Dismissed

M/S. Reliance Security Agency, v. Union of India

Kerala HC7 Jan 2019WA/1657/2012

Case brief

AI extract

What is this about?

The High Court dismissed writ appeals challenging the constitutional validity of Section 67 of the Finance Act, 1994. The provision mandated valuing taxable service in security agencies on the ‘gross amount’ including salaries and statutory payments. The Court, distinguishing prior precedent, held that the valuation rule was not ultra vires and dismissed the appeals.

What did the court decide?

Writ appeals W.A.Nos. 812/2012 and 1657/2012 were dismissed with no costs.

M/S. Reliance Security Agency, Vs Union of India — Kerala HC (2019) — LawSathi Research

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

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THE HONOURABLE MR. JUSTICE ASHOK MENON

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MONDAY ,THE 07TH DAY OF JANUARY 2019 / 17TH POUSHA, 1940

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WA.No. 812 of 2012

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AGAINST THE ORDER/JUDGMENT IN WPC 34643/2004 of HIGH COURT OF KERALA DATED 23-12-2011

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APPELLANT/S:

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SECURITY AGENCIES ASSOCIATION

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(REG.NO.CA 543/2004), REPRESENTED BY ITS SECRETARY, STADIUM COMPLEX, KUNNATHURMEDU, PALAKKAD-678013.

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BY ADV. S.PARVATHI, AMICUS CURIAE

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RESPONDENT/S:

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1 UNION OF INDIA

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REPRESENTED BY THE SECRETARY TO GOVERNMENT, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, NEW DELHI-110001.

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2 THE CENTRAL BOARD OF EXCISE AND CUSTOMS NEW DELHI-110001.

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3 THE CHIEF COMMISSIONER OF CENTRAL EXCISE ERNAKULAM-682018.

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W.A.Nos.812 & 1657 of 2012

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4 THE ASST.COMMISSIONER OF CENTRAL EXCISE PALAKKAD DIVISION, PALAKKAD-678001.

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BY ADVS. SRI.P.PARAMESWARAN NAIR, ASG OF INDIA SRI.RAMAVARMA REGHUNATHAN THAMBURAN, SC, CENTRAL BOARD OF EXCISE AND CUSTOMS SRI.JOHN VARGHESE, SC, CENTRAL BOARD OF EXCISE AND CUSTOMS SMT A.SREEKALA, SC, CENTRAL BOARD OF EXCISE AND CUSTOMS

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OTHER PRESENT:

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THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 07.01.2019, ALONG WITH WA.1657/2012, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:

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W.A.Nos.812 & 1657 of 2012

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

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THE HONOURABLE MR. JUSTICE ASHOK MENON

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MONDAY ,THE 07TH DAY OF JANUARY 2019 / 17TH POUSHA, 1940

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WA.No. 1657 of 2012

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AGAINST THE ORDER/JUDGMENT IN WPC 9591/2005 of HIGH COURT OF KERALA DATED 23-12-2011

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APPELLANT/S:

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M/S. RELIANCE SECURITY AGENCY, PREM BUILDINGS, NEAR SNDP UNION OFFICE, KARUNAGAPPALLY, KOLLAM, REPRESENTED BY ITS MANAGING PARTNER, T.K. SAMBASIVAN.

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BY ADV. SRI.D.KISHORE

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RESPONDENT/S:

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1 UNION OF INDIA REPRESENTED BY THE SECRETARY TO GOVERNMENT, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, NEW DELHI.

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2 THE CENTRAL BOARD OF EXCISE AND CUSTOMS, NEW DELHI.

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3 THE ADDITIONAL COMMISSIONER OF CENTRAL EXCISE, ICE BHAVAN, OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, PRESS ROAD, THIRUVANANTHAPURAM.

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W.A.Nos.812 & 1657 of 2012

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4 THE SUPERINTENDENT OF CENTRAL EXCISE, OFFICE OF THE SUPERINTENDENT OF CENTRAL EXCISE, KOLLAM III RANGE, 'USHAS' CHAMBAKADA, KOLLAM - 681501.

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5 THE DEPUTY COMMISSIONER OF CENTRAL EXCISE, KOLLAM DIVISION, KHAISE BUILDING, BEACH ROAD, KOLLAM.

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BY ADVS. SRI.JOHN VARGHESE,SC,CEN.BOARD OF EXCISE AND CUSTOMS SMT.A.SREEKALA, SC, CENTRAL BOARD OF EXCISE AND CUSTOMS

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THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 07.01.2019, ALONG WITH WA.812/2012, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:

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W.A.Nos.812 & 1657 of 2012

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JUDGMENT

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[ WA 812/2012 ,WA.1657/2012 ]

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Ashok Menon, J.

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The Writ Appeals are preferred against the common

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judgment of dismissal of two out of three Writ Petitions, W.P.(C) Nos.9591/2005 and 34643/2004,

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seeking similar reliefs. Declarations were sought by the petitioners to hold Section 67 in Chapter V of the

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Finance Act, 1994 (Act 32 of 1994)(for short 'the

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Act') and the amendments made in the Rules and

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Notifications therein, as ultra vires the Constitution

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of India, insofar as it includes the expenses and

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salaries paid to the Security Guards and the statutory

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payments like contributions to ESI and EPF in the

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'gross amount' charged for valuation of 'taxable

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service' in computing the 'service tax' payable. The

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Security Agencies Services (manpower recruitment

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agencies) had been brought under the levy of service

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tax as per the Finance Act, 1994 with effect from 07.07.1997 onwards.

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W.A.Nos.812 & 1657 of 2012

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The Security Agencies Association, the

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appellant in W.A.No.812/2012, is a Society registered

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under the Travancore-Cochin (Literary, Scientific and Charitable Societies) Registration Act (Act 21 of 1860) and the members of the Association are

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organisations providing jobs to unemployed youth, more particularly, to work as Guards in various residential and commercial premises.

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M/s Reliance Security Agency, the appellant in W.A.No.1657/2012, is also registered under Section 67 of the Service Tax Rules (Finance Act 1994) and is

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providing security services to residential, commercial

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and industrial units, as also to Governmental

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agencies, according to their requirement, earning a commission out of it.

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It is submitted by the appellants that in most of the cases, salary is being paid to the persons, who are employed, directly by their employers and it is contended that these associations and agencies do not

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have any clients as such, since they are only supplying

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manpower to persons or associations, when contacted.

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W.A.Nos.812 & 1657 of 2012

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The grievance is mainly with regard to the

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steps taken by the respondents to mulct the liability

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towards service tax upon these Agencies, by way of tax, interest, penalty, etc; reckoning 'gross income'

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of the members of the Agencies, without realising or taking into account the actual service aspect rendered by them.

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In view of the above, the appellants contend that there is absolutely no reason in including the said items in 'gross amount', as Section 67 of the Act only provides for valuation of 'taxable service' and that it is violative of Articles 14 and 19(1)(g) of the Constitution. It is pointed out that the salary and other statutory payments will have to be segregated from the 'gross amount' and only the balance is to be reckoned for the purpose of taxation.

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Per contra , the Revenue would contend that

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individual assessments have been made against each of

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the Agencies, who are either members of the larger association or independent petitioners and in none of these cases, the assessment has been challenged. Any

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W.A.Nos.812 & 1657 of 2012

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assessment made by the Revenue with regard to these Agencies has to be challenged in accordance with the statutory remedies available to them. It is contended that there is absolutely no merit or bona fides in the Writ Petitions challenging the constitutional validity of the statutory prescription under Section 67, and

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therefore, the argument of the writ petitioners that

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the 'gross amount' without segregating the 'expenditure part from the rest', has no merit or

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bona fides . Because, the very section provides for fixation of tax on the basis of 'gross amount'.

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It will therefore have to be considered whether, while calculating the 'taxable service' under Section 67 of the Act and reckoning the 'gross amount' without segregating the expenses towards salary and statutory payments under ESI/EPF, etc; which constitutes a major portion of the total figure involved, is reasonable or not.

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We heard the Senior Standing Counsel for the Revenue, the learned Counsel for the appellant in

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W.A.No.1657/2012, as also the the Amicus Curiae

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W.A.Nos.812 & 1657 of 2012

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Smt.S.Parvathi, appointed by us for the appellant in W.A.No.812/2012, since none appeared for the

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appellant.

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The arguments advanced by the learned Standing Counsel appearing for the Revenue is that the scope and extent of the 'taxable net' has been provided by the Parliament in view of the policy of the Government and cannot be questioned by the writ petitioners. The challenge of the constitutional validity of Section 67 is also to a limited extent. There is no actual dispute about the fact that the appellants and the Security Agencies are also providing service, liable for service tax, but to what extent, is the question needs to be decided and since the section is ambiguous on that part, it is to be held as ultra vires to the Constitution, is the arguments for the writ

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petitioners.

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The learned Amicus Curiae, Smt.Parvathi relies

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on the decision in Union of India v. M/s Intercontinental Consultants & Technocrats Pvt.Ltd.,

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2018 (4) SCALE 243 , in support of her arguments. The

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W.A.Nos.812 & 1657 of 2012

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Hon'ble Supreme Court while considering the scope of Section 67 of the Act and the Rules made thereunder, and in particular the constitutional validity of Rule 5, held that the valuation of taxable service shall be 'gross amount' chargeable by the services provided 'for such services', to the extent it includes reimbursement of expenses in the value of taxable service for the purpose of charging service tax. The assessee in that case was a provider of consulting engineering services, received payments not only for its service, but also reimbursed expenses incurred by it, such as air travel, hotel stay and the service tax paid was only in respect of the amounts received by it for the services rendered to its clients and that it was not paying service tax in respect of any expenses incurred by it, which was reimbursed by the clients. In the said decision, the consideration was mainly concerned with the reimbursement of expenses incurred, such as air travel, hotel stay, etc; whereas, in the case in hand, we are concerned with the amounts, which is inclusive of the ESI, EPF and such other statutory

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W.A.Nos.812 & 1657 of 2012

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payments to be paid by the employer for the persons employed. Therefore, the security agencies are totally on a different footing and the above-cited decision is not applicable to the case in hand.

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Exts.R1 and R2 in W.P.(C) No.9591/2005 are the

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income and expenditure account and the bill produced by the writ petitioner, which would show that the salary and other benefits paid to the security personnel and Ext.R3, which is relevant agreement with the service receiver indicates that there is no master

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and servant relationship between the security personnel and the clients/service receiver. In the counter-affidavit filed by respondents, it is specifically contended in para 9 that this Court was approached earlier by filing W.P.(C) Nos.20017/2004 and 17045/2004 for a direction to reimburse the

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service tax, if they failed to collect from their clients due to non-inclusion of such provisions for realising service tax in the agreements with the clients. The Writ Petitions were disposed of

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directing the respondents to consider the claim of the

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W.A.Nos.812 & 1657 of 2012

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petitioners and pass orders as specified. Without revealing the fact regarding the filing of the earlier Writ Petitions and the directions given thereunder,

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W.P.(C) No.9591/2005 was filed. The learned Single Judge has observed that the role of the security

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agencies, like the petitioners is only to act as 'agents' in the matter of collection of 'service tax'. The liability to pay service tax under Section 68 of the Act is cast on the 'service receivers' and it is for that reason that the Writ Petitions were dismissed by the learned Single Judge. We find absolutely no merits or reasons to interfere with these findings of

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the learned Single Judge so as to hold that the provisions under Section 67 is ultra vires the

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Constitution. Hence, the Writ Appeals are also dismissed. No costs.

Sd/-

K.VINOD CHANDRAN

JUDGE

Sd/ASHOK MENON

JUDGE

dkr

M/S. Reliance Security Agency, v. Union of India

Case brief

What is this about?

What did the court decide?

M/S. Reliance Security Agency, v. Union of India

Case brief

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