G. Raghuram, J. (President) -
(1.)THE issues referred for our consideration essentially involve an issue of classification of taxable services i.e., whether components of a composite transaction amounting to supply of labour/rendition of service(s), under a works contract ought to be classified only under Section 65(105)(zzzza) of the Finance Act, 1994 (the Act) - inserted by the Finance Act, 2007, w.e.f. 01 -06 -2007; or are also comprehended within the ambit of existing (as on 01 -06 -2007) taxable services such as Commercial or Industrial Construction Service (CICS);Construction of Complex Service (COCS); or Erection, Commissioning or Installation Service (ECIS).
(2.)INTEGRAL to our charter is the interpretation of relevant provisions of the Act. CICS; COCS & ECIS are distinct, extant services defined and enumerated to be taxable services, prior to introduction of Works Contract Service (WCS). CICS was initially introduced w.e.f. 10 -09 -2004, termed construction service; was amended in 2005, now called CICS amplifying the scope of the service as well and is defined in Section 65(25b) r/w Section 65(105)(zzq). COCS was also introduced in 2005, defined in Sections 65(30a) & 65(91a) r/w Section 65(105)(zzzh). ECIS was enacted to be a taxable service w.e.f. 01 -07 -2003 qua Section 65(105)(zzd) and is defined in Section 65(39a). Definitions and scope of some of these services were amended over time. The evolutionary history of CICS, COCS & ECIS is however not relevant to the scope of our analyses. The legislative/statutory setting, the relevant definitions, the charging and valuation provisions in respect of these services as on 01 -06 -2007 (the date on which WCS was inserted), would suffice for answering the reference. We extract relevant provisions of the Act, later in the judgment. We have heard learned Senior Advocate Shri N. Venkataraman, for Larsen & Toubro Ltd. (L&T), an assessee/appellant; learned Advocates Shri P.K. Sahu, Shri. Puneet Agarwal and Shri B.L. Narasimhan representing other assessees whose appeals are either listed on our board or are pending before the CESTAT; and Shri Amresh Jain and Shri Govind Dixit learned A.R's representing Revenue. We have also heard Shri J.K. Mittal who asserted to be representing the local Bar association. On 10 -11 -2007, at commencement of the hearing, Shri Mittal objected to our hearing the reference, contending that the order of reference itself (dated. 09 -09 -2013) was incompetent and as a consequence, the special Bench coram non judice. We orally and peremptorily rejected this contention, particularly as invitation for intervention to non -appellants was to assist in answering the reference and did not extend to contesting the correctness of the reference. Revenue had already challenged and unsuccessfully the order dated 09 -09 -2013 and its further litigative campaign before the Hon'ble Delhi High Court failed. Shri Mittal however did not turn up later, to address us on merits of the reference.
Now to the meat of the matter;
The legislative fields authorizing levy and collection of taxes on services; and on sale or purchase of goods are distinct, mutually exclusive; not concurrent or overlapping and are plenary assignments within allocated fields, to the appropriate legislature, under our federal constitutional architecture. It is the established principle under our Constitution that allocation of legislative fields which are generic and those authorizing taxation are distinctly enumerated; that taxation is not an ancillary power to be deduced from the general regulatory power; that taxing power may be exerted only qua an Entry in the appropriate legislative List which specifies such power; that generic legislative fields do not inhere or accommodate taxing powers; and that taxing powers are distinctly specified and only in Lists I and II (the Union and State Lists); and not in List III (the concurrent List) of the Seventh Schedule of the Constitution, vide - M.P.V. Sundararamier and Co. vs. State of A.P. : AIR 1958 SC 468; A. Venkata Subba Rao vs. State of A.P : AIR 1965 SC 1773 Hoechst Pharmaceuticals Ltd. vs. State of Bihar : AIR 1983 SC 1983 Synthetics & Chemicals Ltd. vs. State of U.P : (1990)1 SCC 109; and Godfrey Phillips India Ltd. vs. State of U.P : (2005)2 SCC 515.
The Union and State Lists 'constitutional boundaries:
From the scheme of distribution of legislative powers between the Union and States qua the mutually exclusive Lists (I&II), it is clear that powers to make laws with respect to any of the matters in the List authorized to the particular legislative level, is exclusive. This is clear from the provisions of Article 246 and the position is also normatively settled. Abstinence by Parliament or a State Legislature, from legislating at all or to the limit of its exclusively allocated powers would not have the effect of transferring to the other legislative level the field exclusively assigned to the abstaining legislature. The corollary of such exclusivity is that if Parliament or the legislature of a State fails to legislate, at all or to the full limits of its allocated powers, such failure does not augment pro -tanto powers of the other legislature. The Constitution does not countenance delegation (of legislative powers), expressly or by abstinence in exercise thereof, by Parliament to State legislatures or vice -versa (subject of course to provisions inter alia such as in Articles 252 and 253).
The position is equally well settled, that residuary legislative power stands allocated to the Union under Entry 97 of List I r/w Art. 248 and that the residuary allocation does not cover fields of legislation (whether general or pertaining to taxing powers) elsewhere enumerated in Lists I, II & III of the Seventh Schedule; that Article 248 r/w Entry 97 is the last refuge, only when all Entries in the three Lists are absolutely exhausted and only if the subject -matter cannot be comprehended in any Entry in the three Lists 'Subrahmanyam Chettiar vs. Muthuswami Goundan : AIR 1941 FC 47; Manikkasundara Bhattar vs. R.S. Nayudu (1946) FCR 67; and Second Gift Tax Officer vs. D.H. Nazareth : AIR 1970 SC 999.
Absent specific enumeration of a legislative field (authorizing levy and collection of taxes on services) either in Lists I or II, such authority is traceable to the residuary powers of legislation authorized to the Union qua Article 248 read with Entry 97 of List I. The legislative field, Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92 A of List I is assigned to States, under Entry 54, List II.
All power, authority or jurisdiction consecrated under or qua the constitutional grant is limited by limitations, conditions or boundaries expressed in the organic charter, inherent therein or implied therefrom 'vide Kesavananda Bharati vs. State of Kerala : (1973) 4 SCC 225. While plenary within the scope of their assigned powers, the Union and State legislatures are nevertheless limited by the distribution of powers assigned and the within the compass of fields/heads of legislation enumerated in the three Lists, as to the subject -matters upon which the Union or State legislatures (or concurrently, under List III) may legislate. Since under our federal arrangement, allocation of taxing powers (to the Union and to States) is exclusive and not concurrent, there is no authority consecrated (except to the extent specified in the Constitution), either to the federal (Union) or the provincial (State) legislature(s), to overlap, smother, swamp or trench upon taxing powers allocated to the other level. - United Provinces vs. Atiqa Begum : AIR 1941 FC 16; Ref under Article 143 AIR 1965 SC 765; and in re Cauvery Water Disputes Tribunal : 1993 Suppl (1) SCC 96.
Thus it is, that a fiscal exertion by one level of legislation must be precisely designed and so calibrated to avoid encroachment, poaching into or trenching upon the authorized and delineated field(s) allocated to another level. Harvesting revenue, by levy and collection of taxes qua legislation by Parliament must therefore clearly avoid encroachment into the field(s) authorized to States; and vice -versa.
These are the foundational premises subtracting consideration of the issues presented to us for resolution.