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Discussion and Conclusion

12. Service tax was introduced for the first time in India in 1994 by virtue of the Finance Act, 1994. In his Budget speech, the then Finance Minister explained that the service tax was being introduced on the recommendation of the Tax Reforms Committee - Dr. Raja Chelliah Committee on tax reforms - which had recommended imposition of tax on services as a measure for broadening the base of indirect taxes. He observed that service sector accounted for 40% of the GDP and there was no sound reason for exempting services from taxation. Chapter V of the Finance Act, 1994 contained the relevant provisions for the said levy. At the material time none of the specific entries under any of the Lists of the Seventh Schedule to the Constitution of India contemplated the levy of service tax; thus, the levy of service tax could be related only to the residuary entry in the Union List-Entry 97 of the List-I of the Seventh Schedule. Subsequently, the Constitution (88th Amendment) Bill, 2003 was introduced pursuant to which the Constitution was amended by, inter alia, insertion of Article 268A as well as Entry 92C in List-I of the Seventh Schedule to the Constitution of India. Article 268A(1) provided that taxes on services shall be levied by the Government of India and such tax shall be collected in a manner as provided in Article 268A(2) of the Constitution of India.