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Demand — Transport service recipient — Retrospective amendment of statute — Demand in terms of amended statute sustainable only if matter was kept alive at time when original provision was in force — Otherwise demand unsustainable.
Facts
The petitioner, a manufacturer of cotton yarn engaged the services of transporter to transport the manufactured cotton yarn. With the introduction of levy of service tax on services rendered by goods transport operators, a question arose as to liability of the customers engaging the services of transporters to pay service tax.
The Supreme Court in the case of Laghu Udyog Bharati v. UOI, 1999 (33) RLT 911 held that “the person who is availing the services of a transporter could not be made liable for filing returns and paying service tax and that service tax being on the value of services, is payable only by the person who provides the services who only can be regarded as an assessee for the purpose of service tax”.
In the aftermath of the judgment, the Parliament enacted Chapter V and sections 116 and 117 of the Finance Act, 2000 whereby the persons engaging the services of the goods services operators were made liable to pay service tax during the period of 16-7-1997 and 15-10-1998.
The petitioner vide their original petition challenged the constitutional validity of sections 116 and 117. The petitioner also contended that even if sections 116 and 117 were considered to be valid, only in respect of demand notices issued while the provisions struck down by the Supreme Court were in force and the matter was alive can be continued by virtue of new sections.
Held
The High Court observed that the Supreme Court in J. K. Cotton Spinning and Weaving Mills Ltd. and Another v. Union of India and Others, (1987) 32 ELT 234 held that “even if a provision is amended with retrospective effect, the Department can proceed with the demand only if the matter was kept alive at the time when the original provision was in force.” Accordingly, allowing the original petition, the High Court held that the petitioner was not liable to pay service tax as demanded.
