AIRLINES AGENTS ASSOCIATION Vs. UNION OF INDIA

JUDGEMENT

(1.) THESE writ petitions are filed by Airlines Agents Association, Chennai and some air travel agents. The petitioners pray for a writ of declaration or any other appropriate writ or order in the nature of writ by declaring the provisions contained in section 65(3) and section 67(k) of the Finance Act, 1994 ('the Act') as amended in the year 1996 and rule 2(d)(viii) of Service Tax Rules as amended as unconstitutional and void. During the year 1994, the then Union Finance Minister proposed to levy tax on the 'services' provided by the non-life insurance agents, stockbrokers, telephone bills, etc. By and by, other service sectors like 'consulting engineers', 'customs house agents', 'steamer agents', 'clearing and forwarding agents', 'advertising agencies' and many others came to be added and brought into the tax-net. The services provided by the 'air travel agents' came to be brought into the tax-net by way of an amendment of section 65. The 'charging section' is section 66(3) while the 'measure of tax' is provided by section 67(k). We have deliberately quoted the prayer in the writ petitions because at the argument stage, the learned senior counsel did not address us on the constitutional questions raised in the petitions. In the writ petitions, these provisions have been challenged on the ground that they violate article 19(1)(g) and also article 14 of the Constitution.

(2.) THERE is also a challenge to be found to the 'legislative competence' and on that ground section 65(3) and section 67(k) have been challenged. However, at the argument stage, the learned senior counsel abandoned the challenge regarding the 'constitutionality' and restricted himself only to two propositions. The said propositions are :I. That section 67(k) of the Finance Act, 1994 which provides for valuation of taxable services for charging service tax is inconsistent with the provisions of section 65(3) and section 65(48)(l) which provisions define 'Air Travel Agents' and 'Taxable Service' respectively. So also, the said provision is also inconsistent with section 66(3) which provides for the charge of service tax. THEREfore, all these provisions are liable to be declared 'unenforceable'. II. Rule 6(7) of the Rules framed under the Finance Act, 1994 which provides for alternative mode of levy on the basic fare of passage for travel by air, at the rate of 0.25 per cent in case of domestic booking and 0.5 per cent of the basic fare in case of international booking is ultra vires the rule making power and void and unenforceable.

(3.) THE learned counsel argues that in effect though section 66(3) and section 65(48)(l) suggest that this is a tax on the services offered by the air travel agents to the customers in relation to booking of passages for travel by air, the 'measure of the tax' is against the commission which the air travel agents earn not because of the services that they offer under section 65(48)(l) but on the commission that they earn on account of their services to the airlines. THE learned counsel argues that the commission is given only to promote the business of the airlines or air-carriers on the basis of an agreement in between the air travel agents and the airlines. THErefore, the basic submission is that the commission received from the airlines by the air travel agents is basically for the promotion of the business of the airlines and the tax cannot be charged against this commission which has got nothing to do with the services offered by the air travel agents to their customers in booking of passages.THE further argument is that section 66, which is the 'charging section', levies the tax at the rate of five per cent 'on the value of taxable service' under section 65(48)(l) and it must operate on the taxable service referred to in the definition clause.