TMI Blog2000 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... on is an association of 1000 practising Chartered Accountants in the State of Gujarat. Special Civil Application No. 469/99 is filed by the association on behalf of its members. Petitioner No. 2 in the said petition is a practising Chartered Accountant. 2. Service tax was introduced by the Finance Act, 1994. Chapter V thereof contains the scheme and provisions relating to the tax. Section 66 imposed service tax at the rate of 5% of the value of taxable services provided to any person by the person responsible for collecting the service tax. Taxable service was defined in Section 65(1) to include certain services provided by stockbroker, telegraph authority and general insurer. The persons providing the services were liable to recover the tax and pay the same to the Central Government under Section 68 of the Act. The ambit of the levy was widened by the Finance Act, 1997 and Section 65 was substituted so as to include a wide variety of services including under clause (g) services provided to a client by a consulting engineer. A few other services were also covered under the Act. It appears that representations were made against such levy by persons carrying on different profes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act, 1997 and 1998 enacted by Parliament, therefore, suffer from the vice of lack of legislative competence as the Parliament has no power to levy tax on professions. 4.2 The impugned provisions mete out discriminatory treatment inasmuch as the same services being rendered by the non-qualified persons are not subjected to tax, but only the services being rendered by the professionals are subjected to tax. Similar services rendered by non-qualified persons in the field of engineering, architecture and accountancy are not subjected to tax. The classification between qualified persons and non-qualified persons is irrational, discriminatory and violative of Article 14 of the Constitution. 4.3 The levy will cost the client 5% more than what it would cost when the same services are rendered by a non-qualified person who is not covered by the levy. As such the client would prefer such other non-qualified persons. The impugned levy, therefore, violates the freedom of profession guaranteed under Article 19(1)(g) of the Constitution. 4.4 The impugned provisions are even otherwise arbitrary as they adversely affect the carrying on of the profession by engineers, architects an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m as imposed under Article 276(2) of the Constitution. Such tax was, however, on their profession/trade/calling/employment irrespective of the fact whether they were earning any income or not. The Parliament, therefore, decided to tax the services being rendered by professionals and by other trades and calling. Such tax on services is, therefore, absolutely distinct and separate from the tax on profession/trade/ calling/employment. Service tax is an indirect tax which the person carrying on profession/trade/calling can pass on to the person obtaining the services. On the other hand, the tax on profession being levied by the State Legislature under Entry 60 in List II is a direct tax on the person himself. 5.3 The persons qualified and the persons not qualified are two separate classes and, the classification has a rational nexus with the object sought to be achieved. Hence, there is no hostile discrimination. In Addition Advertising v. Union of India, 1998 (98) E.L.T. 14 (Guj.) = 1998 (1) GLR 317, a similar petition filed by the advertising agents challenging the levy of service tax has been dismissed by a Division Bench of this Court and the levy of service tax has been up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists. List II - State List Entry 54 - Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I. Entry 60 - Taxes on professions, trades, callings and employments. Chapter V - Service Tax Section 65. In this Chapter, unless the context otherwise requires, - (5) "architect" means any person whose name is, for the time being, entered in the register of architects maintained under section 23 of the Architects Act, 1972 (20 of 1972) and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture. (13) "consulting engineer" means any 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. (31) "practising chartered accountant" means a person who is a member of the Institute of Chartered Accountants of India and is holding a certificate of practice granted under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed. (2) Notwithstanding anything contained in sub-section (1), in respect of any taxable service notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service. 7. Since the submissions made on behalf of the petitioners are essentially based on certain decisions, we proceed to discuss them first. 7.1 In Currie v. Commissioners of Inland Revenue, (1921) 2 King's Bench Division 332, the Court of Appeal laid down the following definition of the profession :- "Whether a profession is exercised or not.................the fact that the particular man is a member of an organized professional body with a recognized standard of ability enforced before he can enter it and a recognized standard of conduct enforced while he is practising it. I do not for a moment say it settles the matter, but if I were deciding a question of profession I should attach some important (sic) [importance] to that part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haracteristic......... It is the personal skill, intelligence, study, integrity which is the core of a professional activity." The Bombay Shops and Establishments Act required compulsory registration of a commercial establishment where commercial activity is carried on. The Court was called upon to examine the question whether the office of a person carrying on the profession of a lawyer was a commercial establishment. It was in this context that the Court gave a finding that the profession of an advocate is not one which could be said to partake of the character of a commercial activity or commercial transaction. Certain attributes of the profession distinguishing it from business were cited in the judgment. It was pointed out that a lawyer performs functions which are in the nature of regal function and a lawyer is part and parcel of the whole administration of justice. It is not only in his office or in his chamber that a lawyer carries on his profession. A major part of his duty requires him to attend Courts and defend cases of his clients, to attend to other tribunals where permitted and to present his client's interest in several places outside his chamber or office room. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Hence, Entry 60 in the State List conferring power on the State Legislature to tax persons who are carrying on professions, trades, callings and employments must be given most liberal interpretation and the words in the entry must be construed in their widest amplitude. The said entry is broad based and comprehensive. In this case, what was challenged was the notification of the Punjab Government under the Punjab Municipal Act levying tax on every person carrying on a trade, profession, calling or employment in the area subject to the authority of the municipal committee. In pursuance of the notification, certain sums of money were recovered from three plaintiffs-employees of a private limited Company. The plaintiffs filed suits for the refund of the amounts so paid and sought an injunction prohibiting the Municipal Committee from recovering any further tax on the plea that the Municipal Committee had no authority to impose any tax on persons in private employment. The suits as well as the appeals were dismissed. The second appeals were carried to the Punjab High Court. It was in the context of the controversy raised by the plaintiffs who were in employment of a private comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employments which are akin to or in the nature of professions, trades and callings". The Court rejected the contention and upheld the principle laid down by the Punjab High Court in Waliati Ram v. Rupar Municipality, AIR 1960 Punjab 669. The learned Counsel, however, sought to rely on the following sentences in Para 4 of the said judgment : "Employment therefore is also a word of wide import and the object of including this word also in the relevant entry in the Constitution evidently was to bring within the scope of this entry every activity or occupation, in which a person engages in order to earn a livelihood, whether it be trade, business, profession or service. In any case the word "employments" would include service or occupations, in which a person works for another and in which there is relationship of employer and employee. A tax on service, in which the petitioner is employed, could therefore be imposed under entry 60 referred to above." The learned Counsel for the petitioners relied on the underlined sentence to contend that the tax under Entry 60 also included the tax on service. It appears to this Court that the underlined sentence is sought to be quoted o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposed by the Article. The Apex Court also negatived the contention that the professional tax imposed by the Panchayat was a tax on income. The Court observed as under : "A tax on income can be imposed if there is income. A tax on profession can be imposed if a person carries on a profession. Such a tax on profession is irrespective of the question of income." Thus, the Apex Court has clearly laid down that the tax on profession can be imposed if a person carries on a profession and that such a tax is irrespective of the question of income. This clearly means that if the Parliament levies tax on the services rendered by the professional by reference to the gross receipts received by a professional for the services rendered by him, it is not a tax on profession because the professional tax is a tax levied on a person carrying on any profession irrespective of his income. This decision, therefore, far from assisting the petitioners, destroys their argument that tax on profession and the tax on the services rendered by the professional are the same thing. 7.7 The learned Counsel for the petitioners relied on the decision in Bankim Chandra v. District Panchayat Officer, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a tax on entertainment and not a tax on calling. It is, therefore, vehemently submitted by the learned Counsel for the petitioners that since the tax is sought to be levied by the impugned Act only on the services rendered by professionals/engineers/architects/chartered accountants and not on similar services being rendered by others in the field, the tax is levied on the profession and not on the services. This submission is inter-connected with the plea of discrimination and will be considered a little later. 7.9 It was further contended that the Parliament cannot be permitted to have recourse to the residuary Entry 97 in List I unless and until it satisfies the Court that the subject-matter of the legislation in question does not fall in any of the entries in the State list or in the Concurrent List. It was further submitted that the residuary entry is not entitled to the rule of liberal interpretation and wide amplitude. Strong reliance has been placed on the principle laid down by the Apex Court in Vijay Kumar Sharma v. State of Karnataka, (1990) 2 SCC 562 and in Federation of Hotel Restaurant v. Union of India, AIR 1990 SC 1637 for contending that recour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view to determining to which entry they can be substantially related, a slight connection with another entry in another list notwithstanding. Therefore, to find out whether a piece of legislation falls within any entry, its true nature and character must be in respect to that particular entry. The entries must of course receive a large and liberal interpretation because the few words of the entry are intended to confer vast and plenary powers. If, however, no entry in any of the three lists covers it, then it must be regarded as a matter not enumerated in any of the three lists. Then it belongs exclusively to Parliament under Entry 97 of the Union List as a topic of Legislation." It is, therefore, submitted that in the instant case competing entries are Entry 60 in List I and Entry 97 of List I. The entry In the State List must be given a broad and plentiful Interpretation and applying the said rule of Interpretation laid down by the Apex Court, the Court must hold that power of the State Legislature to levy tax on the profession includes the power to levy tax on the services rendered by the professional, since carrying on a profession is nothing but rendering services to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, to expect its contents to be so all embracing as to necessarily specify and deal with every conceivable topic of legislation on all constitutional matters exhaustively, with sufficient particulars, so as to leave no room for doubt as to what could be meant by it - as though a topic of legislation had to be stated, with necessary particulars, like a charge to an accused person - is to expect the humanly impracticable if not the impossible. And, to build an argument founded on the supposed reasonableness of such an expectation and some loosely drafted comprehensive definition of either "constitutional law" or a "Constitution", to convince us that what is not so specified and identifiable as a subject of legislation, given in the Constitution, must be necessarily prohibited at least as a topic of ordinary legislation, although it may become permissible by an amendment of the Constitution, by an addition to it, appears very unrealistic to us. .............The most that could be expected from the human foresight of Constitution-makers is that they should provide for that residual power of legislation which could cover topics on which, consistently with the constitutional framewor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling that the owner/licensee exhibits cinemas. The Apex Court negatived the challenge and held that the impugned tax was not a tax imposed for the privilege of carrying on any trade or calling. It is a tax imposed on every show, that is to say, on every instance of the exercise of the particular trade, calling or employment. If there is no show, there is no tax. A lawyer has to pay a tax or fee to take out a licence irrespective of whether or not he actually practises. That tax is a tax for the privilege of having the right to exercise the profession if and when the person taking out the licence chooses to do so. The impugned tax is a tax on the act of entertainment resulting in a show. 10.2 The decision in Federation of Hotel Restaurant v. Union of India, AIR 1990 SC 1637 is in the same vein. In this case, the challenge was to the levy of tax under the Expenditure Tax Act, 1987 enacted by the Parliament. The Act envisages a tax at 10 per cent ad valorem on 'chargeable expenditure' incurred in the class of Hotels wherein "room-charges" for any unit of residential accommodation are over Rs. 400 per day per individual. The "chargeable-expenditure" included expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers services for remuneration. The tax is thus on the services rendered for remuneration. On the other hand, the professional tax is required to be paid for the privilege of having the right to exercise the profession whether or not the person actually chooses to exercise the profession in a given year or not. The liability to pay professional tax would remain irrespective of the fact whether a person actually renders services or not or whether the services are rendered for remuneration or not. On the other hand, the service tax is to be levied only when the services are rendered by a concerned person for remuneration. The entire edifice of the petitioners' case that the service tax is a tax on the profession must, therefore, fail. Consequently, the reliance on Entry 60 in State List must also fail. There being no other entry in the State List or Concurrent List which could possibly be referred to for the purpose of levying service tax, the legislative competence for enacting this law must be traced to Article 248 read with Entry 97 in the Union List. 12. As regards the challenge levelled by the petitioners on the ground of discrimination that persons possessing qualifications ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bewildering conflict of the experts, and the number of times the judges have been overruled by events - self-limitation can be seen to be the path of judicial wisdom and institutional prestige and stability." 12.3 In the case of Federation of Hotel Restaurant (supra), the Court observed that the basis of classification under the Expenditure Tax Act cannot be said to be arbitrary or unintelligible nor as being without a rational nexus with the object of the law. A hotel where a unit of residential accommodation is priced at over Rs. 400 per day per individual is, in the legislative wisdom, considered a class apart by virtue of the economic superiority of those who might enjoy its custom, comforts and services. This legislative assumption cannot be condemned as irrational. It is equally well recognized that judicial veto is to be exercised only in cases that leave no room for reasonable doubt. Constitutionality is presumed. 13. In the instant case also, it cannot be gainsaid that it is easier for the State to identify the qualified professionals and to tax services being rendered by them as against the difficulty in tracing non-qualified persons rendering services in si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by a qualified professional and the services rendered by a non-qualified person in similar or same filed, the classification is not hit by Article 14. The services per se are not taxed. It is the services rendered by the professional which are taxed. Merely because it is the professional who is required to collect and pay the tax, it does not mean that the tax is on the professional. 15. In view of the above discussion, contention Nos. 3, 4 and 5 must also fail as the Legislature is always held to have wide discretion to choose the objects for taxation, as already held by the Apex Court in Jaipur Hosiery Mills Pvt. Ltd. v. State of Rajasthan (supra) and in State of Gujarat v. Sri Ambika Mills Ltd . (supra). 16. For the aforesaid reasons, there is no merit in any of the contentions raised on behalf of the petitioners and, therefore, the petitions are hereby dismissed. Interim relief stands vacated. Rule is discharged. There shall be no order as to costs. 17. At this stage, the learned Counsel for the petitioners pray that since the interim stay was operating in favour of the petitioners till now and the petitions are dismissed today, the members of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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