TaxTMI 
TaxTMI 
2004 (7) TMI 664
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....r/company is not a "Consulting Engineer" within the meaning of Section 65 of the Finance Act so as to be liable to pay the tax on the 'service' provided by it and also for quashing the circular dated 22-7-1997 issued by the Ministry of Finance and referred to in Trade Notice No. 78/97, dated 4-7-1997 emanating from the office of the Commissioner of Central Excise, Bangalore, holding that the view taken by the Additional Commissioner of Central Excise that the petitioner/company is liable to pay the service tax cannot be found fault with. The learned Single Judge has further found that the Notification dated 28-2-1999 exempting the taxable service provided to any person by a Consulting Engineer in relation to computer software from the whole of the service tax leviable thereon, under Section 66 of the said Act, does not admit of any such retrospective exemption and the same could not be made retrospective by a judicial interpretation. These findings of the learned single judge are now sought to be challenged in this appeal filed by the appellant/petitioner. 2. Learned Counsel for the appellant has vehemently contended before us that the service tax was made applicable on Con....
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....earned Single Judge was not justified in declining to extend the benefit of such exemption notification to the appellant/company. He further brought to our notice a circular in the form of a trade notice issued by the department which is to the following effect : "Service Tax not leviable on services by qualified engineers as insurance surveyor and loss assessor I am directed to say that doubts have been raised as to whether the services rendered by qualified engineers as insurance surveyor and loss assessor, would come under the purview of service tax levied on the service provided by the consulting engineers. 2. The matter has been examined in the Board's Office. As per sub-clause (g) of clause (48) of Section 65 of the Finance Act, 1994 as amended, the taxable service in case of consulting engineer has been defined as "any service provided to a client, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering". Hence the services which will come under the purview of service tax in the category of consulting engineer, will be those rendered in a discipline of engineering, b....
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....on the above contents of such circular, he sought to contend that the company is not at all included within the ambit of the service tax. He also contended that by this later circular, the department has made it very clear as to who is to be brought under the ambit of the service tax. He further contended that assuming that everything goes against the appellant company, the penalty equivalent to the amount of tax could not have been levied by the department. While elaborating this submission, he contended that in the instant case, the maximum penalty which has been levied by the department could not have been levied on the facts and circumstances of the case. He contended that while imposing such a maximum penalty, the Additional Commissioner of Central Excise (Prev. & S.T.) has only observed in the course of its impugned order that : 'I impose penalty of Rs. 9,88,379/- (Rupees nine lakh eighty eight thousand three hundred seventy nine only) under Section 76 of the Finance Act". He contended that the penalty under the Act cannot automatically be imposed unless there is some misconduct and that in the instant case, the order of the Additional Commissioner does not disclose any....
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....ry provisions. They are not binding upon the courts. It is true that those clarifications and circulars were communicated to the concerned dealers but even so nothing prevents the State from recovering the tax, if in truth such tax was leviable according to law. There can be no estoppel against the statute. The understanding of the Government, whether in favour or against the assessee, is nothing more than its understanding the opinion. It is doubtful whether such clarifications and circulars bind the quasi-judicial capacity, they are bound by law and not by any administrative instructions, opinions, clarifications or circulars. Law is what is declared by the Supreme Court and the High Court, to wit, it is for the Supreme Court and the High Court to declare what a particular provision of the statute says, and not for the executive." (2) (1998) 229 ITR Page 1 (SC) (Commissioner of Wealth Tax v. Ellis Bridge Jymkhana and Others) wherein the Hon'ble Supreme Court has held as under : "The rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used i....
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....f its formation or any time thereafter are indeterminate or unknown. It is only in such an eventuality that an assessment can be made on an association of persons, otherwise not. An association of persons cannot be taxed at all under section 3 of the Wealth-tax Act. The Legislature deliberately excluded a firm or an association of person from the charge of wealth-tax and the word "individual" in the charging section cannot be stretched to include entities which had been deliberately left out of the charge." (3) (1992) 194 ITR 287 (Karnataka) (Commissioner of Wealth Tax v. Bowring Institute) wherein the Division Bench of this Court has held as under : "The term "individual" in section 3 of the Wealth-tax Act, 1957, would not bring within its compass an "association of persons' or "body of individuals" such as a club registered under the provisions of the Societies Registration Act, 1860. Therefore, the assessee, an association of members running a club and registered under the provisions of the Karnataka Societies Registration Act, I960, is not an "individual" falling within the scope of Section 3 of the Act and hence not an assessable entity under the ....
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....d Others) wherein the Hon'ble Supreme Court has held as under : "A legislative casus omissus cannot be supplied by judicial interpretative process" (7) (1990) 185 ITR Page 264 (Calcutta) (Aminchand Pyarelal v. Gift Tax Officer and Others) wherein the learned Single Judge of the Calcutta High Court has held as under : "A Firm is not included in the definition of "persons" under Section 2(xviii) of the Gift Tax Act, 1958. Hence, a firm is not assessable as an entity under the Gift Tax Act and a notice issued to a firm would not be valid." (8) (1975) 35 STC 413 (SC) (Commissioner of Sales Tax, Uttar Pradesh, Lucknow v. Parson Tools and Plants, Kanpur) wherein the Hon'ble Supreme Court has held as under : "The three stark features of the scheme and the language of section 10 of the Act show that the legislature has deliberately excluded the application of the principles underlying sections 5 and 14 of the Limitation Act, except to the extent and in the truncated from embodied in section 10(3B) of the Act. Delay in disposal of revenue matters adversely affects the steady inflow of revenues and the financial stability of the ....
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....interests of the beneficiaries and the Court. The legislature has, in its wisdom, chosen to exclude unincorporated associations of persons from the purview of eligible grantees of letters of administration; it is not, then for the Court to legislate judicially by turning the plain meanings of the provisions on their head. Interpretation must remain interpretation, and not descent into interpolation. Para. 40. It is well-settled principles of law that a plain meaning must be attributed to the statute. Also, a statute must be construed according to the intention of the legislature. The golden rule of interpretation of a statute is that is has to be given its literal and natural meaning. The intention of the legislature must be found out from the language employed in the statute itself. The question is not what is supposed to have been intended but what has been said." 6. While placing reliance upon these decisions, he contended that the charging Section 66 of the Act is to be read with a definition clause of consulting engineer under clause 18 of Section 65 of the Act and if so read, it will clearly indicate that the company is not one of the entity included for the p....
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....itional Commissioner and in the absence of any such prayer, no relief could be granted. He contended that the prayer made for the first time before this court, by way of a contention taken at the time of argument cannot be entertained in the absence of such pleadings and prayer. 8. In support of his submissions, the learned Central Government Standing Counsel for the respondents has relied upon the following decisions : (1) 1994 (3) SCC PAGE 440 (M) = 1994 (70) E.L.T. 12 (S.C.) relevant page 445 in Para 23, 24 and 31 (Directorate of Enforcement v. Deepak Mahajan and Another) wherein the Hon'ble Supreme Court has observed as under : "Every law is designed to further the ends of justice but not to frustrate on the mere technicalities. Though the function of the courts is only to expound the law and not to legislate, nonetheless the legislature cannot be asked to sit to resolve the difficulties in the implementation of its intention and the spirit of the law. In such circumstances, it is the duty of the court to mould or creatively interpret the legislation by liberally interpreting the statute.  (Paras 23 and 24) True, normally courts ....
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....manner in which it was to be performed." (3) 1940 ALL.ENG.LAW REPORTS ANNOTATED page 549 relevant page 553 (Nokes v. Doncaster Amalgamated Collieries, Ltd.) wherein it is observed as under : "The difficulty is to adapt well-establish principles to a particular case of difficulty. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. We must not shrink from an interpretation which will reverse the previous law, for the purpose of a large part of our statute law is to make lawful that which would not be lawful without the statute, or, conversely, to prohibit results which would otherwise follow. Judges are not called upon to apply their opinions of sound policy so as to modify the plain meaning of statutory words, but, where, in construing general words the meaning of which is not entirely plain, there are adequate reasons for doubting whether the legislature could have been intending so wide an interpretation as would disregard fundamental principles, then we may be justified in adopting a narrower construction. At the same time, if the choice is between two interpretations the narrower of which would fail to a....
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....ill be that these connected, incidental or ancillary activities of sales are not 'business' and the onus of proof of an independent intention to do 'business' in these connected, incidental and ancillary sales will rest on the Department." 9. By way of reply, the learned Counsel for the appellant/company has further contended that since the appellant/company was not clear in their mind and was also in touch with the Government through NASSCOM that no service tax is applicable to the developers of the computer software, by way of abundant caution, it had sought for registration under Section 69 of the Act and the same was granted. He contended that merely because the appellant/company had been granted registration under the Act, that does not mean that it is liable to tax unless the company is brought to tax within the provisions of the statute. He also contended that the company is a separate legal artificial entity and a company itself can never be professionally qualified as an engineer and obviously for that reason, the framer of the law who were aware of this fact, did not include the company within the definition clause of consulting engineer under Section 65(18) of th....
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....ervices declared taxable regardless whether the same are provided by a natural or a juristic person, there is no distinction under the Act between the provider of a service, who is an individual, a partnership concern or an incorporated company. The liability to pay tax on the service provided falls uniformly on all the three, provided the service is of a kind that has been declared taxable under Section 65(48) of the Act. Viewed thus, what is taxed by the Act in the case of service provided directly or indirectly in the nature of advice, consultancy or technical assistance in any manner and relating to any disciplines of engineering. The fact that the service is provided by an individual or a partnership or by a company is wholly inconsequential. It is true that inclusion of in the definition of the expression "consulting engineer" could include a company to set the entire controversy at rest, but the very fact that a company providing a technical assistance in any engineering discipline is not specifically included in the definition of the expression "consulting engineer' would not ipso factor mean that service rendered by any such company cannot be considered to be taxable. It i....
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....eral construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction." Reference may also be made to the decision of the Supreme Court in Nagpur Electric Light & Power Co. Ltd. and Others v. K. Shreepathirao (AIR 1958 SC 658), where the Court declared that even a definition clause in an enactment must derive its meaning from the context or subject. In Motipur Zamindari Co. Ltd. v. State of Bihar and Another (AIR 1953 SC 320), the Court held that there was no justification to differentiate between a company and an individual and that there was nothing in the statute being interpreted by the Court in that case, which would prevent the inclusion of the company. The Court was in that case interpreting the term "proprietor" as defined by Sec.2(O) of Bihar Land Reforms Act. It held that in view of the object of the Bihar Land Reforms Act, there was no reason to differentiate between an individual proprietor and a company which owns estates or tenures. The position is no different in the i....
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....f a certificate of registration is a person liable to pay the service tax under the Act vide Section 69 of the Act. In this context, it is pertinent to note that the charge of tax is on the person who is responsible for collecting the service tax and it is he, who by virtue of the provisions contained in Section 65(7) is regarded as an assessee. The word "assessee" is defined under Section 65(7) means a person liable to pay the service tax and includes his agent. He is the person who provides the service and hence liable to pay the service tax as an assessee. A perusal of the provisions relating to the machinery of the levy and collection of service tax clearly shows that any action which is required to be taken is qua the assessee, namely, the person responsible for collecting the service tax which includes his agents. Section 66 is a charging section and it provides that the charge of tax at the rate of 5% is on the value of the taxable services which are provided to any person by the persons responsible for collecting the service tax. The person responsible for collecting the service tax referred to in Section 66 has to be read with Section 65(7) which defines the word "assessee....
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....g engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering. Pausing here for a while, it is to be seen that the object or the intention of the legislature is to levy service tax on a consulting engineer in relation to advice, etc., given to a client. That is to say, the taxable service rendered by a consulting engineer in relation to advice, etc., to a client is sought to be brought under the taxing net of the service tax. It leaves no manner of doubt that the intention of the legislature was to bring the consulting engineer whether he is an individual or an association of person, etc., within the taxing net of the service tax. This is very clear from a reading of the provisions contained under sub-section (3) of Section 66 alongside the provisions contained under sub-clause (g) of clause (72) of Section 65. No doubt, the definition clause of a consulting engineer as defined under clause (18) of Section 65 says that a consulting engineer means any professionally qualified engineer or an engineering firm who either directly or indirectly renders any advice, consultancy or technical assistance in any manner to a clien....
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....ng engineers or a concern rendering such services in any particular trade name. Thus, if the above said three provisions of the Act namely Sections 66, 65(72)(g) and 65(18) are read together and a harmonious construction is given to all these provisions in the context of the provisions of the service tax contained in Chapter-V, it will clearly indicate that the object or the intention of the law makers was to bring the consulting engineer in the taxing net for charging service tax and the expression "firm" used in the definition clause of consulting engineer under Section 65(18) must be taken to have been used to describe more than one person or association of persons or a concern rendering such service collectively under any particular trade name. The use of the adjective 'engineering' only emphasizes the requirement that the said body of individuals or the firm must be engaged in the engineering line. In fact, the same has been clearly clarified in the trade notice at Annexure-H of the appeal paperbook that consulting engineers shall include self-employed professionally qualified engineer who may or may not have employed others to assist him or it could be an engineering firm whe....
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....onstruction may be put upon it which emphasizes the meaning of the words and even the structure of the sentence. Obviously in this context only, the learned Single Judge of this Court in the writ petition has made reference to a decision of the Hon'ble Supreme Court in the case of "Commissioner of Income Tax, Bangalore v. J.H. Gotla" reported in AIR 1985 SC Page 1698, wherein the Hon'ble Supreme Court has declared that the plain interpretation of the statutory provision produces a manifestly unjust result, which could never have been intended by the legislature, the court may modify the language : "Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the legislature, the Court might modify the language used by the legislature so as to achieve the intention of the legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. S.16(3) of the Act has to be read in....
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....ompany or associate of persons, etc. In view of the clear intent and object of the law makers to charge the consulting engineer for service tax, there is no reason to differentiate between a firm and a company so long as it renders service as a consulting engineer. We are not unmindful of the principle that in construing the statutory provision or rule, every word, occurring therein must be given its proper meaning and weight. The necessity of such an interpretation is all the more important in a definition clause. But even a definition clause must derive its meaning from the context or subject. That is to say, the definition clause of consulting engineer under Section 65(18) of the Act must derive its meaning from the context or subject namely Section 66(3) read with Section 65(72)(g) of the Act. By Section 66(3) read with Section 65(72)(g) of the Act, the law makers intended to bring within the ambit of the service tax all the consulting engineers. That being so, the definition clause cannot be read so as to exclude any person who is rendering such service. That is to say, the intendment of the Act is not exclude the company from the ambit of the Service Act as a consulting engin....
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.... context, it would be of some relevance to note here itself that Section 69 which deals with Registration prescribes that every person liable to pay the service tax under this chapter or the rules made thereunder shall within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise and Section 68 which deals with payment of service tax prescribes that every person providing taxable service to any person shall pay service tax at the rate specified in Section 66 in such manner and within such period as may be prescribed. The word "person" has not been defined in the Act, but the word "person" as defined under the general clauses Act include a company. Therefore, placing such harmonious construction to the different provisions contained under the Act, the appellant/company being an assessee holding a registration certificate under the act is assessible to service tax. Section 66(3) which is a charging section is to be read with reference to the taxable service referred to under Section 65(72)(g) along with definition clause of consulting engineer found in Section 65(18) and if they are so read toge....
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....ulting engineer. Hence, we are unable to accept the said contention of the learned Counsel for the appellant. Furthermore, the services rendered or provided by an engineer by way of consultancy are liable to service tax and the term "consulting engineer" as defined under clause (18) of Section 65 means "professionally qualified engineer or an engineering firm who either directly or indirectly renders any advise, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering". The word "firm" used therein, is an engineering firm and the word "firm" which has not been defined under the Act, in its common parlance includes not only a partnership of two or more persons for carrying on a business, but also a commercial concern or the name or style under which associated persons do business. Therefore, the term engineering firm in the context of the provisions contained under the Act cannot be given a restricted meaning of partnership as known under the Partnership Act. In fact, the plain dictionary meaning of the word "firm" is business entity or enterprise; unincorporated business; partnership of two or more persons. Therefore, the expression "f....
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.... be stated that the said clarificatory circular issued by the department even if communicated to the appellant, nothing prevents the department from charging the appellant to tax, if such tax is leviable according to the statute. This is because there cannot be any estoppel against the statute. Even otherwise, the said circular cannot in any way improve the case of the appellant. This is because the very fact that the appellant company is principally a consultancy service having registered itself as an assessee under Section 69 of the Act, it is a person liable to pay the service tax and the word "person" as per the General Clauses Act includes a company. That apart under Section 68 of the Act, every person providing taxable service to any person shall pay service tax at the rate specified in Section 66 in such manner and within such period as may be prescribed and as per Section 66(3) read with Section 65(72)(g), the appellant being a service provider is liable to pay the service tax. It may be stated even at the cost of repetition that Section 68 prescribes that every person providing a taxable service to any person shall pay service tax at the rates specified in Section 66 which....
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....manifested opinion upon a matter resting wholly within its will and take its plain ordinary grammatical meaning of the words of the enactment as affording the best guide, but to winch up the legislative intent, it is permissible for the Courts to take into account of the ostensible purpose and the object and the real legislative intent. Otherwise a bare mechanical interpretation of the words and application of the legislative intent devoid of concept of purpose and object will render the legislature inane. In cases of this kind, the question is not what the words in relevant provision mean, but whether there are certain grounds for inferring that the legislature intended to exclude the company from the ambit of the service tax. Here the real legislative intent is to bring the consulting engineer within the ambit of the service tax. That being so, could it be said that the legislature intended to exclude the company which is rendering such service from the ambit of the service tax. In our opinion it could not have been the intention of the legislature to exclude any person rendering such service from the ambit of the service tax. In given circumstances, it is permissible for the Cou....
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.... registration certificate under the Act, That being so, it is a person liable to pay the service tax. The main activity of the appellant/company is of rendering consultancy service to its clients and hence it is a person liable to pay the service tax under the statute. The proper way to construe the definition of "consulting engineer" under Section 65(18) in the context of the other provisions namely Sections 66, 69, 68 and 65(72)(g) is to read, the definition as not intended to exclude the company whose main activity is of rendering consultancy service in engineering. As we have already noticed, the intention of the law makers was to charge service tax on the taxable service rendered by the consulting engineer. Persons rendering such taxable service are broadly classified into two categories, one as an individual who is professionally qualified engineer and all others who are rendering such service are grouped under the words or expression "Engineering Firm" which in the context of the statute does not in any way exclude the company rendering such consultancy service. The charge here is on the service of consultancy and merely because such service is rendered by a company, it cann....
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....will be giving effect to the opening sentence in the definition section, namely 'unless there is anything repugnant in the subject or context'. In view of this qualification, the Court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words under the circumstances" In this case, the question before the Hon'ble Supreme Court was as to the construction of the word "Insurer" as used in Sections 33(1) and 2D of the Insurance Act, 1938 which reads as follows: Section 33(1) : 'The Central Government may at any time by order in writing direct the Controller or any other person specified in the order to investigate the affairs of any insurer and to report to the Central Government on any investigation made by him;' Section 2D : 'Every insurer shall be subject to all the provisions of this Act in relation to any class of insurance business so long as his liabilities in India in respect of business of that class remain unsatisfied and not otherwise provided for'. The Act by Section 2(9) defines an 'Insurer' as a person carrying on the busin....
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....eld by the learned Single Judge is however prospective in nature and it does not grant exemption with retrospective effect. It is needless to point out that the notification comes into effect only from the date when it is published in the gazette unless otherwise specified. The instant notification is effective only from the date 28-2-1999 and the exemption has been granted only with effect from 28-2-1999. In accordance with this notification, it appears that the appellant/company was only required to pay the service tax from 7-7-1997 to 27-2-1999 and it has not been charged subsequently. The said notification does not in any way indicate that it has retrospective in its operation. Therefore, we agree with the view taken by the learned Single Judge. Now coming to the question with regard to the penalty imposed by the department, we are unable to accept the contention of the learned Counsel for the appellant that the penalty has been imposed or levied automatically without the application of mind by the competent authority. This is because while imposing the penalty under the Act, the Additional Commissioner has found on facts that the appellant-company has deliberately and with ful....
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....ncerned and the same having been exercised judicially, on consideration of all the relevant factors, there is absolutely no scope for interference with the said discretion exercised by the authority concerned. We are therefore, of the view that the said authority was justified in imposing such penalty. That apart in this case, as rightly contended by the learned counsel for the respondent that no such ground appears to have been taken by the appellant/company either before the learned Single Judge or in the appeal filed before this Court and it is only at the time of the arguments, a contention was sought to be raised for the first time with regard to the penalty being not justified. That being so, such a contention is not open to be urged for the first time at the time of the arguments by the appellant. A point not raised before the learned Single Judge in the writ petition may not be allowed to be raised for the first time in the writ appeal, more so when the interference in the writ jurisdiction which is equitable and discretionary is not off course or must. Even otherwise, we find that there is absolutely no scope for interference with the penalty imposed by the said authority.....