in the hon’ble high court of judicature

THE 1ST RAJA RAM AGRAWAL MEMORIAL NATIONAL TAX MOOT COURT COMPETITION 2009

IN THE HON’BLE HIGH COURT OF JUDICATURE AT

ALLAHABAD

In Central Excise Appeal No.______of 2009

M/S COMFORT CARS

Appellant

Vs.

COMMISSIONER OF CENTRAL EXCISE, KANPUR

Respondent

MEMORIAL FOR THE RESPONDENT

Table of Contents


i

TABLE OF CONTENTS

L IST OF ABBREVIATIONS .........................................................................................................iii

INDEX OF AUTHORITIES ...........................................................................................................v

� Table of Statutes...............................................................................................v

� Table of books..................................................................................................v

� Dictionaries......................................................................................................v

� Table of Cases..................................................................................................vi

STATEMENT OF JURISDICTION ...............................................................................................x

STATEMENT OF FACTS...........................................................................................................xi

SUMMARY OF PLEADINGS ......................................................................................................xiii

PLEADINGS AND AUTHORITIES

CONTENTION 1: THAT THE APPELLANT W AS LIABLE TO PAY SERVICE TAX ON THE AMOUNT

RECEIVED AS REIMBURSEMENT BY IT FROM THE PTO’S. …..………………….………….1

CONTENTION 2: THAT THE APPELLANT COULD BE ASSESSEED TO SERVICE TAX BY INVOKI NG

THE EXTENDED PERIOD OF LIMITATION …………………………….....................................5

CONTENTION 3: THAT BEFORE THE AMENDMENT IN THE DEFINITION OF TOUR OPERATORS ,

THE SUPPLEMENTARY SERVICES PROVIDED BY TOUR OPERATORS WERE TAXABLE ..……...9

CONTENTION 4: THAT NO TAX LIABILITY HAS BEEN CREATED BY THE CIRCULAR AND THE

TRIBUNAL WAS JUSTIFIED IN RELYING UPON THE CIRCULAR DATED 23.08.2007 ISSED AFTER

Table of Contents


ii

THE DISPUTED PERIOD ……………......................................................................................15

PRAYER ..................................................................................................................................18

List of Abbreviations


iii

L IST OF ABBREVIATIONS 1. AC Appeal Court

2. Ahd. Ahmedabad

3. AIR All India Reporter

4. All . Allahabad

5. Anr . Another

6. Asst. Assistant

7. Bang. Bangalore

8. Cal. Calcutta

9. CBEC Central Board of Excise and Customs

10. CCE Commissioner of Central Excise

11. Ch. App. Chancery Appeal

12. CIT Commissioner of Income Tax

13. Co. Company

14. CST Commissioner of Sales Tax

15. CTO Commercial Tax Officer

16. CTR Current Tax Reporter

17. Cri. Criminal

18. Ed. Edition

19. ELT Excise Law Times

20. Hon’ble Honourable

21. Hyd. Hyderabad

22. ITR Income Tax Reporter

23. Kar Karnataka

24. Ltd. Limited

25. MP Madhya Pradesh

26. Mad. Madras

27. Ors Others

28. Pvt. Private

29. ¶ Paragraph

30. SAIL Steel Authority of India Limited

List of Abbreviations


iv

31. SC Supreme Court

32. SCC Supreme Court Cases

33. SCR Supreme Court Reporter

34. SCW Supreme Court Weekly

35. STC Sales Tax Cases

36. STR Sales Tax Reporter

37. STT Sales Tax Tribunal

38. Sec Section

39. TTJ Tax Tribunal Judgement

40. U.P. Uttar Pradesh

41. UOI Union of India

42. V/S Versus

43. Vol. Volume

44. W.B. West Bengal

45. W.e.f. With Effect From

Index of Authorities


v

INDEX OF AUTHORITIES

TABLE OF STATUTES

• The Central Excise Act, 1944.

• The Finance Act, 1994.

• The Finance Act 2004.

• The Constitution of India

• The Indian Contract, 1872

TABLE OF BOOKS

• GABHAWALLA SUNIL, TREATISE ON SERVICE TAX, 7th Ed., 2008 Vol 1& 2

• MITTAL J.K, THE LAW, PRACTICE & PROCEDURE OF SERVICE TAX ,

Bharat, 9th Ed.,2004.

• GUPTA S.S., TAXMANN’S SERVICE TAX , TAXMAN , Vol 1& 2

• AGGARAWAL ROHINI, SERVICE TAX LAW AND PRACTICE , Eastern Book

Company

• JUSTICE MALLICK, COMMENTARIES ON INDIAN CONTRACT ACT, KAMAL

LAW HOUSE

• BASU DURGA DAS, CONSTITUTIONAL LAW OF INDIA, Lexis Nexis

Butterworths Wadhwa , 8th Ed.

• SUBRAHMANYAN & SINGHAL, INDIAN CONTRACT ACT, The Law Book

Company (P) Ltd. , 3rd Ed.

DICTIONARIES

• GARNER BRAYAN ., BLACK’S LAW DICTIONARY, 7 th Ed., WEST GROUP , ST.

PAUL, MINN

• AIYAR P.R., The Law Lexicon, 2nd Ed. Wadhwa & Company, (Nagpur 1999)



vi

TABLE OF CASES

~A~B~

A.V. Fernandex v. State of Kerala AIR 1957 SC 657

Abdul Waheed Khan v. Bhawani, AIR 1966 SC 1718

Anand Nishikawa Co. Ltd. v. CCE 2005 (188) ELT 149, 2 STT 226, AIR 2005 SCW

4923 (SC)

Arul Nadar v. Authorised Officer, Land Reforms (1998) 7 SCC 157 : AIR 1998 SC 3288

Asst CIT v. Vijay Granites (P) Ltd (2002) 75 TTJ (Mad) 744

Baidyanath Ayurved Bhawan v. Excise Commissioner AIR 1971 SC 738

Balkrishna Chagganlal v. State of W.B. 1974 SCC (Cri. ) 45

Banyan and Berry v. CIT (1996) 222 ITR 831

Bharat Electronics Ltd. v. DCCT (2005) 142 STC 417

~C~

C.K.P. Mandal v. Commissioner of Central Excise, Mumbai 2006 (4) Bom. CR 747

Calcutta Oil Industries v. CTO 1997(ii) SCC 409

Calcutta Oil Industries v. CTO 1997(ii) SCC 409

CCE v. Ballarpur Industries Ltd. (2007) 11 STT 6 (SC)

CCE v. Damnet Chemicals (2007) 216 ELT 3 (SC)

CCE v. Welspun Gujarat Stahl Rohren Ltd 2008 [10] S.T.R. 137

Central Bank of India v. Workmen (1960) 1 SCC 200

Chandravarkar S.R. Rao v. Asha Lata AIR 1987 SC 117

Chinn v. Hochstasser 1981 AC 533

CIT v. Durga Prasad More (1971) 82 ITR 540 (SC)

CIT v. Gillanders Arbuthnot & Co (1973) 87 ITR 407

CIT v. God Granites (2000) 13 DTC 87 (Karn-HC )

CIT v. Kalooram Govindram (1965) 57 ITR 630

CIT v. L.N. Dalmia (1994) 207 ITR 89 (Cal.)

CIT v. Shree Jaganath Steel Corporation 191 ITR 676

CIT v. Shree Jaganath Steel Corporation 191 ITR 676, Jamshedpur

Continental Foundation Jt Venture v. CCE (2007) 216 ELT 177 (SC)



vii

Coromondal Fertilisers Ltd. v. Collector of Customs, 1986 (25) E.L.T. 861

Coromondal Fertilisers Ltd. v. Collector of Customs, 1986 (25) E.L.T. 861

~D~E~

Delhi Stock Exchange Association Ltd. v. CIT AIR 1961 SC 1144

Devidas Vithaldas & Co. v. CIT (1972) 3 SCC 457

Doypack Systems (P) Ltd. v. Union of India AIR 1988 SC 782

Dr. (Mrs.) Sushma Sharma and Ors v. State of Rajasthan and Ors. AIR 1985 SC 1367

Ensign Tankers (Leasing) Ltd. v. Stokes (Inspector of Taxes) 1992 IAC 655

Exel India Pvt. Ltd. v. The Commissioner of Service Tax Customs, Excise and Gold

Tribunal Bangalore 2007 (7) STR 542

~F~G~

Floor v. Davis 1978 Ch. 295

Furniss v. Dawson 1984 AC 474

Glindia Ltd. v. Union of India , 1988 (36) E.L.T. 479

H~I~J~K~

Harekrishna Developers (through Jayantibhai Jermabhai Korat) v. Commissioner of

Service Tax AR-2008-8

Hindustan Steel Forgings v. CIT [1989] 179 ITR 280

Hindustan Steel Forgings v. CIT [1989] 179 ITR 280

Income Tax Officer v. Nadar AIR 1968 SC 623

Income-Tax Officer v. Food Corporation Of India And Central State Ware Housing

Labour Contract Co-Operative Society Ltd. [1993] 47 ITD 525 (Hyd)

India Colour Lab v. CCE 2006 (104) ECC 594

Indian Furniture W orks v. Asst CIT (2001) 71 TTJ (Bang) 709

Indian Institute Of Management v. C.S.T. 2008 (10) STR 603

Jagdish Ch. Patnaik v. State of Orissa (1998) 4 SCC 456:AIR 1998 SC 1926)

Jamshedpur Motor Accessory Store v. Union Of India 189 ITR 70



viii

Juggilal Kamlapat v. CIT (1969) 73 ITR 702, Bank of Chettinad Ltd. v. Commr. of

Incometax (1940) 8 ITR 522

Kadiyala Rama Rao v. Gutala Kahna Rao, (2000) 3 SCC 87

Kettlewell Bullen and Co. Ltd. v. CIT AIR 1965 SC 65

~M~N

Mc Dowell & Co. Ltd. v. CTO (1985) 3 SCC 230

Mool Chand v. Kedar, AIR 2000 SC 745

Motor Accessory Store v. Union Of India 189 ITR 70

Navin Chemicals Mfg. and Trading Co. Ltd. v. Collector of Customs 1993 ECR 1 (SC)

Nitai Charan Bagchi v. Suresh Chandra Paul, 66 Cal WN 767

Nokes v. Doncaster Amalgamated Collieries Ltd 1940 AC 1014

~R~S~

Races Ahmad v. State of U.P. and Ors., AIR 2000 SC 583

Ramhet v. Mandir Shri Laxminarain AIR 1976 MP 216

Renusagar Power Co. Ltd. vs. General Electric Company and Anr. AIR 1985 SC 1156

Sachida Nand Singh v. State of Bihar (1998) 2 SCC 493:AIR 1998 SC 1121

Sanjeev Coke Manufacturing Company v. Bharat Coking Coal Ltd. and Anr. AIR 1983

SC 239

Shamrao V. Parulekar v. District Magistrate, Thomas AIR 1952 SC 324

Shyam Lal v. M. Shayamlal AIR (1933) All 649:76 Corpus Juris Secundum 621

Smt. L.V. Sankeshwar, Proprietrix, Vijayanand Travels and Ors. etc. etc. Vs

Superintendent of Central Excise, Range-A and Ors. etc. (2006) 206 CTR (Kar ) 274

State of UP v. Twin City Jewellers Association (2006) 147 STC 354 (SC)

State Wakf Board v. Abdul Aziz A.I.R. 1968 Madras 791

Stonecraft Enterprises v. CIT (1999) 237 ITR 131 (SC)

Subhash Marketing v. Commissioner Of Commercial Taxes (2000) 118 STC 136 (Kar.)

Suresh Kumar Sharma v. The Union Of India 2007 (5) STR 254

Sutlej Cotton Mills Ltd. v. Commissioner of Income-tax (1979) 116 ITR 1



ix

~T~U~

Tamil Nadu Kalyana Mandapam Assn. v. Union of India 2006 (3) S.T.R. 260 (S.C.)

Tamilnadu Minerals Ltd. v. Inspecting Assistant Commissioner Of Income Tax (2003)

81 TTJ (Chennai) 161

The Addl. Cit, Sr-8 v. Pinnacle Project And Infrastrcture Private Ltd. [2007] 290 ITR

45 (Ahd)

The City of Nagpur v. Its Employees 1960 2 S.C.R. 942

Thyssen Stahlunon Gambh v. SAIL AIR 1999 SC 3923

Touraids (I) Travel Services v. CCE 2008 [12] S.T.R. 45

Union of India v. Playworld Electronics (1989) 3 SCC 181

UOI v. Rajasthan Spinning and Weaving Mills and Commissioner of Customs and

Central Excise v. Lanco Industries Ltd. (2009) 224 CTR (SC) 1

~V~W~

V.V.S. Sugars v. Government of Andhra Pradesh, AIR 1999 SC 2124

Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar and Ors AIR 1974 SC 1728

Workmen of Associated Rubber Industry Ltd v. Associated Rubber Industry Ltd (1986)

157 ITR 77 (SC)

Statement of Jurisdiction x


STATEMENT OF JURISDICTION

THE RESPONDENTS SUBMITS TO THE JURISDICTION OF THE HON’BLE HIGH COURT OF

JUDICATURE AT ALLAHABAD PROVIDED FOR IN SECTION 35G1 OF THE CENTRAL EXCISE ACT,

1944 IN RESPONSE TO THE APPEAL FILED BY THE APPELLANT.

1 Section 35G, Central Excise Act, 1944- Appeal to High Court

(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal on or

after the 1st day of July, 2003 (not being an order relating, among other things, to the determination of

nay question having a relation to the rate of duty of excise or to the value of goods for purposes of

assessment), if the High Court is satisfied that the case involves a substantial question of law.

(2) The Commissioner of Central Excise or the other party aggrieved by any order passed by the Appellate

Tribunal may file an appeal to the High Court. [In accordance with provided provisions]

(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall

formulate that question.

(4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing

of the appeal, be allowed to argue that the case does not involve such question:

Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the

Court to hear, for reason to be recorded, the appeal on any other substantial question of law not

formulated by it, if it is satisfied that the case involves such question.

(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon

containing the grounds on which such decision is founded any may award such cost as it deems fit.

(6) The High Court may determine any issue which-

a. Has not been determined by the Appellate Tribunal

b. Has been wrongly determined by the Appellate Tribunal, by reason of a decision on such

question of law as if referred to in sub section (1).

(7) When an appeal has been filed before the High Court, it shall be heard by a bench of not less than two

judges of the High Court, and shall be decided in accordance with the opinion of such judges or of the

majority, if any, of such judges.

(8) Where there is no such majority, the Judges shall state the point of law upon which they differ and the

case shall, then, be heard upon that point only by one or more of the other judges of the High Court and

such point shall be decided according to the opinion of the majority of the judges who have heard the

case including those who first heard it.

Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908, relating to appeals

to the High Court shall, as far as may be, apply in the case of appeals under this section.

Statement of Jurisdiction xi


STATEMENT OF FACTS

I

M/s. Comfort Cars is a small proprietorship concern providing tour operator services with its

head office at Agra, from where it regularly files its service tax returns.

II

The definition of tour operators under Section 65(115) of the Finance Act was amended by

Finance Act No.2 of 2004. But the Taxable Service for tour operators as per Section 65(105)

remained unamended.

III

The large tour operators are called principal tour operators (PTO’s), who pay service tax on

the entire amount received from the clients.

IV

Comfort Cars has an agreement with these large operators to provide vehicles to the

guests/tourists who visit India from abroad, and it pays service tax on the value of the

vehicles provided by them.

V

At times, Comfort Cars also provides certain services known as supplementary services to

the guests, which includes arranging for tickets for visiting the monuments, providing porter

services, guides, arranging for food etc. These supplementary services are provided on

reimbursement basis from PTO’s.

VI

In January 2007, service tax officials carried out a survey at the premises of Comfort Cars,

whereby in October 2007, a show cause notice was issued by the Commissioner, Central

Excise and Service Tax, Kanpur proposing to levy service tax and penalty on Comfort Cars in

respect of the value of various supplementary services provided by it for the period 1.4.2002

Statement of Facts xii


to 31.3.2007. The total value of proposed service tax came to Rs. 1 Crores. A penalty of Rs.

25 Lakhs was also proposed.

VII

M/s. Comfort Cars contested the proposed levy. It cooperated in all the proceedings and

provided the officials with all the material demanded by them. However, the Commissioner,

Central Excise and Service Tax, Kanpur, passed the order confirming the demand of service

tax and penalty on the petitioner.

VIII

CESTAT dismissed further appeal preferred by Comfort Cars by relying upon the

definition of taxable service in Section 65(105) of the Finance Act and a Circular, dated

23.8.2007 , issued by the Tax Research Unit of the Central Board of Excise and Customs

(CBEC).

IX

Aggrieved by the CESTAT order, Comfort Cars has preferred an appeal before the

High Court of Judicature at Allahabad.

Summary of Pleadings


xiii

SUMMARY OF PLEADINGS 1. THAT THE APPELLANT WAS L IABLE TO PAY SERVICE TAX ON THE

AMOUNT RECEIVED AS REIMBURSEMENT BY IT FROM THE PTO’S.

The definition of taxable service includes the term “any person”, the term “any” can go on to

mean either/all/every, the term “person” includes both natural as well as juristic person.

Thereby, clearly indicating that any person providing services in relation to tours is liable to

pay service tax, which includes the appellant. Moreover, it is pertinent to note that by mere

dividing the transaction into two and by giving two separate bills for one whole transaction is

nothing more than a sham on the part of the appellant. Tax planning if effectively and

efficiently done is lawful but, using colourable devices in the garb of tax planning is illegal,

which is exactly what the appellant is doing here. The amount thus reimbursed should also be

levied with tax.

2. THAT THE APPELLANT COULD BE ASSESSED TO SERVICE TAX BY

INVOKING THE EXTENDED PERIOD OF L IMITATION .

The appellant here could be taxed on invoking the extended period of limitation for the

simple reason that there has been wilful suppression of facts on their part with an intention to

evade tax. The Circular dated 23.8.2007 clears any ambiguity whatsoever in the minds of the

tour operators and any bona fide belief with regards to taxability of the supplementary

services is a mode to evade tax per se and nothing else. The term “in relation” to has a wide

interpretation which should be adhered to and merely because the appellants services fall

within the ambit it shouldn’t be construed strictly. Ignorance of law on the part of the

appellant about their services being taxable is no excuse and hence the penalty so imposed is

just and should be implemented effectively.

Summary of Pleadings


xiv

3. THAT BEFORE THE AMENDMENT IN THE DEFINITION OF TOUR OPERATORS,

THE SUPPLEMENTARY SERVICES PROVIDED BY TOUR OPERATORS WERE

TAXABLE .

The definition of tour operators though has now been amended to include the supplementary

services provided as well. But, it is submitted that the definition of taxable service remains

the same. It has always intended to include all the services provided by tour operators in

relation to a tour for the purpose of taxation and it remains so till date. Thus, there arises no

question as to whether the supplementary services provided by the tour operators could be

said to be taxable even before the amendment. Moreover, it is a clarificatory amendment

elaborating and explaining the provisions pertaining to tour operators and should therefore

come into effect retrospectively.

4. THAT NO TAX LIABILITY HAS BEEN CREATED BY THE CIRCULAR AN D THE

TRIBUNAL WAS JUSTIFIED IN RELYING UPON THE CIRCULAR DATED

23.08.2007 ISSUED AFTER THE DISPUTED PERIOD .

The circular dated 23.08.2007 on which the CESTAT has placed reliance is merely a

explanatory or clarificatory circular with regards to the already existing provisions of law,

nothing new has been created or imposed via them. There arises no scope of doubt as to

whether the circulars are capable of creating tax liability or not because with regards to the

present matter the services has been taxed as per the definition of taxable services provided in

regards to tour operators thereby leaving no scope for the circular to tax the services. The

circular being an explanation to the provision should come into effect retrospectively as and

when the provision came into effect initially.

Pleadings and Authorities 1


PLEADINGS AND AUTHORITIES The term taxable service in relation to the services provided by the tour operators as defined

under the Finance Act, 1994 states that:

‘Taxable Service means any service provided to any person, by a tour operator in

relation to a tour’

The word ‘any’ according to the Dictionary means ‘all’ or ‘every’ or ‘some’ or ‘one’. The

term ‘any’ is often synonymous with the words ‘either’, ‘every’ or ‘all’.2 The word ‘person’

when generally used without any qualification means not only a natural person but also a

juristic or artificial person.3 The words ‘any person’ are plain.4 The Legislature has

specifically used the term ‘any person’ and one cannot arbitrarily cut down the amplitude of

an expression used by the Legislature.5 The words of the statute have to be interpreted in the

light of the policy and purpose of law.6 As per the provisions of the Finance Act, 1994 the

Service Tax shall be on the gross7 amount charged by the service provider for such service is

to be taxed.8

2 Blacks Law Dictionary, 5th Edition 3 Ramhet v. Mandir Shri Laxminarain AIR 1976 MP 216 4 Shamrao V. Parulekar v. District Magistrate, Thomas AIR 1952 SC 324 5 Central Bank of India v. Workmen (1960) 1 SCC 200 6 Balkrishna Chagganlal v. State of W.B. 1974 SCC (Cri. ) 45 7 P. Ramanatha Aiyar, The Law Lexicon, 2nd Ed. 2004 “Gross: entire, total, without deduction, taking in the

whole, the gross implies that from which nothing has been taken: the total signifies that to which nothing need to be added.”

8 Section 67, Finance Act, 1994: “Valuation of taxable services for charging Service Tax-(1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,—

(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him. Prior to the substitution, section 67, as substituted by the Finance Act, 2001, w.e.f. 16-7-2001 and amended from time to time, read asunder:

For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to be provided by him.”

CONTENTION 1: THAT THE ASSESSEE WAS L IABLE TO PAY SERVICE

TAX ON THE AMOUNT RECEIVED BY IT FROM THE PTO’S.



The division of one transaction into two transactions or more solely for the avoidance9 of tax

is ineffective for the purpose of tax to be avoided10. The act of the present assessee/appellant

is merely dividing one whole composite transaction of providing supplementary services to

the PTO’s by raising separate bills on account of the supplementary services which are being

billed and reimbursed on the actual cost incurred by the assessee/appellant.

Tax planning may be legitimate provided it is within the framework of law. But colourable

devices11 cannot be part of tax planning.12 The act of the separate billing by the present

appellant/assessee is a colourable device13 used by the present assessee in order to divide the

whole complete one transaction into two separate and distinct transactions for the purpose of

avoiding service tax on the amount received by it from the PTO’s as reimbursement for the

supplementary services provided by the present appellant.

The separate bills issued by the present appellant/assessee are being done solely with the aim

to avoid service tax and to portray a relation between the PTO’s and the assessee/appellant

that never existed between the two. The taxing authorities are entitled and bound to determine

the true legal relation resulting from the transaction.

9 Ensign Tankers (Leasing) Ltd. v. Stokes (Inspector of Taxes) 1992 IAC 655, concerned with “tax

avoidance scheme, a single composite transaction where under the tax advantage claimed by the tax payer was inconsistent with the true effect in law of the transaction.”

Floor v. Davis 1978 Ch. 295 held that “capital gains tax was payable under a scheme which exploited the control of the taxpayer of the companies at home and abroad to conclude a number of transactions which, taken separately, appeared to escape tax.”

10Chinn v. Hochstasser 1981 AC 533, held that “the tax avoidance scheme is to be considered as a whole in which the device of dividing one transaction into two or more was held to be ineffective for the purpose of tax sought to be avoided.”

Furniss v. Dawson 1984 AC 474, held that “if the two transactions were consisted as a whole the real result was that one transaction was carried out by the taxpayer. The taxpayer pretends that there are two transactions, when in fact there is only one. The transactions were not preordained, but precontracted.”

11 Banyan and Berry v. CIT (1996) 222 ITR 831, held that “the word colourable means “reverse of bona fide”, that which is in appearance only, and not in reality and hence counterfeit, feigned, having the appearance of truth; “device” means a contrivance, plot, or a trick.”

12 Union of India v. Playworld Electronics (1989) 3 SCC 181 held that, “tax planning may be legitimate provided it is within the framework of the law. But colourable devices cannot be part of tax planning and one must find out the true nature of the transaction. It is too much to expect the legislature to intervene and take care of every device and scheme to avoid taxation and it is up to the court sometimes to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and to expose devices for what they really are and to refuse to give judicial benediction.”

13 Mc Dowell & Co. Ltd. v. CTO (1985) 3 SCC 230



If the parties have chosen to conceal by a device14 the legal relation15, it is open to them to

unravel the device and determine the true character of the relationship. The legal effect of

transaction16 cannot be displaced17 by the substance18 of the transaction.19

It is further submitted that the real nature of the transaction has to be looked into by the

taxing authorities.20 The mode of entry in the books of accounts does not represent the true

nature of the transaction.21 It is not how an assessee treats any monies received but what is

the nature of the receipts which is decisive of its being taxable.22 Further the fact that book

entries were made under a particular fashion, does not determine the real nature of the

amount. The true nature of the amount entered in the books of account should be determined

according to law and that the fashion in which the book entries were made cannot determine

its true character. The liability would be determined according to law and not in accordance

with the nature of the book entry.23 The entry made by the assessee to the tune of actual cost

incurred for the supplementary services by the assessee does not alter the nature of the

transaction of providing services to the PTO’s as a tour operator by the assessee/appellant.

Thus, the taxability of the supplementary services will not be altered for the same being billed

14 The Addl. Cit, Sr-8 v. Pinnacle Project And Infrastrcture Private Ltd. [2007] 290 ITR 45

(Ahd),“Examining the word 'device', their Lordships found that as per Shorter Oxford Dictionary it means inneuity, something device, arrangement, plan, contrivance, a plot or a trick and as per Black's Dictionary 'device' is referred as contrivance, a scheme, trick.”

15 CIT v. L.N. Dalmia (1994) 207 ITR 89 (Cal.) 16 Workmen of Associated Rubber Industry Ltd v. Associated Rubber Industry Ltd (1986) 157 ITR 77

(SC) 17 CIT v. Durga Prasad More (1971) 82 ITR 540 (SC) held that “once it is found that a receipt by the

assessee was income of the assessee it was not necessary for the revenue to locate its exact source and that whether the same was an entry in the books of the assessee or not.”

18 CIT v. Gillanders Arbuthnot & Co (1973) 87 ITR 407 19 Juggilal Kamlapat v. CIT (1969) 73 ITR 702, Bank of Chettinad Ltd. v. Commr. of Incometax (1940) 8

ITR 522 20 Sutlej Cotton Mills Ltd. v. Commissioner of Income-tax (1979) 116 ITR 1 held that, “it is now well-settled

that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries, which are not in conformity with the proper principles of accountancy, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee.”

21 CIT v. Kalooram Govindram (1965) 57 ITR 630, Kettlewell Bullen and Co. Ltd. v. CIT AIR 1965 SC 65 held that, “the form in which the transaction which gives rise to income is clothed and the name which is given to it are irrelevant in assessing the exigibility of receipt arising from a transaction to tax.”, Devidas Vithaldas & Co. v. CIT (1972) 3 SCC 457

22 Delhi Stock Exchange Association Ltd. v. CIT AIR 1961 SC 1144 23 Income-Tax Officer v. Food Corporation Of India And Central State Ware Housing Labour Contract

Co-Operative Society Ltd. [1993] 47 ITD 525 (Hyd)



separately by the appellant/assessee at the rate of actual cost incurred and thus separating the

said amount and not considering it while calculating the gross amount.

Thus the total amount received by the present assessee/appellant for the main vehicular

services as well as the supplementary services provided shall constitute the gross amount

received by the assessee for the services provided in toto.

It is therefore prayed that the appellant in the present matter was liable to pay service tax on

the amount received by it from the PTO’s and the Ld. Authorities below were correct in

holding the same to be liable to be taxed in the hands of the appellant.



In the present case the service tax officials carried out a survey at the premises of Comfort

Cars. In October 2007, a show cause notice was issued by the Commissioner, Central Excise

and Service Tax, Kanpur proposing to levy service tax and penalty on Comfort Cars in

respect of the value of various supplementary services provided by it for the period 1.4.2002

to 31.3.2007. The total value of proposed service tax came to 1 Crores. A penalty of Rs. 25

Lakhs was also proposed.24

No Bona fide Belief and therefore Penalty Should Be Imposed

For extended period of limitation, intent to evade tax should be present.25 In the present case

there is wilful suppression of facts with intent to evade tax.

Also circulars are useful for interpretation of law26 ; the Circular dated 23.8.2007 clearly

states that taxable services of in relation to a tour include supplementary services also.27

The Court has held that the taxable service under CHA service is any

service provided by Customs House Agent in relation to the entry or departure of

conveyances or the import or export of the goods. The nature of taxable services has also

been elaborately described in the Circular of the Board dated June 6, 1997. Therefore, in

order to determine whether a particular service comes under CHA, it is to be examined

whether the same is covered under scope of taxable service. 28

24 Fact Sheet ¶8 25 UOI v. Rajasthan Spinning and Weaving Mills and Commissioner of Customs and Central Excise v.

Lanco Industries Ltd. (2009) 224 CTR (SC) 1, CCE v. Ballarpur Industries Ltd. (2007) 11 STT 6 (SC) – same view in Continental Foundation Jt Venture v. CCE (2007) 216 ELT 177 (SC); Anand Nishikawa Co. Ltd. v. CCE 2005 (188) ELT 149, 2 STT 226, AIR 2005 SCW 4923 (SC) – quoted with approval in CCE v. Damnet Chemicals (2007) 216 ELT 3 (SC)

26 Subhash Marketing v. Commissioner Of Commercial Taxes (2000) 118 STC 136 (Kar.) 27 Circular dated 23.8.2007 , issued by the Tax Research Unit of the Central Board of Excise and

Customs (CBEC) Fact Sheet ¶ 10 28 Exel India Pvt. Ltd. v. The Commissioner of Service Tax Customs, Excise and Gold Tribunal Bangalore 2007 (7) STR 542, CCE v. Welspun Gujarat Stahl Rohren Ltd 2008 [10] S.T.R. 137

CONTENTION 2: THAT THE EXTENDED PERIOD OF LIMITATION CAN BE

INVOKED .



A Circular, dated 23.8.2007 , issued by the Tax Research Unit of the Central Board

of Excise and Customs (CBEC) was issued which clarifies the purview of activities of

tour operators.29A similar circular clarifying the purview of tour operator services was

also issued in 1997 by CBEC. According to both these circulars the supplementary

services provided by Comfort cars are within the purview of tour operator services.

Extended period of limitation30 was allowed on account of Wilful mis-statement or

suppression of fact since, Tour Operators service has been brought within the purview of

Service Tax based on the instructions of the Board, every Commissionerate had issued the

trade notices explaining the scope of the tour operator service it was held, that plea of bona

fide belief not acceptable. The Appellant are guilty of wilful suppression of the relevant

information and for this reason they are also liable for penalty under Section 76 & 78 of the

Finance Act, 1994

In any case, the penalty under Section 76 of the Finance Act, 1994 is mandatory in every case

of delay in payment of Service Tax and is not dependent on intention to evade tax.31

The case at hand also has similar facts therefore there is no bona fide belief regarding the fact

that the supplementary services that Comfort Cars are providing are not within the purview of

services provided by Tour Operators. It has been clearly mentioned in the circular that these

supplementary services are within the purview of service tax. Therefore Comfort Cars have

wilfully suppressed facts and are liable for penalty for the period of 2002 to 2007 since a

circular clarifying the purview of tour operator services was present in 1997 also.

In an analogous case photography services were provided32 by the applicants .They had

shown the amount of developing the exposed films received from the dealers in the ST-3

returns but they had not paid any tax on this service. The amount was shown in Col.5 of their

return as they were under the impression that the service tax would be paid by the dealers

who had sent the exposed films to them .Revenue applied for extended period. It was held

29 Fact Sheet ¶ 8 30 Touraids (I) Travel Services v. CCE 2008 [12] S.T.R. 452 31 Indian Institute Of Management v. C.S.T. 2008 (10) STR 603 Customs, Excise

and Gold Tribunal - Calcutta 32 India Colour Lab v. CCE 2006 (104) ECC 594



that, the Revenue had correctly applied the extended period applicants were directed to pre-

deposit an amount.

In the present case also Comfort Cars were under the impression that the service tax on

supplementary services would be paid by the Principal tour operator therefore they did not

pay services tax on that amount. Thus extended period should be invoked.

A clarificatory amendment has retrospective effect.33

The court Relied on the circular34 issued by the Central Board of Direct Taxes ([1984] 149

ITR (St.) 127), and held that the amendment was a clarificatory one and had retrospective

effect.

In the present case also the amending definition is a clarificatory one since it clarifies the

activities that come under tour operator services35 after amendment of Section 65(115).36

Also a circular has been issued which states the scope of tour operator services. The present

definition has a retrospective issue. Thus even before the amendment the supplementary

services came within the ambit of taxation.

Wide Interpretation of the term ‘in relation to’

The term ‘in relation to’ used in the definition of taxable services37 is of wide interpretation.38

The supplementary services provided by tour operators are included within the scope of the

33 Glindia Ltd. v. Union of India , 1988 (36) E.L.T. 479, Coromondal Fertilisers Ltd. v. Collector of Customs, 1986 (25) E.L.T. 861, CIT v. Shree Jaganath Steel Corporation 191 ITR 676, Jamshedpur Motor Accessory Store v. Union Of India 189 ITR 70, Calcutta Oil Industries v. CTO 1997(ii) SCC 409 34 Hindustan Steel Forgings v. CIT [1989] 179 ITR 280 35 Fact Sheet “which may include arrangements for accommodation, sightseeing or other similar

services”¶ 10 36 Finance Act no 2 of 2004 37 Section 65(105), Finance Act of 2004 38 Harekrishna Developers (through Jayantibhai Jermabhai Korat) v. Commissioner of Service Tax AR-

2008-8, Doypack Systems Ltd. v. Union of India Air 1988 SC 782, Smt. L.V. Sankeshwar, Proprietrix, Vijayanand Travels and Ors. etc. v. Superintendent of Central Excise, Range-A and Ors. etc. (2006) 206 CTR (Kar) 274, Renusagar Power Co. Ltd. v. General Electric Company and Anr. AIR 1985 SC 1156, (Sahu) Shyam Lal v. M. Shayamlal AIR 1933 All 649, The City of Nagpur v. Its Employees 1960 2 S.C.R. 942, Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar and Ors. AIR 1974 SC 1728, Thyssen Stahlunion GMBH v. Steel Authority of India Ltd AIR 1999 SC 3923



definition of taxable services39 given under Section 65(105).40

Ignorance of law is no excuse

It is pertinent to note that ignorance of law is not an excuse.41 Comfort Cars cannot take the

plea that they were ignorant of such a law and therefore did not pay service tax on

supplementary services.

Thus it is prayed that extended period of limitation should be invoked along with penalty

being imposed for default of payment of Service Tax.

39Touraids (I) Travel Services v.. CCE 2008 [12] S.T.R. 45, Smt. L.V. Sankeshwar, Proprietrix,

Vijayanand Travels and Ors. etc. v. Superintendent of Central Excise, Range-A and Ors. etc. etc (2006) 206 CTR (Kar) 274, Suresh Kumar Sharma v. The Union Of India 2007 (5) STR 254

40 Finance act no 2 of 2004 41 Bharat Electronics Ltd. v. DCCT (2005) 142 STC 417 (SC 3 member bench), State of UP v. Twin City

Jewellers Association (2006) 147 STC 354 (SC)



In the present case Comfort Cars is a small proprietary concern providing tour operator

services. They primarily provide vehicle services to their guests. Sometimes they also provide

supplementary services such as arranging for tickets for visiting monuments, providing porter

services, guides, arranging for food etc.42 The definition of tour operators given under Section

65(115) 43has been amended in 2004.44 The earlier definition defined tour operators as:

“Tour operator means any person engaged in the business of operating tours in a

tourist vehicle covered by a permit granted under the motor vehicles act, 1988 or the rules

made there under”

This was subsequently changed to:

“Tour operator means any person engaged in the business of planning, scheduling,

organizing or arranging tours (which may include arrangements for accommodation, sight

seeing or other similar activities) by any mode of transport and includes any person engaged

in the business of operating tours in a tourist vehicle covered by a permit granted under the

Motor Vehicles Act 1988 or the rules made there under.”

But the taxable services for tour operators has not been amended it reads the following

“Taxable service means any service provided to any person by a tour operator in

relation to a tour”45

42 Fact Sheet ¶ 1 43 Finance Act 1994 44 Finance act no 2 of 2004 45 Section 65(105), Finance Act no 2 of 2004

CONTENTION 3: THAT BEFORE THE AMENDMENT IN THE DEFINITION

OF TOUR OPERATORS, THE SUPPLEMENTARY SERVICES PROVIDED BY THE

TOUR OPERATORS WERE TAXABLE



Therefore these services as per the definition of taxable services fall under services in relation

to at tour hence they were taxable even before the amendment. In the present case the

intention of the legislature is to tax all the services provided by a tour operator in relation to a

tour.

Wide Interpretation of the term in relation to

The term "relate" is defined as meaning to bring into association or connection with. It has

been clearly mentioned that "relating to" has been held to be equivalent to or synonymous

with as to "concerning with" and "pertaining to". The expression "pertaining to" is an

expression of expansion and not of contraction.46 ‘In relation to’ is used by the legislature to

widen the scope and dimension,47 and that the term in relation to could not be given a narrow

meaning.48

While interpreting the scope of the expression49 "services provided in relation to use of

Mandap in any manner" has observed that the phrase "in relation to" has been construed by

this Court to be of widest amplitude.

Since the words used are in relation to a tour are plain and cover all the supplementary

services provided by the tour operators therefore they are taxable under section 65(105).

Moreover the expression

It was held that taxable service50 means any service provided to any person, by a tour

operator in relation to a tour. The word 'tour' throughout the period of dispute, has been

46 Nitai Charan Bagchi v. Suresh Chandra Paul, 66 Cal WN 767, Shyam Lal v. M. Shayamlal AIR (1933)

All 649:76 Corpus Juris Secundum 621, Doypack Systems (P) Ltd. v. Union of India AIR 1988 SC 782 47 Harekrishna Developers (through Jayantibhai Jermabhai Korat) v. Commissioner of Service Tax AR-

2008-8,Doypack Systems Ltd. v. Union of India Doypack Systems (P) Ltd. v. Union of India AIR 1988 SC 782, Smt. L.V. Sankeshwar, Proprietrix, Vijayanand Travels and Ors. etc. v. Superintendent of Central Excise, Range-A and Ors. etc. etc. (2006) 206 CTR (Kar ) 274, Renusagar Power Co. Ltd. vs. General Electric Company and Anr. AIR 1985 SC 1156, (Sahu) Shyam Lal v. M. Shayamlal AIR 1933 All 649

48 The City of Nagpur v. Its Employees 1960 2 S.C.R. 942, Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar and Ors AIR 1974 SC 1728, Thyssen Stahlunion GMBH v. Steel Authority of India Ltd AIR 1999 SC 3923

49 Tamil Nadu Kalyana Mandapam Assn. v. Union of India 2006 (3) S.T.R. 260 (S.C.) 50 Touraids (I) Travel Services v. CCE 2008 [12] S.T.R. 45



defined as journey from one place to another irrespective of the distance between such

places. The words "in relation to a tour" in the definition of taxable service are very vide and

would cover, in addition to journey from one place to another, the allied services in relation

to such tours like providing refreshment during the journey arranging guide services,

monument visit services, porter services, food services etc.

The phrase 'in relation to' the tour means51 "in the aid of tour” also, therefore, if any service is

rendered in relation to or in the aid of tour is liable to be taxed. The taxable service is

therefore not only means mere providing of car, taxies, contract carriages on a temporary

basis but it would also include other facilities supplied in relation to tour as a whole.

It has been held that the tour operators provide wide varieties of services such as providing

the service of porters, guides, providing tape records, some time Television in taxies and

buses etc apart from service of allowing the temporary user of the motor vehicle. The tour

operators will even book the lodgings, arrange for site seeing by purchasing necessary tickets

for the same. Various services provided by the 'tour operators' are covered in the 'tour'

undertaken for their clients. They even suggest as to how the passengers should go about in

any tour to save time, money and fatigue. In most of the times, the logistics of selection of

places, selection of lodgings, selection of food is the responsibility of the tour operators Thus;

the 'tour operators' shall render such comforts in the form of service. Organizing the tour is

not possible without the element of professional service provided to the customers. In the

present case also the petitioners are providing supplementary services such as services of

porters, guides etc.

According to the above mentioned judgments the supplementary services provided by

comfort cars clearly fall within the purview of taxable services since they are providing

services such as arranging for tickets, providing for porter services and guides etc. in aid of

tour.

51 Smt. L.V. Sankeshwar, Proprietrix, Vijayanand Travels and Ors. etc. etc. Vs Superintendent of

Central Excise, Range-A and Ors. etc. (2006) 206 CTR (Kar ) 274



The expression "in relation to"52 (so also "pertaining to") is a very broad expression which

pre-supposes another subject matter. These are words of comprehensiveness which might

both have a direct significance as well as an indirect significance depending on the context.53

The supplementary services provided by comfort cars are in some way directly or indirectly

related to the tour or are helpful in a successful tour.

Therefore keeping in mind the above mentioned cases it’s the humble submission of the

counsel that the term in relation to is wide enough to include all the supplementary services

provided by comfort cars. These services therefore were included in the definition of the

taxable service even before the amendment was made in the definition of tour operators.

Intention of the legislature

It is a well settled rule that no one can speak for the Parliament and Parliament is never

before the Court. After the Parliament has said what it intends to say, only the Court may say

what the Parliament meant to say.54 The object of interpretation of a statute is to discover the

intention of the Parliament as expressed in the Act. That intention, and therefore the meaning

of the statute, is primarily to be sought in the words used in the statute itself, which must, if

they are plain and unambiguous, be applied as they stand.55

52 State Wakf Board v. Abdul Aziz A.I.R. 1968 Madras 7952, Doypack Systems (P) Ltd. v. Union of India

AIR 1988 SC 782 53 Navin Chemicals Mfg. and Trading Co. Ltd. v. Collector of Customs 1993 ECR 1 (SC), C.K.P. Mandal

v. Commissioner of Central Excise, Mumbai 2006 (4) Bom. CR 747 54 Sanjeev Coke Manufacturing Company v. Bharat Coking Coal Ltd. and Anr. AIR 1983 SC 239, Dr.

(Mrs.) Sushma Sharma and Ors v. State of Rajasthan and Ors. AIR 1985 SC 1367 55 Doypack Systems Pvt. Ltd. v. Union of India (UOI) and Ors. AIR 1988 SC 782, Baidyanath Ayurved

Bhawan v. Excise Commissioner AIR 1971 SC 738, Income Tax Officer v. Nadar AIR 1968 SC 623 see also AIR 1963 SC 1062, A.V. Fernandex v. State of Kerala AIR 1957 SC 657, Abdul Waheed Khan v. Bhawani, AIR 1966 SC 1718, Sachida Nand Singh v. State of Bihar (1998) 2 SCC 493:AIR 1998 SC 1121, Jagdish Ch. Patnaik v. State of Orissa (1998) 4 SCC 456:AIR 1998 SC 1926), Arul Nadar v. Authorised Officer, Land Reforms (1998) 7 SCC 157 : AIR 1998 SC 3288, Races Ahmad v. State of U.P. and Ors., AIR 2000 SC 583, Mool Chand v. Kedar, AIR 2000 SC 745, Kadiyala Rama Rao v. Gutala Kahna Rao, (2000) 3 SCC 87, V.V.S. Sugars v. Government of Andhra Pradesh, AIR 1999 SC 2124



It was held that if the legislature56 would have intended that the new act would apply to the

award given under the old act after coming into force of the new act it would not have used

the word in relation to but would have used the word to.

Similarly in this case if the intention of the Government had been to tax only the activity of

arranging journey from one place to another place instead of the word "taxable service in

relation to a tour", the words "taxable service of a tour" would have been used.57

The intention of the parliament by using the words in relation is clear that they wanted to

include the supplementary activities provided by the tour operators such as arranging for

tickets for visiting monuments, arranging for porter services and guides etc.

That "If the choice is between two interpretations58, the narrower of which would fail to

achieve the manifest purpose of the legislation, we should avoid a construction which would

reduce the legislation futility and should rather accept the bolder construction based on the

view that Parliament would legislate only for the purpose of bringing about an effective

result"

Thus the term in relation to must be given a broad interpretation to include all supplementary

services provided by comfort cars within the purview of taxable services.

Also circulars are useful for interpretation of law59 ; the Circular dated 23.8.2007 clearly

states that taxable services of in relation to a tour include supplementary services also.60

56 Thyssen Stahlunon Gambh v. SAIL AIR 1999 SC 3923 57 Touraids (I) Travel Services v. CCE 2008 [12] S.T.R. 452 58 Nokes v. Doncaster Amalgamated Collieries Ltd 1940 AC 1014, Chandravarkar S.R. Rao v. Asha Lata

AIR 1987 SC 117, 59 Subhash Marketing v. Commissioner Of Commercial Taxes (2000) 118 STC 136 (Kar.) 60 Circular dated 23.8.2007 , issued by the Tax Research Unit of the Central Board of Excise and

Customs (CBEC) fact sheet ¶ 8



Clarificatory Amendment

A clarificatory amendment has retrospective effect61 The court Relied on the circular62 issued

by the Central Board of Direct Taxes ([1984] 149 ITR (St.) 127), and held that the

amendment was a clarificatory one and had retrospective effect.

In the present case also the amending definition is a clarificatory one since it clarifies the

activities that come under tour operator services63 after amendment of section 65(115).64 Also

a circular has been issued which states the scope of tour operator services. The present

definition has a retrospective issue.

Thus it is prayed that the supplementary services were taxable even before the amendment in

the definition of Tour Operators.

61 Glindia Ltd. v. Union of India , 1988 (36) E.L.T. 479, Coromondal Fertilisers Ltd. v. Collector of

Customs, 1986 (25) E.L.T. 861, CIT v. Shree Jaganath Steel Corporation 191 ITR 676, Jamshedpur Motor Accessory Store v. Union Of India 189 ITR 70, Calcutta Oil Industries v. CTO 1997(ii) SCC 409

62 Hindustan Steel Forgings v. CIT [1989] 179 ITR 280 63 Fact Sheet “which may include arrangements for accommodation, sightseeing or other similar

services” ¶ 3 64 Finance Act no 2 of 2004



[4.1] Circular is merely explanatory

Tax Liability of a person is the amount of tax which the person owes.65 Article 26566 of the

Constitution stipulates that no tax can be levied or collected except by authority of law, which

means that only legislation passed either by Parliament or a State Legislature can impose a

tax.

A perusal of the abovementioned circular shows that the scope of tour operators now includes

supplementary services i.e. the ones for providing boarding and lodging arrangement, local

sight seeing, guide services etc67, thereby indicating that the circular is nothing more than an

lean-to the already existing definition68 of tour operators which states:

““Tour Operator” means any person engaged in the business of planning,

scheduling, organizing or arranging tours (which may include arrangements for

accommodation, sightseeing or other similar services) by any mode of transport and includes

any person engaged in the business of operating tours in a tourist vehicle covered by a permit

granted under the Motor Vehicles Act 1988 (59 of 1988) or the rules made there-under.”

The taxable service for tour operators as per Section 65(105) has always remained

unamended, and read as:

“Taxable service means any service provided to any person, by a tour operator in

relation to a tour.”

65 <www.fairtax.org/site/PageServer> last visited on 09th August, 2009 at 2100 hrs 66 Article 265 of the Constitution of India states that, “No tax shall be levied or collected except by authority

of law.” 67 Page 3 ¶ 2, Fact Sheet 68 As amended w.e.f 10.9.2004 by Finance Act No. 2 of 2004

CONTENTION 4: THAT NO TAX L IABILITY HAS BEEN CREATED BY THE

CIRCULAR AND THE TRIBUNAL IS JUSTIFIED IN RELYING UPON THE

CIRCULAR DATED 23.08.2007 ISSUED AFTER THE DISPUTED PERIOD .



Given the present state of service tax law, where a majority of the provisions and definitions

of taxable services require a great deal of interpretation, clarifications from the revenue

department in the form of circulars are very helpful in determining the intent of the

legislation as also in the correct understanding of the implications and therefore ensuring the

correctness of compliance.

Issuance of circulars has been the preferred method by which the department has sought to

clarify matters of interpretation and exposition. It therefore goes on to show that the circular

is a mere explanation of the already existing provisions and in no manner whatsoever creates

any liability on the appellant which wasn’t there beforehand or by way of the enactment of

the provision initially.

The courts or the administration do not have a “creative power” to make things or operations

taxable through an analogical interpretation of the statute, in cases where it is not established

that the legislature intended them to be taxable. By process of interpretation, the taxing

authority is not introducing any attenuation or relaxation to its effect, but is expanding the

ambit of the provisions so stated.

Thus, there arises no question as to whether a circular is competent to create tax liability

when in the present matter in consideration nothing new has been levied upon by the

appellant. The tax amount levied by the department is what is to be paid by Comfort Cars for

providing supplementary services to the tourists and which has not been paid as of yet.

[4.2] Retrospective effect of the Circular

The main purpose behind publishing a circular to the effect of broadening the scope of tour

operators is to clear any ambiguity so perceived and for the provision to be implemented

effectively. Now as the definition was amended in 2004 so as to include within its ambit the

supplementary services as well, the circular which clarifies69 or explains the same should also

69 Indian Furniture Works v. Asst CIT (2001) 71 TTJ (Bang) 709



be effected70 from the date of the provision coming into effect71 and not prospectively from

the date on which it was issued.

It is pertinent to note that any clarification72 issued to reduce the rigour or mischief of the

particular provision, are applicable retrospectively.73

70 CIT v. God Granites (2000) 13 DTC 87 (Karn-HC ) 71 Stonecraft Enterprises v. CIT (1999) 237 ITR 131 (SC), the Supreme Court has observed that the circular is

explanatory, and, therefore, can relate back to the year in question. 72 Tamilnadu Minerals Ltd. v. Inspecting Assistant Commissioner Of Income Tax (2003) 81 TTJ

(Chennai) 161 73 Asst CIT v. Vijay Granites (P) Ltd (2002) 75 TTJ (Mad) 744

Prayer 18


PRAYER

In the light of the facts of the case, issues raised, arguments advanced and authorities cited,

the Counsel for the Respondents humbly prays before this Hon’ble Court to kindly adjudge

and declare:

THAT THE APPELLANT WAS LIABLE TO PAY SERVICE TAX ON THE AMOUNT RECEIVED AS REIMBURSMENT THAT THE APPELLANT COULD BE ASSESSED TO SERVICE TAX BY INVOKING THE EXTENDED PERIOD OF LIMITATION. THAT IN THE PERIOD BEFORE THE AMMENDMENT IN THE DEFINITION OF TOUR OPERATORS ALSO THE SUPPLEMENTARY SERVICES PROVIDED BY THE TOUR OPERATORS WERE TAXABLE. THAT NO TAX LIABILITY HAS BEEN CREATED BY THE CIRCULAR AND THE TRIBUNAL IS JUSTIFIED IN RELYING UPON THE CIRCULAR DATED 23.08.2007 ISSUED AFTER THE DISPUTED PERIOD.

Or to pass any other order or decree as this Hon’ble court may deem fit and for this act of

kindness, the Respondents as in duty bound, shall forever pray.

Respectfully Submitted

Sd/-

Counsel for the Respondent

in the hon’ble high court of judicature

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