Section 66, 67(o) Finance Act held ultra vires to contitution, SC

1. The appellant-Association has been formed to protect the interest of the owners of Kalyana Mandapams in the city of Madras and elsewhere in the State of Tamil Nadu.

2. The owners of Kalyana Mandapams/Mandap-Keepers let out mandapas/premises to the clients.

3. In addition to letting out the Kalyana Mandaps, the Mandap Keepers also provide other facilities such as catering, electricity, water etc. to their clients.

4. Division Bench of the Madras High Court dismissed the writ petition of the appellant-Association and held Sections 66, 67 (o) of the Finance Act, 1994 and Rule 2(1)(d)(ix) of the Service Tax Rules, 1994 and other provisions related to Kalyana Mandapams and Mandap-Keepers to be intra vires of the Constitution of India.

On writ SC held as under,

5. In the case of Additon Advertising vs. Union of India [1998 (98) E.L.T. 14 (Guj HC DB)], the HighCourt of Gujarat rejected the contention that levy of tax on advertising services is ultra vires andobserved that "the tax is not on advertisement but on the services rendered. It results in anadvertisement which can be published and republished and copied". Extending the same analogy, it is submitted that there is a difference between the food and beverages supplied by outdoor caterers and outdoor catering services. As a result of the outdoor catering services rendered, the food and beverages desired by the customer, are caused to be prepared or procured, transported to the place specified by the customer at the time desired by him and served in the manner required. Therefore, the contention of the appellant that there is no service element in outdoor catering is not based on fact. In such catering services the person who participate and avail the service give more importance to the manner of service than the quality of food provided for consumption.

6. A tax on services rendered by mandap-keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire purchase activities. Section 65 clause 41 sub clause (p) of the Finance Act, 1994, defines the taxable service (which is the subject matter of levy of service tax) as any service provided to a customer by a mandap-keeper in relation to use of a mandap in any manner including the facilities provided to a customer in relation to such use also the services, if any, rendered as a caterer.

7. The nature and character of this service tax is evident from the fact that the transaction between a mandap-keeper and his customer is definitely not in the nature of a sale of hire purchase of goods. It is essentially that of providing a service. In fact, as pointed out earlier, the manner of service provided assumes predominance over the providing of food in such situations which is a definite indicator of the supremacy of the service aspect. The legislature in its wisdom noticed the said supremacy and identified the same as a potential region to collect indirect taxes. Moreover, it has been a well established judicial principle that so long as the legislation is in substance, on a matter assigned to a legislature enacting that statute, it must be held valid in its entirety even though it may trench upon matters beyond its competence.

8. Incidental encroachment does not invalidate such a statute on the grounds that it is beyond the competence of the legislature (Prafla Kumar vs. Bank of Commerce). Article 246(1) of the Constitution specifies that the Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution. As per Article 246(3), the State Government has exclusive powers to make laws with respect to matters enumerated in List II (State List). In respect of matters enumerated in List III (Concurrent List) both Parliament and State Government have powers to make laws. The service tax is made by Parliament under the above residuary powers.

9. The impugned Act was challenged on the ground that it infringed on the State's power to levy tax on luxury vide Entry 62 of the State List. It would be appropriate to quote Mr. Justice Venkatachelliah who ruled that "the law with respect to a subject might incidentally affect another subject in some way, but that is not the same thing as the law being on the latter subject. There might be overlapping, but the overlapping must be in law. The transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detect from the distinctiveness of the aspects. The consequences and facts of the legislation are not the same thing as legislative subject matter."

10. For the foregoing reasons, the appellants have not made out any case either on facts or on law and there is no merit in this appeal. We, therefore, have no hesitation in dismissing this appeal byconfirming the judgment of the High Court for our own reasons recorded in this judgment.