Challenge to levied service tax on taxable services of 'tour operator' failed,HC

Facts in Brief:

1. The issue involved in all these writ petitions is levy of 'Service Tax' on tour operators, whose services are brought under the 'Service Tax' net by the Finance Act 1997 which came into force with effect vide Notification No. 37/97.

2. The petitioners being the owners of contract carriages and taxies have obtained the tourist permits under the provisions of Section 49 of the Karnataka Motor Vehicles Act in respect of the motor vehicles owned or operated by them.

3. The Petitioners in W.P.No. 300/2002 and W.P. 38821/2002 are the contract carriage bus operators. The petitioners in other writ petitions are all the taxi operators. Since the common questions of facts and law are involved in all these writ petitions, they have been clubbed and disposed of by this common order.

HC held as under,

4. It is further argued on behalf of the petitioners that the enactment is violative of Article 14 of the Constitution by contending that there is no rationale or reason as to why stage carriage operators are kept out of the Service tax net.

5. Said contention also is liable to be rejected. Having regard to the diverse economic criteria that go into the formulation of a fiscal policy, the legislature enjoys wide latitude in the mater of selection of persons, subject matter, and events for taxation. It is sufficient if the law deals equally with the members of the well-defined area. Un-equals cannot be treated equally. It is not open to challenge the law on the ground that it is not made applicable to other persons. A legislature does not have to tax everything in order to be able to tax something. It there is equality and uniformity within each group, the law would not be discriminatory. It is for the legislature to determine the categories, it should be embrace and merely because certain categories which stand on the same footing as those which are covered by the Legislature are left out, the same would not render the Legislation in any manner discriminatory or violative of Article 14 of the Constitution.

In this context, it is relevant to note the observations of the Hon'ble Supreme Court in the case of Gujarat Ambuja Cements Ltd., and Anr. v. Union of India and Anr. reported in 2005 AIR SCW 2051 wherein it is held as under:

6. The final challenge to the 2000 amendment to the Service Tax Act, 1994 is that if operated in a discriminatory manner in that it chose the recipient of the services to be the assessee only in the case of services rendered by goods transport operators and clearing and forwarding agents. We are unable to accept the submission. Because of the inherent complexity of fiscal adjustments of diverse elements in the field of tax, the legislature is permitted a large discretion in the matter of classification to determine not only what should be taxed but also the manner in which the tax may be imposed. Courts are extremely circumspect in questioning the reasonability of such classification but after a "judicial generosity is extended to legislative wisdom, if there is writ on the statute perversity, madness in the method or gross disparity, judicial credibility may snap and the measure may meet with its funeral.

7. The same opinion is expressed by the Apex Court in the case of Federation of Hotel Restaurant Association of India v. Union of India and Ors. wherein it is observed thus:

It is now well settled that though taxing laws are not outside Article 14, however, having regard to the wide Varity of diverse economic criteria Page 0901 that go into the formation of a fiscal policy, legislature enjoys a wide latitude in the matter of selection of persons, subject matter, events etc., or taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment, what is looked into is not its phraseology, but the real effect of its provisions. A legislature does not, as an old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of this Court on the matter have permitted the legislature to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes.

8. For the foregoing reasons, This Court is of the considered view that there is no substance in any of the grounds urged by the Petitioners in these writ petitions challenging the levy of service tax on the taxable service rendered by the "tour operators" and "Contract Carriage Operators" and consequently, the writ petitions are liable to be dismissed.

9. These writ petitions are dismissed accordingly. 

Case Reference - Smt. L.V. Sankeshwar, ... vs Superintendent Of Central.