SECRETARY TO GOVERNMENT DEPARTMENT OF AGRICULTURE, GOVERNMENT OF KERALA AND ORS. Vs. UNION OF INDIA AND ORS.

JUDGEMENT

(1.) The challenge in the writ petition is against Ext. P7 order of assessment, passed by the 2nd respondent, confirming a demand of service tax and penalty on the petitioner, which is a department of the State Government. The main ground of challenge against Ext. P7 order of the 2nd respondent, is with regard to the jurisdiction of the 2nd respondent to pass the said order. It is pointed out that, the petitioner, being a department of the State Government, cannot be subjected to the levy of service tax in as much as the services rendered by it are in the course of discharging sovereign functions and hence, the concept of a taxable service, for the levy of service tax, does not arise in the transactions between the petitioner and its clients. It is contended that leasing of property is a subject contemplated within Entry 35, read with Entry 18 of List II of the Constitution and hence only the State Legislature can levy a tax on services rendered in connection with leasing of immovable property. It is further contended that, inasmuch as the activity of leasing out property and receiving rent, in the instant case, is an administrative function envisaged under List II of the 7th Schedule read with Article 246, the levy of service tax as contemplated under the Finance Act,1994, as amended, cannot be made applicable to the services rendered by the State Government. It is further pointed out that, the levy of service tax is on services rendered by one person to another and, in the instant case, the State Government cannot be treated as "a person" for the purposes of the Act. It is also contended that, under Article 162 of the Constitution, the executive power of the State Government is coextensive with the legislative power and, insofar as Exts. P1 and P1(a) executive orders are issued by the State Government, based in turn, on agreements entered into between the Union of India and the European Union, and envisage certain services to be performed by the State Government in relation to setting up of Agricultural Wholesale Markets, the said transaction would be immune from central taxation. It is based on the above contentions, that the learned Government Pleader, for the petitioner, would submit that the petitioner cannot be relegated to the alternate remedy of preferring any appeal against Ext. P7 order since, the very jurisdiction of the respondents to subject the activities of the petitioners to tax under the Finance Act, 1994, is called in question, in the present writ petition.

(2.) I have heard the learned counsel for the petitioners and the learned Standing counsel for the respondents.

(3.) On a consideration of the facts and circumstances of the case as also the submissions made across the bar, I find that in Ext. P7 order, the levy of service tax, that was confirmed on the petitioners, was a tax on "renting of immovable property services" which, according to the respondents, was rendered by the petitioners in terms of Exts. P1 and P1(a) executive orders. Although, it is the contention of the petitioner that, by virtue of Entry 35 read with Entry 18 List II of the Constitution of India, leasing of property is a subject under the State List, and therefore, only the State legislature would have the power to legislate in respect of the said subject, I note that the said entries do not deal specifically with levy of a tax on renting of immovable property services. It is not in dispute that the legislative sanction for the levy of a service tax on renting of immovable property services is traceable to Entry 97 of List I of the Constitution of India. That being so, and there being no specific entry dealing with the subject of service tax in any of the other lists in the 7th Schedule to the Constitution of India, the competence of the Parliament to legislate in respect of service tax on renting of immovable property services cannot be called in question. As regards the contention of the petitioners that the State, as a body, will not come under the coverage of the Finance Act, 1994, as amended, I note that, as per the specific provisions of Section 65(B)(37) of the Finance Act,1994, as amended, the word "person" is defined as including, inter alia, "Government". Thus, as far as the applicability of the Finance Act, 1994, as amended is concerned, it would apply even in respect of services rendered by a State Government, unless the services fall under the negative list of services under the Statute. Thus, in the instant case, there is no ground to infer that, in passing Ext. P7 order, the respondents were acting under any jurisdictional error in confirming a demand of service tax on the petitioner in respect of the services rendered by the petitioner pursuant to Exts. P1 and P1(a) orders.