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

THE 1ST RAJA RAM AGRAWAL MEMORIAL NATIONAL TAX MOOT COURT COMPETITION 2009
Table of Contents i

TABLE OF CONTENTS

LIST 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 WAS 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 INVOKING

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

MEMORIAL FOR THE RESPONDENT

Table of Contents ii

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

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

MEMORIAL FOR THE RESPONDENT

List of Abbreviations iii

LIST 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

MEMORIAL FOR THE RESPONDENT

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

MEMORIAL FOR THE RESPONDENT

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, 7th Ed., WEST GROUP , ST.
PAUL, MINN
• AIYAR P.R., The Law Lexicon, 2nd Ed. Wadhwa & Company, (Nagpur 1999)

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Index of Authorities 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)

MEMORIAL FOR THE RESPONDENT

Index of Authorities 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 Works 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

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Index of Authorities 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

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Index of Authorities 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)

MEMORIAL FOR THE RESPONDENT

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.

MEMORIAL FOR THE RESPONDENT

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.

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

MEMORIAL FOR THE RESPONDENT

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.

MEMORIAL FOR THE RESPONDENT

Summary of Pleadings xiii

SUMMARY OF PLEADINGS

1. THAT THE APPELLANT WAS LIABLE 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 LIMITATION.

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.

MEMORIAL FOR THE RESPONDENT

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 AND 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.

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 1

PLEADINGS AND AUTHORITIES

CONTENTION 1: THAT THE ASSESSEE WAS LIABLE TO PAY SERVICE

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

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.”

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 2

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.”
10
Chinn 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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 3

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)

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 4

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.

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 5

CONTENTION 2: THAT THE EXTENDED PERIOD OF LIMITATION CAN BE

INVOKED.

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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 6

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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 7

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
servicesӦ 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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 8

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.

39
Touraids (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)

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 9

CONTENTION 3: THAT BEFORE THE AMENDMENT IN THE DEFINITION

OF TOUR OPERATORS, THE SUPPLEMENTARY SERVICES PROVIDED BY THE

TOUR OPERATORS WERE TAXABLE

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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 10

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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 11

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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 12

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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 13

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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 14

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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 15

CONTENTION 4: 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.

[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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 16

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

MEMORIAL FOR THE RESPONDENT

Pleadings and Authorities 17

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

MEMORIAL FOR THE RESPONDENT

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

MEMORIAL FOR THE RESPONDENT