A division bench of Delhi High Court consisting of Justice S Murlidhar and Justice Talwant Singh has agreed to hear the petition filed by 13 banks against the government for demanding Rs. 38,000 crores as Service tax from them. This tax is based on treating the commitment of customers to maintain minimum average balance in bank accounts as a consideration for banking facilities provided free.
The constitutionality of Section 66E (e) of the Finance Act 1994 has been challenged. The Tax Authorities had relied on this section for issuing the show- cause notice. Section 66E defines declared services and Section 66E (e) states-“agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”. This means they considered the service as taxable. The petitioners have challenged these provisions for being vague and arbitrary .The corresponding provision in Section 7(1A) read with clause 5(e) of Schedule II of CGST Act is also challenged.
It is contended that government is wrong and arbitrary in imposing tax on non-taxable transactions since no consideration is involved. Section 65B(44) clearly defines “service” as any activity carried out by a person for another for consideration. It is also contended that the show-cause notice is against the instructions of Central Board of Indirect Taxes and Customs (CBIC) as according to it service tax cannot levied on free services since there is no consideration involved.
The petition is to be heard before the Delhi High Court on the grounds that the proceedings of the government are contrary to Finance Act 1994, violative of Article 19(1)(g) of the constitution of India as it interferes with the right of the petitioners to carry and profess trade and business and violative of Article 265 of the Constitution.