Validity of Rule2(xii) & (xvii) of Service Tax Rules upheld by SC.

1. The petitioners in these cases are the persons who are utilizing the services of goods transport operators and of clearing and forwarding agents.

2. They sought to impugn the validity of Rule2(xii) and (xvii) of the Service Tax Rules, as amended in 1997, on the ground that the said sub rules are contrary to the provisions of Sections 65 and 66 of the Finance Act, 1994, whereby service tax was sought to be levied by the parliament.

Supreme Court held as under:

3. Sections clearly show that the return which has to be filed pertains to the payment which are received by the person rendering the service in respect of the value of the taxable services. Surely, this is ia type of information which cannot under any circumstances, be supplied by the customer.

4. Moreover the operative part of sub-section (1) of Section 70 clearly stipulates that it is a person responsible for collecting the service tax who is to furnish the return. By rules which are framed, the person who is receiving the services cannot be made responsible for filing the return and paying the tax. Such a position is certainly not contemplated by the Act Section 94 gives me Central Government power to make the rules. These rules are to be made for carrying out the provisions of the chapter.

5. The chapter relates to taxing the services which are provided. The tax is on the value of the services and it is only the person who is providing the service can be regarded as an assessee.

6. The rules, therefore, cannot be so framed which do not carry out the purpose of the chapter and cannot foe in conflict with the same.

7. We have no hesitation in holding that the provisions of Rule 2(d)(xii) arid (xvii), insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires the Act itself The said sub-rules are accordingly quashed.

8. At this juncture it is pertinent to notice that by an amendment Notification No, 20/98-Central Excise (N.T) dated 2nd June, 1998 issued under Section 93 of the Finance Act taxable services provided by goods transport operators, outdoor caterers, pandal and shamiana contractors were exempted from the levy of the said tax. This exemption was, however, prospective and it does not grant exemption in regard to clearing and forwarding agents. It is for this reason mat the petitioners have continued to persue with these petitions.

9. For the aforesaid reasons the transferred cases and the writ petitions except WP(C) Nos. 5/99, 228 and 262/98 are allowed and any tax which has been paid by customers or clients of the clearing and forwarding agents or of the goods transport operators shall be refunded within twelve weeks on their making a demand for refund.

10. All the intervention applications are dismissed except those which were allowed earlier