Economic laws can't be challenged easily

EXPERT EYE

At the time of introduction of service tax in the 1994-95 Budget, the constitutionality question was resolved by the understanding that whatever jurisdiction is not written clearly in the Union List, State List or the Concurrent List, will fall under Entry 97 of the Union List.

This has never been challenged by anybody. Still it was thought fit to amend the Constitution to bring a specific entry for service tax and to indicate the authority for collection and manner of appropriation.

This has been done by introducing Item 92C which reads as "Taxes on Services" in the List-1, Union List, Schedule VII of the Constitution.

There is no change at all in the legal position. It is not correct that since this amendment has been made now, the situation earlier was different. Actually, this has been done for bringing clarity beyond all doubts. So, the constitutionality issue will not arise any more.

The constitutionality of service tax has not been challenged in a general way even before this amendment. It has not been ever argued that the government has no right to tax services.

What has, however, been challenged is the imposition of tax on particular activities, on the ground that the activity in question is not a service. Some of the important cases are discussed below:

Mandap Keepers services: A leading judgement is in the case of Tamil Nadu Kalyan Mandapam versus UOI, 2004 (167) ELT 3 (SC).

The Supreme Court held that taxation of mandap keeper services does not affect vires of legislation or legislative competence. "This tax is tax on services and not on sale of goods or hire- purchase activities", the Supreme Court held.

Advertising Agency: The constitutionality of service tax was challenged in the Kerala High Court in the case of Zodiac Advertisers versus UOI reported in 2004 (166) ELT 25 (Ker) on the ground that the right to carry on profession and occupation guaranteed under Article 19 (1) G of the Constitution was compromised and that there was discrimination against the service, which is against Article 14.

The high court held that service tax is not violative of these two articles and in any case the extent of tax and whom to tax is for the legislature to decide and not for the courts to interfere in. In fact, the economic policy cannot be justiciable ordinarily, but only when a violation of Fundamental Rights is proved.

The Constitutional validity of tax on advertising agency has also been upheld in the cases of Addition Advertising versus Union of India, 1998, (98) ELT 14 (Guj) and Advertising Club versus CBEC [2002] 121 Taxman 287.

Architect's Services: The constitutional validity of levy of service tax on architects was upheld in cases of Chartered Accountants Association versus Union of India 2005 (179) ELT 129 (Guj.); All India Federation of Tax Practitioners versus Union of India (2001) 116 Taxman 418 (Bom.) and Architects versus Union of India, 2002(139) ELT 245.

Similarly, service tax on photographic service, consulting engineer service, rent-a-cab scheme operator's service, tourist operator's service and security agency service have all been upheld as constitutional.

The conclusion that emerges from the analysis of all the judicial pronouncements by the high courts and the Supreme Court is that an economic law, which is a part of economic policy, cannot be challenged easily on the ground of discrimination.

A legislature does not have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory.

The legislature can exercise an extremely wide discretion in classifying an item for tax purpose, so long as it refrains from clear and hostile discrimination against particular persons or classes.

If an individual service is indeed a service, then its constitutionality cannot be challenged unless it can be proved that the imposition is against a particular fundamental right.