Case Note & Summary
The petitioner, M/s. Sterling Holiday Resorts (I) Limited, a company incorporated under the Companies Act, received a show cause notice dated 22.10.2007 from the Commissioner of Service Tax, Chennai, proposing to demand service tax under Section 73(1) of the Finance Act, 1994, along with interest and penalty for alleged contravention of Section 68. The company filed two writ petitions before the High Court of Madras: one seeking a declaration that Sections 65(105)(zzze) and 67(3) of the Finance Act, 1994 are ultra vires Articles 14, 19(1)(g) and 265 of the Constitution, and another seeking a writ of prohibition against the show cause notice. During the pendency, an identical show cause notice was issued to Mahindra Holidays and Resorts India Ltd., which challenged it in W.P. Nos.29868 & 29869 of 2006. By order dated 05.06.2020, the High Court allowed those writ petitions, applying the ratio of the Supreme Court decision in State of West Bengal v. Calcutta Club Limited (2019 (29) G.S.T.L. 545 (S.C.)). The Supreme Court had held that the expression 'body of persons' under the Finance Act, 1994 does not include bodies corporate. Consequently, the levy of service tax on incorporated entities under the impugned provisions was unsustainable. Both parties in the present case agreed that the matter was covered by the earlier High Court decision. The Court, therefore, followed the binding precedent and held that the provisions, insofar as they sought to tax incorporated companies, were ultra vires the Constitution. It accordingly allowed the writ petitions, prohibited the Commissioner from proceeding with the show cause notice, and effectively quashed the same.
Headnote
A) Service Tax - Interpretation of 'Body of Persons' - Finance Act, 1994, Sections 65(105)(zzze), 67(3) - The expression 'body of persons' as used in the Finance Act, 1994 does not include bodies corporate. The Supreme Court in State of West Bengal v. Calcutta Club Limited held that a body corporate cannot be considered a 'body of persons' for the purpose of levying service tax, thereby rendering the levy on incorporated entities unsustainable. The High Court applied this binding precedent and declared the provisions ultra vires to the extent they seek to tax incorporated companies. (Para 2) B) Constitutional Law - Ultra Vires Provisions - Finance Act, 1994, Sections 65(105)(zzze), 67(3) - The petitioner, a company incorporated under the Companies Act, challenged the service tax provisions as violative of Articles 14, 19(1)(g) and 265 of the Constitution. Following the Supreme Court's interpretation that 'body of persons' excludes bodies corporate, the High Court held that the levy on the petitioner company is without legal basis and amounts to an unconstitutional imposition. (Para 2) C) Writ Jurisdiction - Prohibition of Show Cause Notice - The High Court, relying on an identical case involving Mahindra Holidays where the writ petition was allowed based on the Calcutta Club Limited ratio, prohibited the Commissioner of Service Tax from proceeding with the show cause notice. The Court quashed the notice as the foundational legal premise for the levy was held invalid. (Para 2)
Issue of Consideration
Whether the provisions of Section 65(105)(zzze) and Section 67(3) of the Finance Act, 1994 are ultra vires Articles 14, 19(1)(g) and 265 of the Constitution of India, and whether the show cause notice proposing to levy service tax on the petitioner company should be prohibited
Final Decision
The writ petitions were allowed. The Court, following the binding precedent of the Supreme Court in State of West Bengal v. Calcutta Club Limited and the earlier High Court order in Mahindra Holidays case, held that the provisions of Sections 65(105)(zzze) and 67(3) of the Finance Act, 1994, insofar as they apply to incorporated entities, are ultra vires the Constitution. The show cause notice dated 22.10.2007 was consequently quashed and the second respondent was prohibited from taking any action pursuant to it.
Law Points
- The expression 'body of persons' in the Finance Act
- 1994 does not include bodies corporate
- service tax cannot be levied on incorporated companies under Sections 65(105)(zzze) and 67(3)
- principles of mutuality
- binding effect of Supreme Court precedent
- writs under Article 226 of the Constitution of India
