ff ^ HIGH COURT OF CHHATTISGARH: BILASPUR W.P. fT.) No.1378/2007 Jitendra Singh Bagga -Versus- Chhattisgarh State Civi! Supplies Corporation Ltd. and another W.P. (T.) No.5603/2007 M/s Daljit Kaur Bagga -Versus- Union of India and another AND W.P. (T.) No.4063/2007 Harvinder Singh Bhatia -Versus- Union of india & another ^- POSTFORORDERON 3.1" AUGUST, 2008 SAi.'^^a ^^' ^sg^s^ HiQH COURT OF CHHATTISGARH: BILASPUR Petition m No.1378 of 2007 PETITIQNER: RESPONDENTS: -Versus- 1. Jitendra Singh Bagga, S/o sardar Surjit Singh Bagga, Aged about 47 years, Proprietor Satkar Roadlines, resident of 6-A, 25 Bungalow, Vyapar Vihar Road, Bilaspur, District Bilaspur (Chhattisgsrh) Chhattlsgarh State Cwii Supplies Corporation, Limited Bal Ashram Parisar, Kuteheri Chcwk, Raipur (Chhattisgarh) Through its Managing Director Union of india, Secretary, Department of Centra! :xcise, New Delhi. Writ Petition (T) No.5603 of 2007 PETITIONER: RESPQNDENTS: -Versus- 1. \ • 2. M/s Daijit Kaur Bagga, Through Proprietor Smt DaSJit Kaur Bagga, W/o Shri Jitendra Singh Bagga, aged about 40 years, resident of House No.SA, 25 Banglow Coiony, Vyapar Vihar Road, Bilaspur (Chhattisgarh) Union of India, Through Secretary, Department of Centra! Excise, New Dethi. Chhattisgarh State Civii Supplies Corporation, Through Managing Director, Bal Ashram Parisar, Kutcheri Chowk, (Chhattisgarh) Writ Petition m No.4063 of 2007 PETITIQNER: RESPONDENTSj -Versus- 1. Harvlnder Singh Bhatia, S/o Sardar Baiwant Singh Bhatia, aged about 45 years, Proprirtor Bhatia Road Carriers, Resident of Bazarpara, Pathaigaon, District Jashpur (Chhattisgarh) Union of India, Through fl""^"*^ ^"^.. ^ '& '!Ws!,. ii -•^ ^ "V '" -as'^' ^-...^^•""s" <^' \J v Secretary, Department of Central Excise, Nevv Delhi. 2. Chhattisgarh State Civil Supplies Coiporation, Through Managing Director, Bat Ashram Parisar, Kutcheri Chowk, Raipur (Chhattisgarh) (Writ Petitions under Article 226 of the Constitution of India) Present: Shri Manindra Shrivastava, Sr. Advocate with Shri Amrito Das, Advocate for the petitioners. Shri N.K. Vyas, counsei for respondent No.1. Shri V.R. Tiwari, counsel for respondent No.2. ORDER (Passed on^f'August, 2008) DHIRENDRA MISHRA. J. 1. i.A. No.5/2008, application for taking tender documents on record is ailowed. Tender documents are taken on record. 2. The aforesaid writ petitions are being disposed of by this common order as the common question, "Whether the respondent Chhattisgarh State Clvi! Supplies Corporation Ltd., (for short the Corporation') can recover service tax under the Finance Act from the petitioners for transportation work executed by them underthe agreement with the Corporation", is involved for adjudication oftheir petitions. 3. Briefly stated the facts of the case are that the petttioners are engaged In the business of providing transport service. They are providing services to the Corporation and the Food Corporation of India (FC!). The Corporation tesued NIT (Notice inviting Tender) for the contract work of transportation of food- irains within She State of Chhattisgarh. The petitioners submitted their tender in response to the NiT. Their tenders were accepted being lowest and they were awarded contract of transportation by the respondent Corporation. The J<7 4 'J petitioners and the Corporation entered into an agreement for execution of the work and thereafter the petitioners started performing the work of transportation of the goods for the Corporation. The respondent Corporation made deductions from the bilts of the petitioners towards the payment of service tax. The petitioners submitted representation against the deductions. However, the Corporation continued to make deductions as aforesaid. 4. Shri Manindra Shrivastava, Learned Senior Counsel appearing on behalf of the petitioners vehemently argued that It is clear from the tegislative seheme of the Act and the relevant provisions contalned in the rules that service tax, particuiariy, in reiation to goods transport is a tax on consumer. Section 68 provides for coliection mechanism. The iegislative scheme c!early shows that the liability for payment of service tax is on the recipient of sen/ice i.e. one who pays or is liable to pay freight charges either himself or through his agent. In reiation to services of transportation of goods by road, the tax is to be paid by the consumer of service and service provider i.e. goods transport agency is not obliged to coltect tax. The goods transport agency is, therefore, neither iiabie to pay nor iiable to collect the tax which is otherwise payable by the consumer of service, in the instant case, the respondent Corporation is obiiged to deposit tax with the Revenus directly. The stand of the Corporation that it is merely a collecting agency to coitect tax from the service provjder and the iiabiiity of payment of service tax is on service provider is based on wrong assumption. The Corporation's reiiance on the clauses of tender conditions particuiarly, clause 8.10 and 8.11 of the NIT in W.P.(T) Nos.1378/2007 & 5603/2007 is erroneous ss these condltions do not impose any such iiability on the petitioners. Those fcwo clauses on a rational, logicai and fair interpretation would only mean that the transporter wouid be iiable to pay tax which it is liable to pay under the Saw and it could not be interpreted to mean that it seeks to transfer the liability to pay tax which otherwise is payable by the respondent Corporation under the iaw. +. >> y 5. The respondent Corporation, being a State under Article 12 of the Constitution of India and an instrumentality of the State, is not authorized to levy or collect any tax save with the authority of law in view of provisions contained in Article 265 of the Constitution of India. Neither any agreement nor any concession or acquiescence would entitle the State to levy or collect any tax not authorized by the law. The action of the respondent Corporation of recovery of service tax from the petitioners is void being vioiative of Artide 265 of the Consttoition of India and Section 24 of the Contract Act, 1872. 6. On the other hand, Shri N.K. Vyas and Shri V.R. Thirari, learned counsel appearing for the respondent Corporation subm'rtted that service tax is a vatue added tax which is leviable oniy when service is provided within the country. Just as excise duty is a tax on vatue addition on goods, service tax is on vaiue addition by rendition of service. It is on commercial activities and it te not a charge on the business. The respondent Corporation is only cottectmg machinery tor collectionof tax. The recipientof goods transport agency is made responsible for coltection and depositing the seri/ice tax only for the reason that the transporters are not to be bothered about compliance of service tax law like registration, remittance of tax into the Govemment , Account, filing of return etc. 7. Referring to ciause 8.10 and 8.11 of the NIT, it was contended that the petitloners have accepted the tender conditions which is part of agreement after entering into agreement for the transport work and the clauses clearly mention that all the taxes imposed from time to time shall be borne by the transporters and the Corporation would not be liable for its payment. Any tax liability/surcharge imposed by the State Government or the Centra! Government shail be the liabiiity of the transporter. Where the transporter fails to discharge liability, the taxes wiil be paid after deduction ftom the bills of the fransporters. '^ 8. I have heard learned counsel for the parties. 9. Section 65 (105) (zzp) of the Finance Act, 1994 as amended by the Finance Act, 2005 w.e.f. 16 June 2005 reads as under:- "Taxable service means (service provided or to be provided) to a customer by a goods transport agency in retetion to fransport of goods by road in a goods carriage." 10. Section 66 deais with charge of service tax whereas Seetion 68 of the Act deals with payment of service tax which reads as under: "1. Every person providing taxable service to any person shali pay service tax at the rate specifial 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 Cenfral Government in the OfRcial Gazette, the serviee tax thereon shail be paid by such person and in such manner as may be prescribed at the rate specified m Section 86 and all the provisions of this Chapter shalt appiy to such person as if he is the person tiabie for paying the service tax in rei^ion to such service." 11.in order to carry out the provisions of the Act, Service Tax Rules, 1994 was framed. Ru!e 2 (1)(d)(v) provides for persons liabie for paying service tax in retation to taxabie service provided by a goods transport agency which reads as under:- "in relation to taxable service provided by a goods transport agency, where the consigner or consignee of goods is, - (a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948); (b) any company (formed or registered under) the Companies Act, 1958(1 of 1956); (c) any corporation estabtished by or under any law; (d) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in foree in any part of tndia; ^^r' •*;, (e) any co-operative society estabtished by a- under any law; (f) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or fte rules macte thereunder; or (g)any body corporate established, or a partnership firm registered, by or under any iaw, any person who pays or is liable to pay frelght either himseif or through his agent for the transportation of such goods by road in a goods carriage." 12. Thus, from perusal of the scheme of the Act and the Rules framed thereunder, it is manifestly clear that in the instant case, since the respondent is a Corporation established under the iaw and as such, is tiable to pay freight either hsmself or through agent for transportation of goods by road in a goods carriage, the Corporation is liabie for payment of service tax. 13.The respondent Corporation has not disputed the liability to pay tax under the Finance Act. However, contention of the respondent Corporation is that the service tax is a value added tax just like excise duty. The tax is uitimately to be borne by the customer/consumer as it is destination based consumption tax. The role of the respondent Corporation was to coilect tax and pay it to the Revenue. The respondent at the time of pubiishing NIT have ctearly t mentioned that any tax/sureharge imposed from time to time by the State shalt be payable by the transporter and it shalt not be the liability oftte Corporation. Where the transporter faiis to discharge iiability, It would be paid by the Corporation after deduction from their bilts. 14.3hri iyianindra Shrivastava, learned senior counsel contended that clause 8.10 and 8.11 of the conditions of NIT cannot be interpreted that it imposes iiability upon the transporter for payment of service tax which is otherwise to be paid by the corporation who is liable to pay freight. Referring to Article 265 of the Constitution, it was argued that no tax can be levied or coilected from the petitioners except by authority of law. Since liabiiity of payment of tax as gier ^ 1 '-...I V-*-.' the scheme of the Finance Act and. the rutes framed thereunder is of the respondent Corporation, the Corporation cannot recover service tax from ths petitioners on the basis of clause 8.10 and 8.11 of the tender cond'rtions, as conditions in question, are opposed to publte policy as provided in Section 24 of the Contract Act. 15. In the matter of T.N. Kalyana Mandapam Assn. V. Union of tndia and others , the association of owners of Kalyana Mandapam, who let out their premises to their ciients and who also provided other facilities sudi as, catering, electricity, water etc. to their clients, filed a writ petition quesNoning the constitutional validity of Section 66 and 67 (o) of the Finance Act, 1994 and Rule 2 (1)(d)(ix) of the Service Tax Rules, 1994 and other provisions reiating to Kaiyana Mandapam, their petition was dismissed by a Division Bench of the Madras High Court. Dismissing the appeal of the petitioners the Hon'bie Supreme Court heid in para-4 thus:- "Service 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 sen/ice 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 Rutes, 1994, the servlce provider (in the present case the mandap-keeper) ts expected to collect the tax from the ciient utilizing his services. 16.in the latest judgment, in the matter of All India Federation of Tax Practitioners & Ors. Vs. Union of india & Ors. , the Supreme Court summarized the reasons for imposition of service tax in paragraph 4 thus: "Service tax is an indirect tax levied on seWed services provlded by cerlain categories of persons including companies, association, firms, body of individuat, etc. Service sector contributes about 64% to the GDP. \ (2004) 5 Supreme Court Cases 632 2007 AIR SCW 5437 ''^s: -f. 'V ) •^' ^ "Services" constitute heterogeneous spectrum of economic activities. Today services cover wide range of activities such as management, banking, insurance, hospitality, consuitancy, communication, administration, entertainment, research and development activities forming part of retailing sector. Service sector is today occupying the centre stage of the Indian economy. It has become an Industry by itself. In the contemporary world, development of service sector has become synonymous with the advancement of the economy. Economics hok5 Vne wew ttiat ttwre is no disffnctton between ttie consumplson of goods and consumptton of serwces as both saSsfy the human needs." 17. Dealing with the concept and nature of the tax it has been further held in paras-6 and 7 thus:- "6. At this stage, we may refer to the concept of "Value Added Tax" (VAT), which is a general tax that applies, in principle, to all commeivial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by >e consumer. 7. In the light of what is stated above, it is ctsar that Sen/ice Tax is a VAT which in turn is cteslinaffon fassed consumptksn tax in the sense that it is on commercial activities and is not a charge on the business but on the t. consumer and it would, logicaliy, be leviable only an services provided within the country. Service tax is a value added tax." 18.1n the matter of Gujarat Ambuja Cements Lfri., and another V. Union of India and another^, the Supreme Court dealing with Sections 1 16 and 117 of the Finance Act, 2000 has held in para-35 thus: "The point at which the coilection of the tax is to be made is a question of legislative convenience and part of the machinery for realization and recovery of the tax. The manner of the coltection has been described as "an accident of administration; it is not of the essence of the duty". It wili 2005 AIR SCW 2051 -^ not change and does not affecl the essential nature of the tax. Subject to the legislative competence of the Taxing Authority a duty can be imposed at the stage which the authority finds to be convenient and the most effective whatever stage it may be. The Central Government is therefore legally competent to evolve a suitable machinery for collection of the service tax subject to the maintenance of a rational collection behween the tax and the person on whom it is imposed. By Sections 116 and 117 of the Finance Act, 2000, the tax is sought to be levled from the recipients of the services. They cannot claim that they are not connected with the service since the sen/ice is rendered to them." 19-Division Bench of the Aliahabad High Court in the matter of Thermal Contractors Asscn., Vs. Dir. Rajya Vidyut Utpadan Nigam Ltd., , has he!d that the payer of service tax is though entitled to realise service tax from its customers, yet it all depends upon the contracts entered into between the parties. It is always open to the service provider to charge or not to charge amount of service tax from its customers and to pay it from its own pocket. 20.1n the lightofthe aforesaid principle oflaw laid down, the contention of iearned counsel for the petitioners that the scheme of the Act and the Ruies framed thereunder fixes liabiiity of payment of tax on the respondent Corporation and the Corporation cannot recover the same on the basis of conditions of NIT, as the same would amount to levying of tex without any authority of taw in vioiation of Articte 265 of the Constitution and such contract would be void as per Section 24 ofthe Contract Act cannot be accepted. 21.Now, coming to the next question whether the respondent Corporation was entitled to recover the service tax on the basis of Clause 8.10 and 8.11 of the NiT from the petitioners, in W.P.fT.) Nos.1378/2007 & 5603/2007, ciause 8.10 and 8.11 reads as under: 2006(4)STR18(ALL.) 10 c^ ..,'^;i^^,.. \, J "8.10 gft uRdg.i g>rf ^ ^RFT feift TOH IT; gfl^ ?fftgit'/th4'c|lR.i!l ?T?T vs^. ^ craf, wfrr cFgi^, ^reir TO]^ gnf^ ^ ^ ^ ymn 1§iA un^ t, tft ?>n ira?R ^ gTOFT ^ yRdg'i (fr ^lw SIT^ gi^ :TO;t, gat siif^ T? etei ^ro ? sp'i gcg; giiR (NT '•ff're-wra 'n aiMte uj|"A ^ st i|R(lg-1*rtf ^V WS Vg^ Vi^. ?14, *IM'i^M ?RI 'WW 't^ giRTR i^t tor un^ni 8.11 vss wmR swn ^? WR)R (FRT cRifei ^ ift 'w/'?ife?/3iBTir? ant^ dp^ Q>4 airt ^ ^ir4 gimH ^t Rf"!<;i'l 4R<l^*di ^t grttl ql^lcprif gTff yidH •;I^t8i4 ull^ ^ ^T^ ^Rif '•ft WSlSt, cR 'yidM felT un^ini Whereas, in W.P.(T.) No.4063/2007, relevant condition of NiT contained in document Annexure-R/2-1 is ciause 1.14 which reads as under: "1.14 1ifer t Tiga iR^-r <??f 4 ^i ff ^FFI i!? ?IRFI sro sif^Rtftg ;rt cfiTt ^ -nftr 'tif^Bid '?Nt i ao: P|(!!(! I'! ^ !R^( (R^ wra ?n wi tpr Wm EiiFi ^ti Tiga uR(ig-1 •^R) •A 'fll^I ^TO ^ 3T&?lft(I <}r;f a^ ^f w cbcfi^t gr? wBia teT ^l' 'y-iiriM, ^PT gro ^KSFS vi 'TIBPT ^ QRITan^'ITI 22.Apart from Clause 8.10 and 8.11 of the NIT, the respondent Corporation has aiso filed tender documents submitted by the petitioners along with the application for taking documents on record. From perusal of the tender documents submitted by petitioner Jitendra Singh Bagga, it is observed that the petitioner has submitted estimate of the expenditure which would be incurred for execution of the transportation work for the year 2006-07. In the estimate, he has mentioned the expenditure under the heads of tax, insurance, repairs and other expenditure. Thus from Clause 8.10 and 8.11 of the conditions of the NIT as well as tender documents submitted by the petitioners in response to the NiT, it is clear that there was no misconception of fact behween the parties that all the taxes payable to the Central GovemmenVState Government were payable by the transport contractor. 23.For the aToresaid reasons, it is hetd that the respondent Corporation can reccwer toe sewtee tex undeiwftiteai^S t^A 'gs-,'- & ^^L '"^-ss. ^. Ban/e 11 ^ transportation work executed by them under the agreement with the Corporation. The petitioners are not entitled for any reiiefs claimed in aforesaid writ petitions. The petitions deserve to be dismissed and they are hereby dismissed. 24.There shali be no orders as to costs. Sd/- Dhirednra Mishra Judge J