SECURITY AGENCIES ASSOCIATION Vs. UNION OF INDIA

JUDGEMENT

(1.) The petitioners seek to declare Section 67 of Chapter V of the Finance Act, 1994 (Act 32 of 1994), as amended from time to time, and other provisions and rules made and notifications issued under the Act, in so far as it includes the expenses and salary paid to the Security Guards and the statutory payments like contributions to ESI and EPF, in the 'Gross amount' charged for valuation of Taxable service' in computing the 'service tax' payable, as ultra vires to the Constitution of India. W.P. (C) No. 34643 of 2004 has been preferred by an Association representing various Security Agencies, who are alleged to be the members of the said Association. In fact, the said Association is stated as registered under the provisions of the Travancore-Cochin (Literary, Scientific and Charitable Societies) Registration Act. The grievance is mainly with regard to the steps taken by the respondents to mulct the liability towards service tax upon the members of the Association under various heads; by way of tax, interest, penalty etc., reckoning the 'Gross income' of the members, i.e. without realizing or taking into account the actual 'service aspect' rendered. Almost similar pleadings and prayers have been raised by the other petitioners as well, who are the concerned security service providers and are not the members of the Association. The petitioners contend that their undertakings actually do not have any clients at all and that the tax liability is to be fixed only with respect to the actual charges/commission realised by them in providing the security personnel to the service receivers. It is contended that, in most of the cases, the agencies who provide the security personnel to the service receivers, are getting only a meagre amount as 'commission' and bulk of the amounts received is spent towards the salary and other statutory personnel engaged. It is also contended that in several cases, salary is being paid directly by the service receivers.

(2.) With regard to the challenge as to the constitutional validity of the provisions, it is stated that there is absolutely no rhyme or reason in including the said items in the 'Gross amount', as Section 67 only provides for valuation of the 'taxable service' and that it is violative of Articles 14 and 19(1)(g) of the Constitution of India. It is stated that an element of hostile discrimination is shown towards the 'Security Agencies', unlike several other cases, where a specific provision for exemption is provided. The gist of the contention is that the salary and other statutory payments have to be segregated from the 'Gross amount' and only the balance amount is liable to be reckoned for the purpose of taxation.

(3.) The respondents have filed separate counter affidavits in all the cases. Some documents have also been produced in respect of the individual assessment. But in none of these cases the assessment made is under challenge and no such assessment order is sought to be set aside. Even otherwise, the assessment finalised by the concerned respondent is very much open to be challenged by availing the statutory remedy, as provided under the Act and as such, the only issue to be considered in these writ petitions is as to the validity of the statutory prescription, particularly under Section 67, providing for fixation of tax, reckoning the 'Gross amount' without segregating the 'expenditure part' from the rest. The respondents seek to establish, through the counter affidavits, that there is absolutely no merit or bona fides in the writ petitions, particularly with regard to the challenge against the constitutional validity of the statutory prescriptions. It is stated that the provision has been introduced by virtue of the power vested with the Parliament, in view of the relevant Entry under List I of the 7th Schedule. No sustainable ground is stated as projected to justify the challenge against the constitutional validity. Reliance is sought to be placed on the judicial precedents, particularly by a Division Bench of the High Court of Madras in GDA Security Private Limited v. Union of India, 2002 140 ELT 332, T.N. Kalyana Mandapam Assn. v. Union of India & Ors., 2004 5 SCC 632 ) and also on the decision of the Constitution Bench of the Apex Court in Federation of Hotels and Restaurant v. Union of India, 1990 AIR(SC) 1637