TMI Blog2004 (7) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Consulting Engineers, which is defined under Clause 18 of Section 65 of the Act and it m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption 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, by a qualified engineer or an engineering firm. 3. Section 64UM of the Insurance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 such misconduct on the part of the appellant/company and hence the maximum penalty could not have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned 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 in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Wealth-tax Act, 1957 . (4) (1991) 191 ITR 370 (Kerala) (Commissioner of Wealth Tax v. Mulam Club) wherein the Division Bench of Kerala High Court has held as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 State. Section 10 is therefore designed to ensure speedy and final determination of fiscal matters within a reasonably certain time schedule. If the legislature wilfully omits to incorporate something of an analogous law in a subsequent statute, or even if there is a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 purpose of charging the service tax under the Act. Learned Counsel for the appellant propounded two propositions, namely, the consulting engineer as defined under clause 18 of Section 65 of the Act cannot be interpreted so as to include a company and secondly the Court cannot add anything in the definition which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 should be slow to pronounce the legislature to have been mistaken in its constantly 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 courts to take into account of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility, and should rather accept the bolder construction, based on the view that Parliament would legislate only for the purpose of bringing about an effective result. (4) 1998 (8) SCC Page 1 relevant page 12 in Para 28 (Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and Others) wherein the Hon ble Supreme Court has observed as under : Para 28. Now, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Act. He further contended that the Court cannot add or substitute what has been deliberately left out by the legislature in the definition clause of the consulting engineer. He also contended that the decisions relied upon by the learned Counsel for the respondents have no application to the facts and circumstances of the case at hand. 10. Having heard the submissions on both sides at a considerable length and having carefully perused the relevant case papers including the impugned judgment of the learned Single Judge, in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 is fairly well-settled that where the language of a statute in its ordinary meaning leads to a manifest anomaly or contradiction, the court is entitled to put upon it a construction which modifies the meaning of the words used in the same. The decision of the Supreme Court in Tirath Singh v. Batchittar Singh and Others (AIR 1955 SC 830), where the Court made the following observations is apposite :- Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pur 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 instant case. There is, in my opinion, nothing repugnant in the subject or context of the Act, which should prevent the inclusion of a company for purposes of levy of service tax on any advice, consultancy or technical assistance provided by it to its clients in regard to one or more disciplines of engineering. Indeed, if the argument advanced on behalf of the petitioner is accepted, it would remove all companies providing technical services, advice or consultancy to their clients from the tax net while any such services rendered by an individual or a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and thereby it means that the person who is required to collect the service tax or to pay the same. It is to be seen therefore, from the provisions contained in the Finance Act, the charge of tax is on the person who is responsible for collecting the service tax namely the assessee. It is he, who by virtue of the provisions of Section 65(7) is regarded as assessee. He is the person who provides the service. Section 68(1) prescribes that every person providing taxable service to any person shall pay service tax at the rate specified in Section 66 in such manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 client in one or more disciplines of engineering. This is in the nature of an exclusive clause in the sense that the person must be an engineer who has attained the requisite qualification by undergoing a systematic study in a professional college or institute and has obtained a recognized degree or diploma. The self-styled engineers who have no recognized professional qualifications cannot be treated as consulting engineer within the meaning of the service tax provisions even though they may be engaged in consultancy work based on their work, experience or expertise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 whether organised or a sole proprietorship, partnership, a private or a public limited company vide clause 6.2 which is found at paperbook page 113. By this trade notice nothing new is sought to be brought out or added to the definition clause of the consulting engineer as defined under Section 65(18) of the Act, but it is only in the nature of a clarification issued by the department to the already existing definition clause of consulting engineers for the benefit and guidance of the service provider namely the consulting engineer. Even in the absence of any such clari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conjunction with S.24(2) for the purpose in question. If the purpose of a particular provision is easily discernible from the whole scheme of the Act which in this case is, to counteract, the effect of the transfer of assets so far as computation of income of the assessee is concerned then bearing that purpose in mind, the intention must be found out from the language used by the Legislature and if strict literal construction leads to an absurd result i.e. result not intended to be sub-served by the object of the legislation then if other construction is possible ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 engineer. As we have already indicated harmonious construction of Section 66(3) and Section 65(72)(g) of the Act would show that the service rendered by consulting engineer to his client is chargeable to service tax and the definition clause of consulting engineer contained in Section 65(18) of the Act would only say that it is only the professional engineers having requisite qualification whether rendering service individually or collectively shall only be liable and not the other self-styled engineers who on account of their experience or engineers who are not independently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 together, it is quite clear that the legislature intended to bring his taxable service rendered by the consulting engineer within the ambit of the service tax but at the same time as we have already indicated, it has taken care to see that only the professionally qualified engineers who are rendering such service either individually or collectively and not the self- styled engineers who have no recognised professional qualifications shall be liable to pay service tax. The term firm in the present context would mean more than one or a group of engineers or a business house c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 firm must be taken as a term used to describe the association of persons who are having the common interest of running a business or profession. The use of the adjective engineering only emphasizes the requirement that the firm must be engaged in the engineering line. The members comprising such an association need not necessarily be professionally qualified engineers, since no such stipulation has been specified in the definition. An engineering firm could be in the form of sole proprietorship, partnership, private company or a public limited company and it could even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is a charging section. Now so far as taxable service is concerned, it is defined under Section 65(72) and it means 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 and the term service provider shall be construed accordingly. There could be no dispute that the appellant/company which is a consultancy service is a service provider. That is to say, the appellant is a person providing taxable service to its clients. Insofar as the word person is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant 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 Courts to have a functional approach and look into the legislative intention and sometimes it may be even necessary to go behind the words and enactment and take other factors into consideration to give effect to the legislative intention and to the purpose and spirit of the enactment so that no absurdity or practical inconvenience may result and the legislative exercise and its scope and object may not become futile. In this connection, a reference may be made to a decision reported in 1940 ALL ENGLAND LAW REPORT ANNOTATED Page 549 in the case of Nokes v. Doncaster Amalgam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 cannot be kept out of the ambit of the service tax. Although it is normally presumed that the legislature will be specially precise and careful in its choice of language in a definition section, at times the language used in such a section itself requires interpretation. It has to be pointed out that a phrase having been introduced and then defined, the definition prima facie must entirely determine the application of the phrase; but the definition must itself be interpreted before it is applied, and interpreted, in case of doubt in a sense appropriate to the phrase defined and to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 938 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 business of insurance , and the contention before the Supreme Court was that Sections 33(1) and 2D did not apply to an insurer who had closed his business completely as the definition of the word insurer in Section 2(9) postulates actual carrying on of the business. Rejecting the above contention the Court pointed out that in the context of Sections 33(1) and 2D and taking into account the policy of the act and the purposes for which the control envisaged by the Act was imposed on insurers , the word Insurer in the said sections also refers to insurers who were carrying on the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently. 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 full knowledge had flouted the law. The relevant observations made in this regard by the said authority in its impugned order which is found at appeal paperbook page 108 and internal page 12 reads thus : Further, it is observed from the invoices that during 7/98 they have charged service tax on some of their clients, however, they have not remitted the same to Government Credit. Though they started charging service tax during 7/98 itself, they have approached the Department of registration only during 11/98. This shows their negligence in following the statutory obligation cast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 19. Therefore, having given our anxious consideration to the entire matter in` issue and having considered all the factual as well as the legal aspects of the case, in the light of the decisions referred to by the learned Counsel on either side, we are of the clear view that the findings recorded by the learned Single Judge and the conclusions arrived at, are quite proper and correct and they do not suffer from any such error or illegality so as to call for interference in the appeal. We have carefully gone through all the decisions relied upon by the learned Counsel for the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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