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2024 DIGILAW 781 (KER)

MANJILAS FOOD TECH (P) LTD. v. UNION OF INDIA

2024-07-02

GOPINATH P.

body2024
JUDGMENT : This writ petition challenges the constitutional validity of Clause (g) of Section 66D of the Finance Act, 1994, as amended by the Finance Act, 2014. 2. The brief facts of the case are as follows: The petitioner is a Private Limited Company, engaged in the manufacture and in trading of goods. In connection with its business, the petitioner places advertisements in various media. The petitioner is aggrieved by the fact that, following an amendment made to Clause (g) of Section 66D of the Finance Act, 1994 (the Negative list of services) with effect from 01.10.2014, by the Finance Act, 2014, the exemption from service tax has been restricted to the ‘selling of space of advertisements in print media’. It is the case of the petitioner that, till the amendment to Clause (g) of Section 66D, the selling of space or time slots for advertisements other than the advertisements broadcast by radio or television, was exempted from service tax under the provisions of the Finance Act, 1994 (by inclusion in the negative list) and after the 2014 amendment, such exemption was restricted to advertisements in the print media. 3. Sri. Jose Jacob, the Learned counsel appearing for the petitioner would submit that the petitioner places substantial advertisements through hoardings and the amounts paid by the petitioner for such advertisements would, with the amendment introduced with effect from 01.10.2014 by the Finance Act, 2014 to the negative list of services under Section 66D (Clause (g) of Section 66D), be subjected to service tax under the provisions of the Finance Act, 1994. It is submitted that the Finance Act 1994 is legislation traceable to Entry 97 of List I of the Seventh Schedule of the Constitution of India [Any reference to List I, II or III in this judgment is to the Lists under the Seventh Schedule of the Constitution of India] which is a residual entry and it is obvious that legislation with reference to the residual entry under Entry 97 of List I, cannot impose a tax on a subject that is covered by any of the taxing entries in List II. It is submitted that Entry 55 of List II indicates that taxes on advertisements other than taxes on advertisements published in the newspapers and advertisements broadcast by radio or television can be imposed only by authority of law made by the State legislature. It is submitted that Entry 55 of List II indicates that taxes on advertisements other than taxes on advertisements published in the newspapers and advertisements broadcast by radio or television can be imposed only by authority of law made by the State legislature. It is submitted that, with the amendment brought about with effect from 01.10.2014, only advertisements in print media have been exempted from the levy of service tax and if service tax is levied on all other forms of advertisements, the same would be a direct encroachment on the power of the State legislature to impose taxes on advertisements in Entry 55 of List II. Learned counsel places substantial reliance on the judgment of the Supreme Court in State of West Bengal V. Kesoram Industries Ltd. and Others, (2004) 10 SCC 201 in support of his contention. 4. Smt. I. Sheela Devi, the learned Standing Counsel appearing for the respondents would submit that the petitioner has not made out any case for the grant of the reliefs sought in the writ petition. It is submitted that it is settled in law that there can be different aspects for taxation in every transaction and while some of those aspects may be taxed under a law made by the State Legislature with reference to a taxing entry under List II, the other aspects can be taxed under a Legislation made with reference to the residual entry under Entry 97 of List I. The learned Standing Counsel placed substantial reliance on the judgment of the Supreme Court in Federation of Hotel and Restaurant Association of India, Etc. v. Union of India and Others, (1989) 3 SCC 634 in support of her contention. The learned counsel submitted that the judgment in Federation of Hotel and Restaurant (supra), the question that arose was whether expenditure tax under a central law would in substance be a tax on luxury under Entry 62 of List II. It is submitted that on the application of the ‘Aspect Theory’ the majority judgment of M.N. Venkatachaliah, J. holds thus: “30. It is submitted that on the application of the ‘Aspect Theory’ the majority judgment of M.N. Venkatachaliah, J. holds thus: “30. In Lefroy's Canada's Federal System the learned Author referring to the “aspects of legislation” under Sections 91 and 92 of the Canadian Constitution i.e. British North America Act, 1867 observes that “one of the most interesting and important principles which have been evolved by judicial decisions in connection with the distribution of legislative power is that subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power”. Learned Author says: “... that by ‘aspect’ must be understood the aspect or point of view of the legislator in legislating the object, purpose, and scope of the legislation that the word is used subjectively of the legislator, rather than objectively of the matter legislated upon.” In Union Colliery Co. of British Columbia v. Bryden, 1899 AC 580, Lord Haldane said: “It is remarkable the way this Board has reconciled the provisions of Section 91 and Section 92, by recognising that the subjects which fall within Section 91 in one aspect, may, under another aspect, fall under Section 92.” 31. Indeed, the law “with respect to” a subject might incidentally “affect” another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. Lord Simonds in Governor General-in-Council v. Province of Madras, AIR 1945 PC 98 : 1945 FCR 179, 193 in the context of concepts of Duties of Excise and Tax on Sale of Goods said: “...The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of, his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separated and distinct imposts. But in law there is no overlapping. The taxes are separated and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale....” 32. Referring to the “aspect” doctrine Laskin's Canadian Constitutional Law states: “The ‘aspect’ doctrine bears some resemblance to those just noted but, unlike them, deals not with what the ‘matter’ is but with what it ‘comes within’.... (p. 115) ... it applies where some of the constitutive elements about whose combination the statute is concerned (that is, they are its ‘matter’), are a kind most often met with in connection with one class of subjects and others are of a kind mostly dealt with in connection with another. As in the case of a pocket gadget compactly assembling knife blade, screwdriver, fishscaler, nailfile, etc., a description of it must mention everything but in characterising it the particular use proposed to be made of it determines what it is. (p. 116) “...I pause to comment on certain correlations of operative incompatibility and the ‘aspect’ doctrine. Both grapple with the issues arising from the composite nature of a statute, one as regards the preclusory impact of federal law on provincial measures bearing on constituents of federally regulated conduct, the other to identify what parts of the whole making up a ‘matter’ bring it within a class of subjects....” (p. 117) 33. On the distinction between what is “ancillariness” and what “incidentally affecting” the treatise says: “There is one big difference though it is little mentioned. Ancillariness is usually associated with an explicit statutory provision of a peripheral nature; talk about ‘incidentally affecting’ crops up in connection with the potential of a non-differentiating statute to affect indiscriminately in its application matters assertedly immune from control and others. But it seems immaterial really whether it is its words or its works which draw the flotsam within the statute's wake.” (p. 115) The learned counsel also places specific reliance on paragraphs 84 to 89 of the concurring Judgment of Ranganathan, J. in support of her contention. But it seems immaterial really whether it is its words or its works which draw the flotsam within the statute's wake.” (p. 115) The learned counsel also places specific reliance on paragraphs 84 to 89 of the concurring Judgment of Ranganathan, J. in support of her contention. The learned counsel also placed reliance on the judgment of the Supreme Court in All India Federation of Tax Practitioners and Others v. Union of India and Others, (2007) 7 SCC 527 to contend that while considering the question as to whether the imposition of service tax on services rendered by Chartered Accountants, Cost Accountants and Architects under the provisions of the Finance Act, 1994 would amount to imposing a tax on profession under Entry 60 of List II, the Supreme Court held as follows: “33. Applying the above tests laid down in the aforestated judgments to the facts of the present case, we find that Entry 60 of List II, mentions Taxes on professions, trades, callings and employments. Entry 60 is a taxing entry. It is not a general entry. Therefore, we hold that tax on professions etc. has to be read as a levy on professions, trades, callings etc., as such. Therefore, Entry 60 which refers to professions cannot be extended to include services. This is what is called as an Aspect Theory. If the argument of the appellants is accepted, then there would be no difference between interpretation of a general entry and interpretation of a taxing entry in List I and List II of the Seventh Schedule to the Constitution. Therefore, professions will not include services under Entry 60. For the above reasons, we hold that Parliament had absolute jurisdiction and legislative competence to levy tax on services. While interpreting the legislative heads under List II, we have to go by schematic interpretation of the three Lists in the Seventh Schedule to the Constitution and not by dictionary meaning of the words profession or professional as was sought to be argued on behalf of the appellants otherwise the distinction between general entries and taxing entries under the three Lists would stand obliterated. The words in relation to and the words with respect to are no doubt words of wide amplitude but one has to keep in mind the context in which they are used. 34................... 35................... 36. The words in relation to and the words with respect to are no doubt words of wide amplitude but one has to keep in mind the context in which they are used. 34................... 35................... 36. In one case, the question arose whether Parliament was entitled to impose income tax on pension under Entry 82 of List I. The controversy was that pension is a retiral benefit. It was argued that pension was an incident of employment and, therefore, Parliament had no legislative competence to impose income tax under Entry 82 of List I and that the State Legislature alone had absolute jurisdiction to make a law imposing tax on pension. This argument was rejected on the ground that Entry 60 of List II refers to Tax on employments , as such. So long as a person is in the employment, he does not earn pension. He earns pension only on retirement. On retirement, he ceases to be in the employment, therefore, on retirement the receipt of pension constitutes income in the hands of the pensioner and, therefore, Parliament had legislative competence to enact Income Tax Act, 1961 under which pension was taxable as income. This example demonstrates the meaning of the word Taxes on professions, callings, trades and employments. It also indicates two aspects of the same item, namely, pension. One aspect falls in the category of employment, the other falls in the category of income. Therefore, there is no merit in the contention advanced on behalf of the appellant that the widest possible interpretation should be given to the word profession in Entry 60 List II. We have to keep in mind while interpreting the Entries in the three Lists the distinction between the general entry and the taxing entry.” It is submitted that a subject which in one aspect and for one purpose falls within the power of a particular Legislature may in another aspect and for another purpose fall within the competence of another legislature. It is submitted that viewed in that manner, the amendment of Clause (g) of Section 66D by the Finance Act, 2014 whereby only advertisements placed in print media were placed outside the purview of service tax is clearly within the legislative competence of the Parliament as the result would be the imposition of service tax on the aspects of service in connection with the provision of such advertisement and not on advertisements covered by Entry 55 of List II. 5. Having considered the submissions made across the bar, I am of the view that the petitioner is entitled to the declaration sought. The Finance Act, of 1994 is a piece of legislation traceable to Entry 97 of List I, which is the residual entry. Article 248 of the Constitution of India (prior to the Constitution (One Hundred and First Amendment) Act, 2016) reads thus: “(1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List. (2) Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists” Entry 97 of List I reads: “Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists” Kesoram Industries Ltd. (supra), is the authority for the proposition that the residual entry can be resorted only to justify legislation imposing a tax on matters not covered by any taxing entry in List II. It was held: “129.3.......... (9) The heads of taxation are clearly enumerated in Entries 83 to 92B in List I and Entries 45 to 63 in List II. List III, the Concurrent List, does not provide for any head of taxation. Entry 96 in List I, Entry 66 in List II and Entry 47 in List III deal with fees. The residuary power of legislation in the field of taxation spelled out by Article 248(2) and Entry 97 in List I can be applied only to such subjects as are not included in Entries 45 to 63 of List II. It follows that taxes on lands and buildings in Entry 49 of List II cannot be levied by the Union. The residuary power of legislation in the field of taxation spelled out by Article 248(2) and Entry 97 in List I can be applied only to such subjects as are not included in Entries 45 to 63 of List II. It follows that taxes on lands and buildings in Entry 49 of List II cannot be levied by the Union. Taxes on mineral rights, a subject in Entry 50 of List II can also not be levied by the union though as stated in Entry by itself the union may impose limitations on the power of the State and such limitations, if any, imposed by the Parliament by law relating to mineral development and to that extent shall circumscribe the States power to legislate. Power to tax mineral rights is with the States; the power to lay down limitations on exercise of such power, in the interest of regulation, development or control, as the case may be, is with the union. This is the result achieved by homogeneous reading of Entry 50 in List II and Entries 52 and 54 in List I. So long as a tax or fee on mineral rights remains in pith and substance a tax for augmenting the revenue resources of the State or a fee for rendering services by the State and it does not impinge upon regulation of mines and mineral development or upon control of industry by the Central Government, it is not unconstitutional.....” Entry 55 of List II of the Constitution as it stood at the relevant time (till the Constitution (One Hundred and First Amendment) Act, 2016) reads as follows: “55. Taxes on advertisements other than advertisements published in the newspapers and advertisements broadcast by radio or television.” It is clear from a reading of Entry 55 of List II that the power to make a law to impose a tax on advertisements other than in respect of advertisements published in newspapers and advertisements broadcast by radio or television was exclusively within the domain of the State Legislature. Before the amendment to Clause (g) of Section 66D by the 2014 amendment, the said clause read as follows: “(g) selling of space or time slots for advertisements other than advertisements broadcast by radio or television.” After the 2014 amendment to Clause (g) of Section 66D, the said clause reads as follows: “(g) selling of space for advertisements in print media.” Thus after the amendment to Clause (g) of Section 66D only advertisements placed in print media were placed on the negative list of services. In other words, by the amendment, service tax could be imposed on advertisements placed in any other media other than in newspapers. This, on the application of the principles laid down in Kesoram Industries Ltd. And Others (supra) would be beyond the Legislative competence of the Union Parliament. 6. Coming to the contention of the learned Standing Counsel for the respondents regarding the ‘Aspect Theory’, I am of the view that it is settled law that entries in the Lists contained in the Seventh Schedule to the Constitution of India must be given the widest possible interpretation and it is not possible to give such entries any restrictive interpretation. In Gujarat University v. Sri Krishna Ranganath Mudholkar, 1962 SCC Online SC 146 it was held: “44. In this context it will be useful to notice some of the well-settled rules of interpretation laid down by the Federal Court and accepted by this Court in the matter of construing the entries. In Calcutta Gas Company vs. State of West Bengal, it is observed: “The Power to legislate is given to the appropriate legislatures by Article 246 of the Constitution. The entries in the three Lists are only legislative heads or fields of legislation: they demarcate the area over which the appropriate legislatures can operate. It is also well settled that widest amplitude should be given to the language of the entries. But some of the entries in the different Lists or in the same List may overlap and sometimes may also appear to be in direct conflict with each other. It is also well settled that widest amplitude should be given to the language of the entries. But some of the entries in the different Lists or in the same List may overlap and sometimes may also appear to be in direct conflict with each other. It is then the duty of this Court to reconcile the entries and bring about harmony between them.....It may, therefore, be taken as a well settled rule of construction that every attempt should be made to harmonize the apparently conflicting entries not only of different Lists but also of the same List and to reject that construction which will rob one of the entries of its entire content and make it nugatory.” In R. Abdul Quader and Co. v. Sale Tax Officer, IInd Circle Hyderabad, 1964 SCC Online SC 105 it was held: “4.....................Now there is no dispute that the heads of legislation in the various Lists in the Seventh Schedule should be interpreted widely so as to take in all matters which are of a character incidental to the topics mentioned therein. Even so, there is a limit to such incidental or ancillary power flowing from the legislative entries in the various Lists in the Seventh Schedule. These incidental and ancillary powers have to be exercised in aid of the main topic of legislation, which in the present case, is a tax on sale or purchase of goods.” In Express Hotels (P) Ltd. v. State of Gujarat, (1989) 3 SCC 677 it was held: “15. We are dealing with an entry in a Legislative List. The entries should not be read in a narrow or pedantic sense but must be given their fullest meaning and the widest amplitude and be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in them.” In India Cement Ltd. v. State of Tamil Nadu, (1990) 1 SCC 12 it was held: “18. Certain rules have been evolved in this regard, and it is well settled now that the various entries in the three lists are not powers but fields of legislation. The power to legislate is given by Article 246 and other articles of the Constitution. See the observations of this Court in Calcutta Gas Co. vs. State of West Bengal. Certain rules have been evolved in this regard, and it is well settled now that the various entries in the three lists are not powers but fields of legislation. The power to legislate is given by Article 246 and other articles of the Constitution. See the observations of this Court in Calcutta Gas Co. vs. State of West Bengal. The entries in the three lists of the Seventh Schedule to the Constitution, are legislative heads or fields of legislation. These demarcate the area over which appropriate legislature can operate. It is well settled that widest amplitude should be given to the language of these entries, but some of these entries in different lists or in the same list may overlap and sometimes may also appear to be in direct conflict with each other. Then, it is the duty of the court to find out its true intent and purpose and to examine a particular legislation in its pith and substance to determine whether it fits in one or the other of the lists. See the observations of this Court in H.R. Banthia vs. Union of India and Union of India vs. H.S. Dhillon. The lists are designed to define and delimit the respective areas of respective competence of the Union and the States. These neither impose any implied restriction on the legislative power conferred by Article 246 of the Constitution, nor prescribe any duty to exercise that legislative power in any particular manner. Hence, the language of the entries should be given widest scope, to find out which of the meaning is fairly capable because these set up machinery of the government. Each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. In interpreting an entry it would not be reasonable to import any limitation by comparing or contrasting that entry with any other one in the same list. It is in this background that one has to examine the present controversy.” In R.S. Rekhchand Mohota Spg. & Wvg. Mills Ltd. v. State of Maharashtra, (1997) 6 SCC 12 it was held: “8...........The interpretation of the statute would apply to the interpretation of the entries subject to reservation that their application is of necessity conditioned by the subject-matter of the enactment itself. & Wvg. Mills Ltd. v. State of Maharashtra, (1997) 6 SCC 12 it was held: “8...........The interpretation of the statute would apply to the interpretation of the entries subject to reservation that their application is of necessity conditioned by the subject-matter of the enactment itself. It should be remembered that the problem before us is to construe a word appearing in Entry 45 which is a head of legislative power. It cannot be read in a narrow or restricted sense and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended to it. It is, therefore, clear that in construing an entry in a list conferring legislative powers, the widest possible construction, according to their ordinary meaning, must be put upon the words used therein. Reference to legislative practice may be admissible for cutting down the meaning of a word in order to reconcile two conflicting provisions in two legislative lists. The cardinal rule of interpretation, however, is that words should be given their ordinary, natural and grammatical meaning subject to the rider that in construing words in a constitutional enactment, conferring legislative power under Article 246, the most liberal construction should be put upon the words in the entries in the respective lists in the Seventh Schedule so that the same may have effect in their widest amplitude. The same principle was reiterated in Kunnathat Thathunni Moopil Nair vs. State of Kerala (SCR at p. 106) by Sarkar, J. though in a dissenting tone but on this principle there is no dissent by majority and it cannot be dissented. It was said thus: “It is well known that entries in the legislative lists have to be read as widely as possible. It is not necessary to cut down the plain meaning of the word ‘land’ in Entry 49 to give full effect to the word ‘forest’ in Entry 19. In my view, the two entries, namely, Entry 49 and Entry 18 deal with entirely different matters. Therefore, under Entry 49 taxation on land on which a forest stands is permissible and legal.” In ITC Ltd. vs. Agricultural Produce Market Committee, (2002) 9 SCC 232 it was held: “192. In my view, the two entries, namely, Entry 49 and Entry 18 deal with entirely different matters. Therefore, under Entry 49 taxation on land on which a forest stands is permissible and legal.” In ITC Ltd. vs. Agricultural Produce Market Committee, (2002) 9 SCC 232 it was held: “192. In the aforesaid premises, we are of the considered opinion that the Tobacco Board Act enacted by Parliament under Entry 52 of List I is constitutionally valid and all the provisions therein, including the provisions relating to growing of tobacco and sale and purchase of tobacco are within the legislative competence of Parliament. We are further of the opinion that the word “industry” in Entry 52 of List I cannot be given a restricted meaning, particularly when a conspectus of all the decisions interpreting entry in any of the lists of the Constitution including the minority view of Mukharji, J. in ITC case is to the effect that the entries in the list should be given liberal and generous construction and it is a well-accepted cardinal rule of interpretation that the words in a constitutional document, conferring legislative powers should be construed most liberally and in their widest amplitude.” In State of Karnataka vs. State of Meghalaya, (2023) 4 SCC 416 it was held: “58. The power to legislate which is dealt with under Article 246 has to be read in conjunction with the entries in the three Lists which define the respective areas of legislative competence of the Union and State Legislatures. While interpreting these entries, they should not be viewed in a narrow or myopic manner but by giving the widest scope to their meaning, particularly, when the vires of a provision of a statute is assailed. In such circumstances, a liberal construction must be given to the entry by looking at the substance of the legislation and not its mere form. However, while interpreting the entries in the case of an apparent conflict, every attempt must be made by the Court to harmonise or reconcile them........” 7. In such circumstances, a liberal construction must be given to the entry by looking at the substance of the legislation and not its mere form. However, while interpreting the entries in the case of an apparent conflict, every attempt must be made by the Court to harmonise or reconcile them........” 7. When the widest possible interpretation is thus placed on a specific entry empowering the State Legislatures to make legislation for the imposition of tax on advertisements other than advertisements placed in print media or in radio or television, it must be held that every aspect of such tax can be imposed (whether or not actually imposed) only under a Legislation made by the State Legislature especially when the offending Union Legislation is made under the residual entry namely Entry 97 of List I. Therefore, in the matter of advertisements, it must be held that every aspect of tax on advertisements other than taxes on advertisements placed in newspapers or those broadcast on radio and television was covered by Entry 55 of List II and therefore no law made with reference to Entry 97 of List I could authorize the levy of any tax on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television. 8. In the light of the above findings, this writ petition is allowed. It is declared that the amendments to Clause (g) of Section 66D by the Finance Act, 2014 with effect from 01.10.2014 is beyond the Legislative competence of the Union Parliament and is unconstitutional, as it authorizes the imposition of Service Tax on all advertisements, thus covering advertisements upon which a tax could have been levied only under a law made by the State Legislature under Entry 55 of List II.