Service tax in transport sector upheld

NEW DELHI, MARCH 24. The Supreme Court has upheld the constitutional validity of certain provisions of the Finance Act 2000 imposing a levy of service tax on the consumers of the services rendered by the goods transport operators and forwarding and clearing agents.

A Bench, comprising Justice Ruma Pal and Justice Arun Kumar, dismissed a batch of petitions filed by Gujarat Ambuja Cements and others challenging the imposition of such tax. The petitioners had challenged the levy on the ground that it operated in a discriminatory manner by singling out the customers of goods transport operators and clearing and forwarding agents to pay tax whereas the recipients of other kinds of similar services were not taxed. They had also questioned the legislative competence of Parliament to enact a law on the transport sector saying this fell within the exclusive jurisdiction of the States.

Rejecting these contentions, Justice Ruma Pal, writing the judgment, said that since service tax was not a levy on passengers and goods but on the event of service in connection with the carriage of goods, it was not possible to hold that the power to levy such a tax vested with the States.

The Bench said: "The legislature enjoys a large discretion in the classification of tax regime and the Courts are extremely circumspect on questioning the reasonability of such classification." It noted that the legislature could determine not only what should be taxed but also the manner in which the tax may be imposed. It said that if the legislature thought it would facilitate the collection of the tax due from such specified traders on a rationally discernible basis, there was nothing in the said legislative measure to offend the right to equality guaranteed under Article 14 of the Constitution.

"What the Act ostensibly seeks to tax is what it, in substance, taxes. In the circumstances, the Act could not be termed a colourable piece of legislation", the Bench said.

"It is therefore outside the judicial ken to determine whether Parliament should have specified a common mode for recovery of the tax as a convenient administrative measure in respect of a particular class. That is ultimately a question of policy which must be left to legislative wisdom," the Bench said and rejected the argument on alleged discrimination.

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