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V. Shanmughavel Dr v Commissioner of Central Excise, Chennai-II

Madras High Court

30 April 2001

W.P. Nos. 7273 of 1998 & 3581 of 1999

The Judgment was delivered by : V. S. SIRPURKAR

W.P. No. 7273 of 1998 has been filed by the Chairman, Institution of Valuers, TamilNadu Zone, which institution was constituted in 1968 and is a registered society. The members of the petitioner institute are the Estate Valuers and most of them are recognised as such under Section 34AB of the Wealth Tax Act, 1957. In the instant petition, the petitioner claims a Writ of Prohibition or any other Writ, prohibiting the respondent from invoking the provisions of Section 88, Chapter VI of the Finance Act, 1997 for the purpose of levy and collection of service tax from the members of the petitioner institute on and from 7-7-1997 in respect of the services rendered by the petitioner’s members as “valuers” of the properties, plant and machinery, etc. They also have prayed for quashing of the communication sent by the respondent on 1-5-1998 vide C. No. IV/16/29/97-STC.

The respondent, Commissioner of Central Excise, Chennai by its letter, dated 1-5-1998 informed the Chairman of the Institution of Valuers that as per sub-clause (g) of clause 41 of Section 65 of the Finance Act, 1994 as amended, the term “taxable service” 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 in one or more disciplines of engineering is deemed to be a “taxable service”. Similarly, it was pointed out that the members of the petitioner institution could be covered under the definition of “consulting engineer” as they were professionally qualified engineers and were directly or indirectly rendering consultancy or technical assistance to a client in one or more disciplines of the engineering. It was then pointed out that the Directorate of Service Tax, Mumbai in their letter, dated 27-3-1998 had clarified that the services rendered as “valuers” of immovable property other than agricultural lands, plantations, forest, mines and quarries and as valuers of plant and machinery would fall within the purview of “services” rendered by “consulting engineers” and would attract the service tax. Along with this, a copy of the Service Tax Trade Notice No. 13/97 was also sent. The petitioner was, therefore, requested to inform all the “valuers”, who were covered under the levy to register them with the Department. It is presumably this communication which is challenged in the present petition

and the main contention is that the registered valuers who are acknowledged as such under Section 34AB of the Wealth Tax Act would not be covered by the provisions of the Finance Act which provisions came to be made applicable by Section 88, Chapter VI of Finance Act, 1997 for the purposes of levy and collection of service tax.

The basic argument raised by Mr. Rajappa, learned Counsel who argued the matter on behalf of the petitioner institute is that the Finance Act does not apply to the members of the petitioner institute at all as the “registered valuers” cannot be brought in the definition of the term “consulting engineer” nor can the “services” that they render be said to be a “taxable service” by a consult ing engineer. The argument is that the very nature of the work that the registered valuers do has got nothing to do with the “engineering discipline” and their task is merely to evaluate the property. In case of the valuers of machinery also the argument is that their services of evaluation cannot be deemed to be “taxable service”.

On this backdrop, it will be better to see the impugned provisions of the Finance Act, Section 65(13) is the definition clause, defining the term “consultancy engineer”. It reads as follows :

“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 client in one or more disciplines of engineering.

Section 65(48)(g) defines the term “taxable service” in case of a “consulting engineer” as under:

“to a client, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering”

Section 66(3) is the “charging section” which suggests that on and from 16th July, 1997, there shall be levied a tax at the rate of five per cent of the value of taxable services referred to in sub-clause (g) of clause (48) of Section 65 and collected in such manner as may be prescribed. Section 67 provides for the manner in which the valuation of taxable service for charging service tax is done and sub-section (f) defines the value of the “taxable services” of a “consulting engineer” as under :

“in relation to service provided by a consulting engineer to a client, shall be the gross amount charged by such engineer from the client for advice, consultancy or technical assistance in any manner in one or more disciplines of engineering.”

While the above provisions relate to the service tax, it will also be better to see some of the provisions of the Wealth Tax Act, which were heavily relied upon by the learned Counsel. They are Chapter VII-B of the Wealth Tax Act. That chapter was introduced by the Taxation Laws Amendment Act, 1972 with effect from 15-11-1972. Section 34AA permits the appearance by the registered valuers representing and/or for an assessee before any Wealth Tax authority or the Appellate Tribunal in connection with any matter relating to valuation of any asset except where such an assessee is required to attend in person. Section 34AB is extremely important and runs as under :

“Registration of valuers:

34AB. (1) The Chief Commissioner of Director General shall maintain a register to be called the Register of Valuers in which shall be entered the names and addresses of persons registered under sub-section (2) as valuers.

(2)Any person who possesses the qualifications prescribed in this behalf may apply to the Chief Commissioner or Director General in the pre scribed form for being registered as a valuer under this section :

Provided that different qualifications may be prescribed for valuers of different classes of assets.

(3)Every application under sub-section (2) shall be verified in the prescribed manner, shall be accompanied by such fees as may be prescribed and shall contain a declaration to the effect that the applicant will –

(i) make an impartial and true valuation of any asset which he may be required to make;

(ii) Furnish a report of such valuation in the prescribed form;

(iii) charge fees at a rate not exceeding the rate or rates prescribed in this behalf;

(iv) not undertake valuation of any asset in which he has a direct or indirect interest.

(4)The report of valuation of any asset by a registered valuer shall be in the prescribed form and be verified in the prescribed manner.”

Section 34AC specifically provides that no person who is not registered under this chapter could practice or describes or holds himself out as the registered valuer for the purposes of this Act.

It is the case of the petitioner that the members of the petitioner institution are the “registered valuers” and they cannot deemed to be the “consulting engineers” under the provisions of Section 65(f) of the Finance Act. On this back drop, it will be better to see the Rule 8A of the Wealth Tax Rules, 1957, which provides for qualifications of “registered valuers”. It will be remembered that under sub-section (2) of Section 34AB of the Wealth Tax Act for being a “registered valuer”, a person has to have certain specific qualifications. Rule 8A of the Wealth Tax Rules prescribes such qualifications. When we see the whole Rule 8A, it is apparent that there are various kinds of “registered valuers”. They are : (i) valuer of immovable property (other than agricultural lands, plantations, forests, mines and quarries); (ii) valuer of agricultural lands; (iii) valuer of coffee plantation, tea plantations, rubber plantations or cardamom plantations; (iv) valuer of forests; (v) valuer or mines and quarries; (vi) valuer of stocks, shares, de bentures, securities, shares in partnership firms, and of business assets including goodwill; (vii) valuer of machinery and plant; (viii) valuer of jewellery; (ix) valuer of works of art; (x) valuer of life interest, reversions and interest in expectancy. Out of these, presently we are concerned only with the two kinds of valuers as per the pleadings in the petition. They are : (i) a valuer of immovable property as provided in Rule 8A(2) and (ii) a valuer of the machinery and plant as provided in Rule 8A(8). It will be better to see the qualifications which are pre scribed for these two categories of valuers.

Rule 8A(2), which provides the qualifications for a valuer of immov able property, reads as follows :

“Qualifications of registered valuers :

8A. (2) A valuer of immovable property (other than agricultural lands,

plantations, forests, mines and quarries) shall have the following qualifications, namely :-(i) he must –

(A) be a graduate in civil engineering, architecture or town planning of a recognised university; or

(B) be a post-graduate-in valuation of real estate from a recognised university; or

(C) possess a qualification recognised by the Central Government for recruitment to superior services or posts under the Central Government in the field of civil engineering, architecture or town planning; and

(ii) (A) he must be a person formerly employed –

(a) in a post under Government as a gazetted officer : or

(b) in a post under any other employer carrying a remuneration of not less than Rs. 2, 000 per month,

and in either case, must have retired or resigned from such employment after having rendered service for not less than years as a valuer, architect or town planner, or in the field of construction of buildings, designing of structures, or development of land; or

(c)as a professor, reader or lecturer in a university, college or any other institution preparing students for a degree in civil engineering, architecture or town planning, or for any qualification referred to in clause (i), and must have retired or resigned from such employment after having taught for not less than ten years any of the subjects of valuation, quantity surveying, building construction, architecture, or town planning; or

(B) he must have been in practice as a consulting engineer, valuer of real estate, surveyor or architect for a period of not less than ten years and must have acquired experience in any of the following four fields :-

(a) valuation of buildings and urban lands; or

(b) quantity surveying in building construction; or

(d) construction of buildings or development of land :

and his gross receipts from such practice should not be less than fifty thousand rupees in any three of the five preceding years.”

Rule 8A (8), which provides the qualifications for a valuer of machinery and plant, reads as follows :

“(8) A valuer of machinery and plant shall have the following qualifications, namely :-

(i) he must either be a graduate in mechanical or electrical engineering of a recognised university, or possess a qualification recognised by the Central Government for recruitment to superior services or posts under the Central Government in the field of mechanical or electrical engineering; and

(ii) (A) he must employed –

(a) in a post under Government as a gazetted officer; or

(b) in a post under any other employer carrying a remuneration of not less than Rs. 2, 000 per month, and in either case, must have retired or resigned from such employment after having rendered service as a mechanical or electrical engineer for a period of not less than ten years, or

(c) as a professor, reader or lecturer in a university, college or institution preparing students for a degree in mechanical or electrical engineering or for any qualification referred to in clause (i) and must have retired or resigned from such employment after having taught for a period of not less than ten years; or,

(d)

(B) he must have been in practice as a consulting engineer for a period of not less than ten years and must have acquired experience in the valuation of machinery and plant and his gross receipts from such practice should not be less than fifty thousand rupees in any three of the five preceding years.”

The language of Rule 8A(2) suggests that a graduate in Civil Engineering can become a “registered valuer” if he fulfils the conditions in Rule 8A(2)(ii). Sub-rule (c) of Rule 8A(2)(ii)(A) is very important. It suggests that such a person besides being an engineering graduate must have been a professor, reader or lecturer in the Civil Engineering degree course and as such should have an experience of teaching for ten years in the subjects of valuation, quantity surveying, building construction, architecture, or town planning; or he must have been in practice as a consulting engineer, valuer of real estate, surveyor or architect for a period of not less than ten years and must have acquired experience in the fields of valuation of buildings and urban lands; or quantity survey ing in building construction; or architectural or structural designing of buildings or town planning; or construction of buildings or development of lands and that he must be earning a minimum sum of Rs. 50, 000/- as his “gross receipts” as a consulting engineer.

In so far Rule 8A(8) is concerned, it will be seen that a “registered valuer” of plant and machinery must be a graduate in Mechanical or Electrical engineering and must have held a gazetted post under Government of certain standard for a period of not less than ten years or must have been a professor, reader or lecturer in an institution preparing students for electrical or mechanical engineering or must have retired or resigned from such employment or he should have been in the practice of the consulting engineer for a period of ten years.

The basic argument of Mr. Rajappa was that when a person does the job of valuation, he does not necessarily either advice or offers consultancy or technical assistance to his client in the discipline of engineering. The learned Counsel firstly submits that atleast in case of a “valuer” of immovable property, there is no question of there being any engineering discipline involved in his work. The learned Counsel argues that, all that he does on the basis of his experience and knowledge is to evaluate the property for the purposes or wealth-tax. The learned Counsel submits, by serving the notice in this case, the concerned authority, the respondent, has obviously chosen to do an act which is beyond his jurisdiction. A consulting engineer, who does the job of valuation on the basis of

his registration as valuer of estate, does not have to do anything which relates to the discipline of engineering.

The learned Counsel for the Department, Mr. Chandrasekharan, however, pointed out that in so far as the “registered valuers” of machinery and plant were concerned, there can be no dispute that such persons are evaluation only the machinery or plant on the basis of their engineering knowledge and such advice that they give by evaluating the machinery or plant for the purposes of wealth-tax would certainly involve the advice or technical assistance of the nature which can be described as the “discipline of engineering”. According to the learned Counsel, this advice or the consultancy service offered or the technical assistance given would be in the realm of “engineering” alone. The learned Counsel points out that for being a “registered valuer” of plant and machinery under Rule 8A(8), the concerned person must be an engineer as provided under the Rule 8A(8) and the prescribed qualifications themselves would speak the necessity of such a person having the knowledge of engineering. The learned Counsel contends and in our opinion rightly that if there was no element of “engineering discipline” involved in the advice or consultancy or technical assistance offered by a registered valuer, there would be no necessity of such a person being an engineer and holding a engineering degree.

When we consider the qualifications, it is obvious that those qualifications are not merely holding a engineering degree but such persons would be required to have a certain standing as an engineer, which is of quite “high standard”. We do not want to again repeat the required qualifications as we have al ready quoted them above and a mere glance at them would be sufficient to realise that the required qualifications for registration are of substantially “high standard”. The learned Counsel, therefore, argues that in so far as the case of the valuers of plant and machinery is concerned, there has to be advice, consultancy ser vice or technical assistance in the subjects completely connected with the engineer ing. We are in agreement with the learned Counsel for the respondent and hold that such “registered valuers” of plant and machinery would fall within the definition of “consulting engineer” and their services of valuation of plant and machinery would be covered as “taxable service” offered by an “consulting engineer”.

Now we take up the case of “registered valuer” of immovable property. Learned Counsel for the petitioner pointed out that it is not necessary that every registered valuer of immovable property should be a graduate in engineering and that the advice offered by him need not necessarily be of a nature involving the engineering discipline. Learned Counsel argues that this being the “taxing statute”, the Court must apply “strict interpretation” to the terms “consulting engineer” and also the “taxable service” offered by the “consulting engineer”. There can be absolutely no quarrel with this proposition that this being a taxing statute, it must be strictly construed.

It will be seen that in the initial letters, dated 23-7-1997 and 12-8- 1997, the petitioner had stated that the members of the petitioner institute were qualified engineers and also chartered engineers. By those letters, the petitioner had wanted to know from the concerned authority as to whether its members were liable to register under the Finance Act. The Assistant Commissioner, Ser vice Tax Cell, by his reply, dated 28-8-1997 specifically pointed out that the ser vices offered by every consulting engineer comes within the purview of service tax and, therefore, it was necessary that the members of the petitioner institute to register. The petitioner had, perhaps, sought a clarification as to whether the “services” rendered in the capacity of “Architect/Valuers” could attract the service tax or not. The concerned authority in the reply had stated that the services offered as a “valuer” would not attract the levy under the purview of “consulting engineer”. The learned Counsel for the petitioner very heavily relied on this letter and pointed out that this would completely stop the respondent from pleading that the services offered by an engineer in the capacity of a “valuer” come under the category of a “taxable services”.

Learned Counsel for the respondent has pointed out that by a sub sequent letter, dated 1-5-1998 written to the Chairman, Institute of Valuers. TamilNadu Zone, the Commissioner of Central Excise, Chennai has specifically taken the position that the services rendered as “valuers” of immovable property (other than the agricultural lands, plantations, forests, mines and quarries) and as valuers of plant and machinery shall fall within the purview of “consulting engineer” and shall attract the “service tax”. This letter is based on the clarification offered by the Directorate of Service Tax, Mumbai in their letter F. No. V/DGST/21(7)2/98/658, dated 27-3-1998. The learned Counsel, therefore, argues that it is obvious that the letter, dated 28-8-1997, relied upon by the petitioner, would naturally stand withdrawn in the light of the subsequent stand taken by the Department. The learned Counsel further argues and in our opinion rightly that if the provisions, of the service tax were otherwise attracted a mere letter by the Assistant Commissioner of Service Tax Cell cannot clinch the issue and cannot be held as binding against the respondent. The argument, therefore, must be rejected.

The learned Counsel for the petitioner then pointed out that this letter, dated 1-5-1998 was accompanied with by a Service Tax Notice No. 13/97, dated 3-7-1997. The learned Counsel points out that copy of this letter, which was accompanying the letter, dated 1-5-1998, which we have already discussed, provides and almost defines the services offered by the consulting engineers which come in the tax-net. Our attention was invited to paragraph 4.3, which reads as under:

“4.3. The services which attract the levy include all the services which are rendered in the capacity of a professional person and specifically include the services pertaining to structural engineering works, civil/mechanical/ electrical engineering works or relating to construction management. All services rendered within the above scope of the term engineering attract service tax provided they are rendered in the capacity of a consulting engineer. The scope of the services of a consultant may include any one or more of the following categories :

(i) Feasibility study;

(ii) Pre-design services/ project report;

(iii) Basic design engineering;

(iv) Detailed design engineering;

(v) Procurement;

(vi) Construction supervision and project management;

(vii) Supervision of commissioning and initial operations;

(viii) Manpower planning and training;

(ix) Post-operation and management;

(x) Trouble shooting and technical services, including establishing systems and procedures for an existing plant.

Though the above list is not exhaustive, it illustrates the wide scope and nature of the services rendered by a consulting engineer.” (emphasis supplied)

The learned Counsel says that the “service” offered by an “engineer” in his capacity as “registered valuer” of immovable property cannot be covered under any of these ten categories. The argument has to be mentioned only to be rejected. The last sentence itself suggests that the “list is not exhaustive and it only illustrates the wide scope and nature of the services rendered by a consulting engineer”. In our opinion, a consulting engineer has to use his experience and knowledge of engineering necessarily to arrive at a correct valuation of the immovable property. The argument that mere valuation of an immovable property is not an advice in the nature of “engineering advice” is obviously incorrect because where the knowledge in engineering itself is a must and is a basis for giving the valuation for the benefit of the assessee under the Wealth Tax Act then, it cannot be said that the advice is not in the “engineering discipline”. It must be first remembered that what has fallen for consideration before us is a subject of service tax and the provisions under the Finance Act and not the provisions under the Wealth Tax Act, which are being relied upon by the learned Counsel for the petitioner. Wherever an advice is given by an engineer on the basis of his engineering knowledge, skill and experience then such an advice would be in the realm of “engineering advice” or atleast pertaining to the “engineering discipline”. In our opinion, such an advice would fall in “civil engineering discipline”. Again, the term “engineering discipline” as used in Section 65(11) and Section 65(48)(g) of the Finance Act cannot be interpreted in a manner as suggested by the petitioner. Even adopting the strict view of a taxing statute, it would have to be held that the advice offered by an engineer on the basis of his engineering knowledge in respect of immovable property valuation would certainly amount to an advice which is integrally connected with the “engineering discipline”. Therefore, when an “engineer” becomes a “registered valuer” of immovable property or plant and machinery, he is obviously rendering the services as a “consulting engineer” within the meaning of Section 65(48)(g) of the Finance Act. We cannot, therefore, accept the contention raised by the petitioner that such engineers who offer the advice in their capacity as the “registered valuers” of immovable property or plant and machinery cannot be brought into the tax-net under Section 65(11) read with Section 65(48)(g) of the Finance Act. We do not find any merit in the petition and would dismiss the same. No costs. Connected W.M.P. No. 11114 of 1998 is closed.

W.P. No. 3581 of 1999 :

In this petition, which is filed by the Licensed Engineers and Surveyors’ Association, Kovilpatti no arguments were advanced though the matter was grouped for the sake of convenience with W.P. No. 7273 of 1998.

In the petition, the petitioner is stated to be the association of licensed engineers and surveyors, who are registered surveyors with the Municipality or Town Panchayat or consulting engineers rendering consultancy ser vices. After giving the brief history of the provisions in the Service Tax Act applicable to the services offered by the consulting engineers, the petitioner has referred to the trade notice, dated 4-7-1997 and especially paragraph 3.3 therein, which is identical with paragraph 4.3 referred to by us in the earlier writ petition of the similar trade notice. It is suggested that the “surveyors” cannot be brought

within the definition of “consulting engineers” as defined in Section 65(11) of the Finance Act and their services cannot be held as “taxable services” as defined in Section 65(48)(g) of the Finance Act. In paragraph 7 of the petition it is contended that this is nothing but a tax on profession. In paragraph 8 it is suggested that while the materials used by the interior decorators are exempted from the gross amount billed by them, the similar exemption is not provided in case of consulting engineers and, therefore, the provisions are “discriminatory”. A challenge then raised in paragraphs 9 and 10 of the petition on the basis of Article 14 and Article 19(l)(g) of the Constitution. Considering the petition generally, though we were never addressed by the learned Counsel, we feel that there is a “tacit admission” that the members of the petitioner association are the “engineers” and having the engineering qualifications. In paragraph 2, the sentence reads as follows:

“All the members of the Association are either registered surveyors with the Municipality and Panchayat or consulting engineers rendering consultancy to their clients in the respective branches.”

We are not at all impressed by the challenge to the “legislative competence” and, in fact, such challenge is not properly worded in the petition at all. All that has been said in paragraph 7 is that to impose service tax on professionals like the Consulting Engineers, Chartered Accountants, Cost Accountants and Company Secretaries would mean that the income of the above professionals would be subject to double taxation under the guise of service tax. In our opinion, this cannot amount to a challenge to the “legislative competence”. Even otherwise, we are of the opinion that the tax covered under the provisions of the Finance Act is not a tax on profession and is not beyond legislative competence of the Parliament.

As regards the challenge under Article 14 of the Constitution of India also, we are of the clear opinion that no such challenge has been properly worded or brought out even in the petition in any manner. In paragraph 9, it is suggested that apart from the consulting engineers, there are other qualified professionals, who are also rendering similar services to the clients such as “architects”, “contractors”, “real estate promoters”, “diploma holders”, “registered valuers”, etc., whose services are sought after for the purposes of engineering services and as such the levy of tax against the consulting engineers is arbitrary and violative of Article 14 of the Constitution of India. The challenge is mentioned only to be rejected.

Even in ground (A) all that is suggested is that a profession of a “consulting engineer” is a profession like a “lawyer” or a “doctor” and, therefore, any tax on profession would be as per Entry 60 of List II of VII Schedule to the Constitutionand would, therefore, be outside the “legislative competence”. We have already dealt with this argument that “tax on services” does not amount to a “tax on profession”. We have taken the similar view while dealing with the similar challenge to the service-tax levied on “tour operators” or “rent- a-cab scheme operator” where similar argument was tried to be advanced. The view that this does not amount to a “tax on profession” has been taken in W. P.No. 18224 of 1997, etc.

In respect of challenge under Article 14 of the Constitution of India, the argument is that while the other professionals are not taxed, the “consulting engineers” are taxed and, therefore, it is arbitrary. The argument is clearly un tenable and has to be rejected as “consulting engineers” is a “class” by themselves. That apart, it would be a “legislative wisdom” on the part of the Parliament to decide as to which “class” should be taxed and which “class” should not be taxed. That will be clearly outside the “judicial review”.

For the above reasons, even this writ petition has no merits and must be dismissed and it is accordingly dismissed. No costs Connected W.M.P. No. 5119 of 1999 is closed.