree Rayalaseema Hi Strength Hypo Ltd, Gandiparla, Kurnool, Kurnool District, rep. by its Senior General Manager-cum- Company Secretary, K. Sambasiva Rao s/o China Kotaiah, aged 43 yrs, r/o Hyderabad, Hyderabad District. ..... PETITIONER AND 1 The Union of India, rep. by its Secretary, Ministry of Finance, North Block, New Delhi. 2 The Commisioner of Customs and Central Excise, Tirupathi, Chittoor District. 3 The Deputy Commissioner of Central Excise, Kurnool Division, Kurnool. 4 The Superintendent of Central Excise, Range-II, Kurnool, Kurnool District. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court may be pleased to issue Writ, order or direction, more particularly one in the nature of Writ of Mandamus, declaring the provisions of Sections 68, 70 and 71-A of the Finance Act 2003 requiring the recipient of Goods Transport Services for the period of 16-11- 1997 to 2-6-1998 Service Tax from clearing and forwarding agents for the period 16- 7-1997 to 15-10-1998 as unconstitutional, illegal and opposed to the Law laid down by the Honourable Supreme Court and to consequently set aside the Notice issued by the 4th respondent vide OC No. 918/2003 dated 4-11-2003. Counsel for the Petitioner:MR.K.V.UPENDRA GUPTA Counsel for the Respondents : MR.ARAJASHEKAR REDDY (SC FOR CG) WRIT PETITION NO : 5816 of 2004 Between: M/s. Sri Vishnu Cement Limited, No.1, 10th Main, Jeevanbima Nagar, Bangalore- 560 075, rep., by its Senior Manager[ Finance & Accounts] Mr. T.K. Ramesh. ..... PETITIONER AND 1 The Union of India, rep., by its Secretary, Parliamentary Affairs, New Delhi. 2 The Union of India, Ministry of Finance, rep., by Under Secretary to Government of India, New Delhi. 3 The Superintedent of Central Excise, O/o. Superintendent of Central Excise, Kodad Range, Kodad, Nalgonda District. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court may be pleased to issue a writ or order or direction more particularly one in the nature of a Writ of Mandamus declaring that Chapter-V of the Finance Act, 1994 [Central Act] as amended by Finance Act, 1997 and the retrospective and validation provisions in Section 116 & 117 of the Finance Act, 2000 and the Section 158 of Finance Act 2003 in so far as they seek to levy service tax on amounts paid to Goods Transport Operators for carriage of goods by road as ultra vires Entry 56 of List-II of the VII Schedule to Constitution of India and hence unconstitutional; and in any event declare provisions treating entire freight charges as liable to service tax as discriminatory and unconstitutional; and consequently declare that the Petitioner is not liable to pay any service tax as user of Goods Transport Service during the period 16.11.1997 to 2.6.1998. Counsel for the Petitioner:MR.P.SRINIVASA REDDY Counsel for the Respondents : MR.ARAJASHEKAR REDDY (SC FOR CG) WRIT PETITION NO : 7852 of 2004 Between: The Sirpur Mills Ltd. Sirpur Kaghaznagar, rep by its Asst. Officer (Liaison), Mr. D. Durga Prasad, S/o. Late D. Rajagopala Rao, aged 41 years, R/o. Hyderabad. ..... PETITIONER AND 1 The Union of India, rep by its Secretary, Ministry of Finance North Block, New Delhi. 2 The Central Board of Customs and Central Excise, North Block, New Delhi. 3 The Commissioner of Customs and Central Excise, Basheerbagh, Hyderabad. 4 The Superintendent (Service Tax), Central Excise, O/o. Asst. Commissioner of Central Excise, Nizamabad Division, KNAR Estate, 3rd Floor, Nizamabad - 503 003. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court may be pleased to issue a Writ of Mandamus or any appropriate Writ, order or orders, Direction or Directions declaring the provisions of Section 68, 70 and 71-A of the Finance Act, 2003 requiring the recipient of Goods Transport Services for the period of 16-11- 1997 to 02-6-1998 as unconstitutional, illegal and opposed to the law laid down by the Hon'ble Supreme Court and to consequently set aside the demand raised by the 3rd and 4th Respondent. Counsel for the Petitioner:MR.V.SRINIVAS Counsel for the Respondents : MR.ARAJASHEKAR REDDY (SC FOR CG) WRIT PETITION NO : 10184 of 2004 Between: M/s. Sree Rayalaseema Dutch, Kassenbouw Limited, Gandhiparla, Kurnool, Kurnool District. Rep. by its General Manager D. Suresh Babu, S/o. Rama Murthy, aged 49 Years, R/o. Kurnool, Kurnool district. ..... PETITIONER AND 1 The Union of India, Rep. by its Secretary, Ministry of Finance, North Block, New Delhi. 2 The Commissioner of Customs and Central Excise, Tirupathi, Chittoor District. 3 The Deputy Commissioner of Customs and Central Excise, Kurnool Division, Kurnool. 4 The Superintendent of Central Excise, Range-II, Kurnool, Kurnool District. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court may be pleased to issue Writ, order or direction, more particularly one in the nature of Writ of Mandamus, declaring the provisions of Sections 68, 70 and 71-A of the Finance Act, 2003 requiring the recipient of Goods Transport Services of 4th page and forwarding agents fort the period 16-07-1997 to 15-10-1998 as unconstitutional, illegal and opposed to the law laid down by the Honourable Supreme Court and to consequently set aside the Notice issued by the 4th respondent vide OC No. 920/2003 dated 04-11-2003. Counsel for the Petitioner:MR.K.V.UPENDRA GUPTA Counsel for the Respondents : MR.A.RAJASHEKAR REDDY (SC FOR CG) The Court made the following : COMMON ORDER : (Per Hon’ble Sri Justice Bilal Nazki) All these Writ Petitions raise common questions of facts and law therefore, are being disposed of by a common order. For the purpose of facts, we give reference to Writ Petition No.1478 of 2004 and also to the counter filed in the same Writ Petition. The constitutional validity of levy of service tax by the Parliament on fright charges incurred by the petitioner on carriage of goods by road, is challenged. This petitioner had filed earlier, Writ Petition No.950 of 1998 and had questioned the charging provisions on the ground of absence of legislative competence. This Writ Petition was allowed by the Court with a batch, on 05.11.1999, following the judgment of the Hon’ble Supreme Court in Laghu Udyog Bharathi [1999(5) JT 352] case, striking down Rule 2(1)(d)(xvii) relating to payment of service tax by users of clearing and forwarding agents service and users of goods transport service. By Finance Act, 2000, the Parliament amended the provisions for the limited period of 16-7-1997 to 16-10-1998 to enable collection of tax from the service users also and enacted validating provisions. Therefore, the petitioner filed the Writ Petition, questioning the levy of service tax on goods being transported by the petitioners, on the grounds of legislative incompetence and discrimination. The petitioners in this Writ Petition contend that they are a Public Limited Company engaged in manufacture of sugar and ferroalloys and has its factories at Samalkot and Paloncha. During the course of its business, the petitioners engage trucks for inward and outward movement of goods. The freight charges paid by the petitioner for transporting goods involves use of trucks and for the purposes of use of trucks, the fuel is also arranged by transporters. The act of transport does not merely involve personal services of transporters but also vehicles and fuel. Chapter-V of the Finance Act, 1994 provide for levy of service tax on utilization of transport services by the petitioners. It was amended by Finance Act of 1997 and by virtue of it, service tax of 5% on the amount of freight is charged, which is according to the petitioners, un-constitutional and ultra vires to the legislative powers of the Parliament. It is contended that the provisions are also unreasonable and discriminative and in violation of Article 14 and 19(1)(g) of the Constitution of India. Therefore, the petitioners challenged the constitutional validity of Chapter-V of Finance Act, 1994 as amended by Finance Act, 1997 and Finance Act, 2000 insofar as levy of service tax on persons like the petitioner at the rate of 5%, is concerned. The respondents in their counter, have stated that the goods, transport operators were brought into the Service Tax net with effect from 16.7.1997 and the service tax was required to be paid by the users of the transport services. The levy imposed on users of transport services was questioned before the Supreme Court by various writ petitions. The Supreme Court in its judgment in Laghu Udyog Bharathi and others Vs. Union of India [1999 (6) SCC 418], held that levy of Service Tax on users of goods transport operator services, was illegal. In order to validate the imposition of the said tax and also in furtherance of rectifying the defects in law pointed out by the Supreme Court, the Parliament amended Sections 68 and 70 retrospectively and a new Section 71-A was inserted in Finance Act of 1994 to validate the collection of Service Tax from the users of goods transport operator services for the period from 16.07.1997 to 01.06.1998. These amendments were also challenged before the Supreme Court in Writ Petition No.411 of 2000 in the case of Associated Cement Company Ltd. Vs. Union of India and another, wherein the legality of Sections 116 and 117 of the Finance Act, 2000, was challenged. The Supreme Court did not grant stay in respect of payment of tax, but extended the time to file returns till 28.11.2003. Further amendments however, were carried out in Finance Act, 2003 in order to validate the imposition of tax from 16.7.1997 to 02.6.1998 and to remove the basic infirmities in law pointed out by the Supreme Court in Laghu Udyog Bharathi Vs. Union of India case. The arguments, which have been made by the learned Counsel for the petitioners, mainly revolve round the legislative competence of the Parliament to legislate on matters, which according to the petitioners, exclusively fall within the domain of State Legislature. Before going to this argument, it is necessary to reproduce the amendments that were affected to the Finance Act in 2003. Section 68 in 2003 Act reads as under; “Section 68: Payment of service tax – Provided that – i. in relation to services provided by a clearing and forwarding agent, every person who engages a clearing and forwarding agent and by whom remuneration or commission (by whatever name called) is paid for such services to the said agent for the period commencing on and from the 16th day of July, 1997 and ending with the 16th day of October, 1998; or ii. in relation to services provided by goods transport operator, every person who pays or is liable to pay the freight either himself or through his agent for the transportation of goods by road in a goods carriage for the period commencing on and from the 16th day of November, 1997 and ending with the 2nd day of June, 1998, shall be deemed to be a person liable to pay service tax, for such services provided to him, to the credit of the Central Government.” Section 71-A reads as under; “Section 71-A: “Notwithstanding anything contained in the provisions of Section 69 and 70, the provisions thereof shall not apply to a person referred to in the proviso to sub-section (1) of Section 68 for the filing of return in respect of service tax for the respective period and service specified therein and such person shall furnish return to the Central Excise Officer within six months from the day on which the Finance Bill, 2003 receives the assent of the President in the prescribed manner on the basis of the self assessment of the service tax and the provisions of Section 71 shall apply accordingly.” In Finance Act of 2000, Section 117 lays down; “117. Validation of certain action taken under Service Tax Rules:- Notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, sub-clauses (xii) and (xvii) of clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994 as they stood immediately before the commencement of the Service Tax (Amendment) Rules, 1998 shall be deemed to be valid and to have always been valid as if the said sub-clauses had been in force at all material times and accordingly,-- i. any action taken or anything done or purported to have been taken or done at any time during the period commencing on and from the 16th day of July, 1997 and ending with the day, the Finance Act, 2000 receives the assent of the President shall be deemed to be valid and always to have been valid for all purposes, as validly and effectively taken or done; ii. any service tax refunded in pursuance of any judgment, decree or order of any court striking down sub-clause (xii) and (xvii) of clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994 before the date on which the Finance Act, 2000 receives the assent of the President shall be recoverable within a period of thirty days from the date on which the Finance Act, 2000 receives the assent of the President, and in the event of non-payment of such service tax refunded within this period, in addition to the amount of service tax recoverable, interest at the rate of twenty-four per cent, per annum shall be payable, from the date immediately after the expiry of the said period of thirty days, till the date of payment. Explanation:- For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force.” The argument is that the Finance Act, 1994 as amended by Finance Act, 1997, Finance Act, 2000 and Finance Act, 2003, are ultra vires on the ground that taxes on goods and passengers carried by road or inland waterways is within the exclusive domain of the State legislature. Entry 56 in List-II of Schedule-VII of the Constitution reads as, “Taxes on goods and passengers carried by road or on inland waterways” and Entry 89 in List-I of Schedule-VII reads as, “Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights”. The contention is that by Entry 56 in List-II, imposition of taxes on goods and passengers carried by road or by inland waterways, is in the exclusive domain of the State legislature, whereas in terms of Entry 89 in List-I, taxes on goods or passengers carried by railways, sea or air, is in the exclusive domain of the Parliament. Since the tax imposed by the impugned Acts is tax on passengers and goods carried by road, it is outside the scope of Parliament. There cannot be any dispute that tax can be levied on goods and passengers by the State legislature alone, if they are carried by road or inland waterways. But in the present Writ Petitions, the main question is whether the service tax, which is imposed by the impugned legislations, is tax on goods and passengers. The contention of the respondents is that the tax levied by the Parliament is not tax on goods or passengers, but is tax on providing of service and as such, is within the domain of the Parliament. These arguments have been advanced not for the first time before this Court, but have received the attention of various Courts including the Supreme Court. We have incorporated hereinabove Sections 68 and 71-A of the Finance Act, 2003, which is the latest. Those sections make it clear that tax levied is not on goods or person, but is tax on service. The judgments where these questions were considered and on which the Counsel for petitioners relied upon, are; (1) Laghu Udyog Bharati & Another V. Union of India & Others In this case, Rules 2(xii) and 2(xvii) of the Service Tax Rules, as amended in 1997 were subject matter of dispute before the Hon’ble Supreme Court. These rules had been challenged on the ground that the said sub-rules were contrary to the provisions of Sections 65 and 66 of the Finance Act of 1994, whereby Service Tax was sought to be