rule-making authority not conferred with power to levy duty on any articles, HC

Facts in Brief:

1. These writ petitions are filed by Airlines Agents Association, Chennai and some air travel agents.

2. The petitioners pray for a writ of declaration or any other appropriate writ or order in the nature of writ by declaring the provisions contained in section 65(3) and section 67(k) of the Finance Act, 1994 (hereinafter referred to as 'the Act) as amended in the year 1996 and rule 2(d)(viii) of Service Tax Rules as amended as unconstitutional and void.

3. During the year 1994, the then Union Finance Minister proposed to levy tax on the 'services' provided by the non-life insurance agents, stock-brokers, telephone bills, etc. By and by, other service sectors like 'consulting engineers', 'customs house agents', 'steamer agents', 'clearing and forwarding agents', 'advertising agencies' and many others came to be added and brought into the tax-net.

4. The services provided by the 'air travel agents' came to be brought into the tax-net by way of an amendment of section 65. The 'charging section' is section 66(3) while the measure of tax' is provided by section 67(k).

5. During the year 1994, the then Union Finance Minister proposed to levy tax on the 'services' provided by the non-life insurance agents, stock-brokers, telephone bills, etc. By and by, other service sectors like 'consulting engineers', 'customs house agents', 'steamer agents', 'clearing and forwarding agents', 'advertising agencies' and many others came to be added and brought into the tax-net.

6. The services provided by the 'air travel agents' came to be brought into the tax-net by way of an amendment of section 65. The 'charging section' is section 66(3) while the measure of tax' is provided by section 67(k).

On writ petition, HC held as under:

7. In fact, it is not necessary for us now to take the stock of the petitioners' contention regarding the unconstitutionality of the rules but, even otherwise, we are of the clear-cut opinion that there is absolutely no breach of any fundamental rights by passing rule 6(7) and nothing wrong can be found with that rule much less in the light of the submission made by the learned senior counsel for the petitioners. We are in complete agreement with the learned senior counsel for the department that this rule will have to be viewed taking into consideration section 93 and section 94(2)(a) jointly. Indeed, there is a specific power under section 93 to grant exemption in any manner. Section 94(2)(a) speaks of the rule making power on the subject of collection and recovery of service tax under section 66 and section 68. What is suggested by rule 6(7) is nothing but a probably more beneficial calculation, which would spare an air travel agent of so many other botherations as expressed by the Supreme Court in the Builders Association of India's case (supra), which observations we have already quoted.

8. It is, therefore, clear that no fault can be found with the rule at least on the ground that it is beyond the rule making power. We have already found that it does not amount to an independent levy again, because of the observations made by the Supreme Court. It is only for that purpose, we have extensively quoted the observations from Builders Association of India's case (supra) wherein a specific reference is made to the earlier decision in Venkateshwara Theatres v. State of Andhra Pradesh (1995) 96 STC 130. The emphasised portions would highlight what we have said about the validity of such a rule.

9. contention is that the rules which fell for consideration went beyond the general purpose of the section and the special topics mentioned there for furthering some of the purposes of the other parts of the Act. The learned counsel invited our attention to the following observations :

10. The contention is that the rules which fell for consideration went beyond the general purpose of the section and the special topics mentioned there for furthering some of the purposes of the other parts of the Act. The learned counsel invited our attention to the following observations:

" Thus, if it is necessary that the agents must carry out certain provisions of the Act, a rule can be made in the exercise of the two powers together. Though the impugned rules are headed as framed under section 202 of the Sea Customs Act, they cannot be questioned, if they carry out not only the special purposes of section 202 but also certain other purposes of the Act because the two powers will concur to sustain them. It is only when a rule or rules are pointed out which sub serve neither the special purpose of the section nor the general purposes of the Act that they can be successfully questioned."

11. Here also, according to the learned counsel, rule 6(7) which is more beneficial to the taxpayer serves the purpose of section 93 which is a general power wherein there is a power to grant exemption or concession in the service tax. The learned counsel argues rightly that the rule is obviously beneficial and, that is why, it was opted by most of the air travel agents. It is also pointed out that the impugned rule also emanates on the basis of section 94(2)(a) which pertains to collection and recovery of service tax under section 66 and section 68. We, therefore, hold that there is nothing wrong with the rule in question.

12. Reliance was placed on the Supreme Court ruling in Kunj Behari Lal Butails case (supra) wherein in paragraph 14, the Supreme Court has observed that where the delegation of the rule making power is circumscribed by the expression for carrying out the purposes of the Act, then in exercise of such delegated powers to legislate the State Government cannot bring within the net of the rules that has been excluded by the Act itself. There can be no dispute about the principles evolved but, we have already found that rule 6(7) does not tread upon a forbidden territory. The ruling is, therefore, of no consequence.

13. Reliance was placed on the Supreme Court ruling in Kunj Behari Lal Butails case (supra) wherein in paragraph 14, the Supreme Court has observed that where the delegation of the rule making power is circumscribed by the expression for carrying out the purposes of the Act, then in exercise of such delegated powers to legislate the State Government cannot bring within the net of the rules that has been excluded by the Act itself. There can be no dispute about the principles evolved but, we have already found that rule 6(7) does not tread upon a forbidden territory. The ruling is, therefore, of no consequence.

14. It was also tried to be argued, relying on the decision in the case of Agricultural Market Committee (supra) that under the rule-making power the legislature cannot provide a new policy and cannot thereby present an alternate mode of tax payment. According to the learned counsel, this was only a matter of policy and could have been done only by the main provisions of the Act. We do not think so. We have already shown that this rule can be viewed as a beneficial assessment and for that purpose section 93 can be read with section 94(2)(a). According to us, rule 6(7) is only a modality for collection of tax. The ruling is, therefore, of no help.

15. It was also tried to be argued, relying on the decision in the case of Agricultural Market Committee (supra) that under the rule-making power the legislature cannot provide a new policy and cannot thereby present an alternate mode of tax payment. According to the learned counsel, this was only a matter of policy and could have been done only by the main provisions of the Act. We do not think so. We have already shown that this rule can be viewed as a beneficial assessment and for that purpose section 93 can be read with section 94(2)(a). According to us, rule 6(7) is only a modality for collection of tax. The ruling is, therefore, of no help.

16. In the case of Bimal Chandra Banerjee (supra), the Apex Court has observed in paragraphs 17and 18 that in the impugned legislation therein, the rule-making authority was not conferred with the power to levy duty on any articles, which do not fall within the scope the concerned section. The court, therefore, observed in paragraph 18 that no tax can be imposed by any bye-law or rule or regulation unless the statute under which the subordinate legislation is made specially authorizes the imposition even if it is assumed that the power to tax can be delegated to the executive. We do not find any such transgression by the rule-making authority over the statutory power conferred by the statute. We have already explained that the concerned rule cannot be viewed as an 'independent taxation'. The ruling is of no value here.

17. We are in complete agreement with the learned senior counsel that this rule provides for an independent measure as the basic airfare. In fact, the observations, which are based on the decision in Venkateshwara Theatres case (supra) are clear to suggest that such rule is not an independent system of levy of tax. For this reason, it is not necessary for us to refer to the case relied upon by the learned counsel vide the decision in Bimal Chandra Banerjees case (supra).

18. We are in complete agreement with the learned senior counsel that this rule provides for an independent measure as the basic airfare. In fact, the observations, which are based on the decision in Venkateshwara Theatres case (supra) are clear to suggest that such rule is not an independent system of levy of tax. For this reason, it is not necessary for us to refer to the case relied upon by the learned counsel vide the decision in Bimal Chandra Banerjees case (supra).

19. For the reasons stated above, we do not find any merit in the writ petitions which are liable to be dismissed and are ordered to be dismissed. No costs. Connected W.M Ps. are closed. 

Case Reference - Airlines Agents Association vs Union Of India.