UNION OF INDIA Vs. HIGHLAND PRODUCE CO LTD

JUDGEMENT

(1.) The connected Writ Appeals are filed by the Central Government along with Commissioner of Service Tax challenging the judgment of the learned Single Judge declaring liability on respondents to pay service tax on payments made to goods transport agencies towards consideration for the transport of goods by road only with effect from 13.5.2005 i.e. after sub-section (2) was introduced to Section 70 of the Finance Act, 1994 (hereinafter called "the Act"). We have heard separate Standing Counsel appearing for the Central Government and the department concerned which together have filed the appeals and also A.K. Jayasankar Nambiar, counsel appearing for respondents, one of which is Chamber of Commerce and the remaining being members which are limited companies paying service charges to transport agencies for transport of goods by road. The WP.(C)s were filed by respondents before this court challenging Rule 2(lXd)(v) on the ground that the said Rule providing for payment of tax by persons availing transport service is incompatible with statutory provisions which provides for collection and remittance of service tax by service provider which in this case is the transport agency. The learned Single Judge by following judgment of Honourable Supreme Court in Laghu Udyog Bharati v. Union Of India, 1999 6 SCC 418 held that the infirmities pointed out by the Supreme Court that is, conflict between the statute particularly Section 70 and the Rules, continued to exist until Finance Act, 2005 introducing Section 70(2) of the Act with effect from 13.5.2005 was passed and so much so, Rule providing for payment of service tax by the parties availing service is unenforceable. The respondents have started remitting service tax commencing from 13.5.2005 onwards half yearly and the return in Form ST-3 prescribed in Notification No. 31/2005 dated 20.10.2005 under Rule 7 was also filed. Standing Counsel appearing for the appellants on the other hand referred to the decision of the Supreme Court in Gujarat Ambuja Cements Ltd. And Another v. Union Of India, 2005 4 SCC 214 and submitted that after the amendment to Section 66 and introduction of Section 68(2) and Section 69(2) the lacunae pointed out by the Supreme Court in the first above referred judgment does not survive and respondents are liable to pay tax with effect from 1.1.2005.

(2.) The only question for our consideration is whether the various amendments introduced to the definition clause and the charging section to get over the decision of the Supreme Court in Laghu Udyog Bharati's case are sufficient to levy and demand service tax on the respondents for the payments made for service availed by them from transport agencies for transport of the goods by road from 1.1.2005. The original proposal to levy tax on transport service was on goods transport operators, which though was introduced in 1997, could not be enforced on account of the massive strike by public carriers. Government later gave up the proposal and introduced sub-section (50b) to Section 65 in January 2005 which provides as follows:

(3.) The case of the respondents that found acceptance with the learned Single Judge is that in spite of amendment of the charging section and the machinery provision providing for collection of tax in the manner provided under the Act and Rules unless provision is introduced requiring the person availing service notified under Section 69(2) to file the return, he has no liability to furnish the return and pay tax. Another important ground raised by the respondents in support of their challenge against the applicability of the Rules for any period prior to coming into force of Section 70(2) of the Act is the want of form for return in ST-3, under which assessees are bound to furnish half yearly returns for payment of tax as provided under the Service Tax Rules. Even though this issue was not considered or decided by the learned Single Judge, we notice that return applicable to the respondents was prescribed and notified by the Government under Notification No. 31/05 dated 20.10.2005. In other words, even though service tax was leviable on all companies for the transport service availed for transport of goods by road from 1.1.2005, the requirement of filing the return was introduced by subsection (2) of Section 70 to the Act with effect from 13.5.2005 and the Form for filing the return was prescribed only on 21.10.2005. Consequent upon the introduction of Section 70(2) and Form ST-3 return prescribed by Rule 7, the respondents have furnished the returns for the period commencing from 13.5.2005 and remitted tax on which there is no dispute.