2001 (4) TMI 8 - HC - Service Tax

Finance Act 1998: Service Tax Valid on Architects & Accountants

INDIAN INSTITUTE OF ARCHITECTS Versus UNION OF INDIA

INDIAN INSTITUTE OF ARCHITECTS Versus UNION OF INDIA - 2002 (139) E.L.T. 245 (Mad.) Issues Involved:1. Constitutional validity of the provisions of the Finance Act, 1998, imposing service tax on services provided by architects and chartered accountants.2. Legislative competence of the Parliament to enact the provisions under challenge.3. Distinction between service tax and professional tax.4. Alleged arbitrariness and vagueness in the provisions of the Finance Act.Issue-wise Detailed Analysis:1. Constitutional Validity of the Finance Act Provisions:The petitioners, representing architects and chartered accountants, challenged the constitutional validity of the provisions of the Finance Act, 1998, which imposed a service tax on services provided by these professionals. They argued that these provisions were unconstitutional as they lacked legislative competence.2. Legislative Competence of the Parliament:The primary contention was that the tax imposed on services provided by architects and chartered accountants was, in essence, a tax on the profession itself. The petitioners argued that such a tax should fall under Entry 60 of the State List (List II) of the Constitution, which pertains to taxes on professions, trades, callings, and employments, and not under Entry 97 of the Union List (List I), which is a residuary entry.The respondents defended the constitutionality of the enactment, arguing that in pith and substance, the legislation was a tax on services and not on the profession. They contended that even if the tax related to the profession, it did not amount to a tax 'on' the profession, trade, calling, etc. The court agreed with the respondents, emphasizing that the service tax was distinct from a professional tax and was within the legislative competence of the Parliament under Entry 97 of the Union List.3. Distinction Between Service Tax and Professional Tax:The court examined the nature and scope of the service tax and professional tax. It noted that a professional tax is imposed for the privilege of carrying on a profession, irrespective of whether the professional actually practices or not. In contrast, a service tax is levied on the services rendered by professionals in their professional capacity.The court referred to various precedents, including the Western India Theatres Ltd. v. Cantonment Board, Pune, and Kamtaprasad case, to highlight the distinction between the two types of taxes. It concluded that the service tax was not a tax on the profession but on the services provided by professionals, making it distinct and separate from a professional tax.4. Alleged Arbitrariness and Vagueness in the Provisions:The petitioners argued that the provisions of the Finance Act were confusing and arbitrary, particularly concerning the services provided by chartered accountants. They contended that the Act did not provide clear guidelines on which services were taxable, leading to ambiguity.The court rejected this argument, noting that the Act specifically exempted services other than accounting and auditing provided by practicing chartered accountants. It emphasized that the legislature had the discretion to select specific services for taxation and that the provisions were not arbitrary or vague.Conclusion:The court upheld the constitutionality of the provisions of the Finance Act, 1998, imposing a service tax on services provided by architects and chartered accountants. It held that the Parliament had the legislative competence to enact these provisions under Entry 97 of the Union List. The court also distinguished between service tax and professional tax, concluding that the former was not a tax on the profession but on the services rendered by professionals. The allegations of arbitrariness and vagueness in the provisions were also dismissed. Consequently, all the petitions were dismissed without any orders as to costs.