Document Fragment View

Matching Fragments

9. Government of India in order to tap new areas of taxation and to identify the hidden one appointed Tax Reforms Committee under the Chairmanship of Dr. Chelliah in August, 1991. The recommendations made by the Committee were accepted and the Service Tax was introduced in the Budget for 1994-95 through the Finance Act, 1994. Under the said enactment, Service Tax is the tax on notified services provided or to be provided. After its introduction, the constitutional validity of the services taxed by the Central Government was challenged before the Constitution Bench of this Court which took the view that the Central Government derived its authority from Entry 97 of List I of the Seventh Schedule to the Constitution for levying tax on services provided.

(vi) Discussions of Judgments cited on behalf of the appellants:

34. In the case of Godfrey Phillips India Ltd. and anr. V. State of U.P. and ors. reported in (2005) 2 SCC 515 the assessees/appellants, who were either manufacturers, dealers or sellers of tobacco, had challenged the levy of luxury tax on tobacco and tobacco products by treating them as luxuries within the meaning of the word in Entry 62 of List II of the Seventh Schedule to the Constitution of India. Uttar Pradesh Tax on Luxuries Act, 1995 and certain other State enactments imposed luxury tax on tobacco by treating it as luxury within the meaning of the word in Entry 62 of List II. It was held by the Constitution Bench of this Court that the word luxuries in Entry 62, List II refers to activities of enjoyment, indulgence or pleasure and since none of the impugned enactments had sought to tax any activity and since the impugned enactments sought to tax goods as luxuries it was held that the said U.P. Tax on Luxuries Act, 1995, Andhra Pradesh Tax on Luxuries Act, 1987 and West Bengal Luxury Tax Act, 1994 were beyond the legislative competence of the State Legislature. In this connection, it was observed, vide para 57, by the Constitution Bench of this Court that a tax on a thing or goods can only be with reference to a taxable event but there is a distinction between such a tax and a tax on the taxable event. In the first case, the subject-matter of tax is the goods and the taxable event is within the incidence of the tax on the goods. In the second case, the taxable event is the subject-matter of tax itself. In our view, para 57 supports the reasoning given by us hereinabove. As stated above, service tax is a value added tax. Value addition is on account of the activity like planning, consultation, advising etc.. It is an activity, which provides value addition as in the case of manufacturer of goods, which attracts service tax. In the present case, tax falls on the activity which is the subject-matter of service tax. In other words, we are substituting the word service in place of goods by applying the principle of equivalence. Under the Act, the Taxable Event is each exercise undertaken by the service-provider in giving advice on tax planning, auditing, costing etc.. It is the said principle of equivalence which equates service tax to the Central Excise Duty, one taxes the provision of services and other production of goods. See para 2.14 of the recommendations made by Tax Reforms Committee headed by Dr. Chelliah which has stated that from the economic point of view, there is little difference between the taxation of commodities and taxation of services.