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TMI Blog2022 (7) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... epublic of China, having its office at SPEC Site Office, Balco Nagar, Korba (C.G), entered into a contract dated 26.04.2003 with M/s. Bharat Aluminium Co. Ltd., Korba (for short, "BALCO") for providing "Design Engineering Services" and "Project Management & Technical Services". In terms of the said agreement, it rendered "Consulting Engineer Services" to M/s BALCO. As per the Revenue, on the services rendered by the respondent as "Consulting Engineer Services", the respondent was liable to pay the service tax. According to the Revenue, neither the respondent was registered under the Service Tax Act nor it paid the service tax on receipt of payments for such services. According to the Revenue, under the contract, taxable service valued at Rs. 1,12,90,53,457/- was already rendered and the payments were made to the respondent by M/s. BALCO, on which service tax liability worked out was Rs. 10,42,71,437/- which was not paid by the respondent. According to the Revenue, it also failed to obtain Service Tax Registration from the department. 2.1 A show cause notice dated 26.05.2006 was issued by the Commissioner of Central Excise, Raipur to the respondent under Section 73 read with Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that it is well settled that while construing taxation statutes, the Courts have to apply the strict rule of construction. It is submitted that strict interpretation does not encompass strict literalism into its fold. This could result in ignoring an important aspect that is "apparent legislative intent". It is submitted that in the case of Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co., (2018) 9 SCC 1 (para 28), this Court has held and observed that 'strict interpretation' does not encompass such literalism, which lead to absurdity and go against the legislative intent. It is submitted that if literalism is at the far end of the spectrum, wherein it accepts no implications or inferences, then strict interpretation can be implied to accept some form of essential inferences which literal rule may not accept. It is submitted that in the aforesaid decision it is further held and reiterated that essential inferences can be read in while construing a taxing statute. 3.3 It is submitted that the definition of the term "Consulting Engineer" has been tested on this principle in the decision of the Karnataka High Court in Tata Consultancy Services v. Union of India, 2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice tax laws, but the same persons forming a company, a different juristic person, a distinct legal entity apart from the shareholders, would be outside the tax net. It is submitted that it is further held that there is no reason as to why a company providing "taxable service" as defined under Section 65 (48)(g) would not be a taxable service, when it would be so when provided by an individual qualified engineer or a proprietorship or partnership firm of engineers. It seems to be little absurd. It is submitted that in the aforesaid two decisions, the respective High Courts have considered in detail the entire scheme of the statute and the context. 3.7 It is submitted that while passing the impugned order, the learned CESTAT has relied upon the decision of the Delhi High Court in the case of CCE v. Simplex Infrastructure & Laundry Works 2014 (34) STR 191 (DEL) which followed an earlier decision of the Karnataka High Court in the case of CST Bangalore v. Turbotech Precision 2010 (18) STR 545. It is submitted that in the case of Turbotech Precision (supra), the High Court followed its earlier decision in the case of Commissioner of Service Tax, Bangalore v. ARACO Corporation, Japa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be so construed, if possible, that absurdity and mischief may be avoided. It is submitted that following the aforesaid decision in the case of Bhag Mal v. Ch. Prabhu Ram, AIR 1985 SC 150 = (1985) 1 SCC 61, it is observed and held by this Court that the plain and literal interpretation of a statutory provision produces a manifestly absurd and unjust result, the Court might modify the language used by the Legislature or even do some violence to it so as to achieve the obvious intention of the Legislature and produce a rational construction. 3.13 Making the above submissions and relying upon the aforesaid decisions of the High Courts in the cases of TCS and M.N. Dastur (supra), it is prayed to allow the present appeal. 4. The present appeal is vehemently opposed by Shri P.K. Sahu, learned Advocate appearing on behalf of the respondent. 4.1 It is vehemently submitted that considering the provisions which was prevailing before the amendment on 01.05.2006 on interpretation of Section 65 (31) of the Finance Act, 1994 and considering the fact that the definition of "consulting engineer" has been subsequently amended from 01.05.2006 to specifically include such services of "any body ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ualified engineers. After the amendment, all other kinds of firms and body corporates were included within the expression "consulting engineer". 4.6 It is further submitted that in India, in common parlance as well as in legal circles, "firm" is understood as partnership firm and not as company. Service tax was introduced in 1994, twenty-seven years back. It is submitted that Black's Law Dictionary, 6th Edition (1990), defines "firm" as "Business entity or enterprise. An unincorporated business. Partnership of two or more persons." 8th Edition (2004) of this dictionary states that traditionally this term has referred to a partnership, but today it frequently refers to a company. 4.7 It is further submitted that Indian legislatures and courts have been using "firm" and "company" as different expressions. In most of the enactments, including Finance Act, 1994, Income Tax Act, 1961, CGST Act, 2017, Companies Act, 2013, the word "person" has been defined in the definitions clause to include "company" and "firm" separately. The service tax law (Finance Act, 1994) has considered firm and company/body corporate as separate entities in several provisions: 65(19b) "business entity" incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this stage, it is required to be noted that post 2005, the definition of "consulting engineer" under Section 65(31) has been amended and now it specifically includes a "body corporate". Therefore, as such, with respect to the proceedings post amendment 2005, there will be no difficulty. After the amendment, any "body corporate", a service provider providing the services as "consulting engineer" is liable to pay the service tax. The only question which remains is, whether under the erstwhile definition of "consulting engineer" under Section 65(31) of the Finance Act, 1994, a "body corporate" providing services as "consulting engineer" was liable to pay the service tax or not? 6. While considering the present issue, the relevant statutory provisions under the Finance Act, 1994 are required to be referred to, which are as under: "Section 65. Definitions - In this Chapter, unless the context otherwise requires: - xxx xxx xxx xxx xxx (31) "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 engine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm and in such manner and at such frequency and with such late fee not exceeding two thousand rupees, for delayed furnishing of return, as may be prescribed. (2) The person or class of persons notified under sub-section (2) of section 69, shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed." 6.1 Definition of "consulting engineer" under Section 65(31), post amendment 2005, reads as under: "Section 65(31) "consulting engineer" means any professionally qualified engineer or any body corporate or any other firm who, either directly or indirectly, renders any service, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering" 6.2 Before it is considered, the effect of the amendment incorporating the words "any body corporate", post 2005, we have to consider whether the original definition of "consulting engineer" under the Finance Act, 1994 may include "any body corporate" or not. 7. Under the Finance Act, 1994, the definition of "consulting engineer" in Section 65(31) covers services provided to a client by a professionally qualified engineer or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention 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. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning." 8.3 In the case of Dilip Kumar and Company (supra), a Constitution Bench of this Court observed and held as under: "i) In interpreting a taxing statute, equitable considerations are entirely out of place; ii) a taxing statute cannot be interpreted on any presumption or assumption; iii) a taxing statute has to be interpreted in the light of what is clearly expressed; iv) it cannot imply anything which is not expressed; It is further observed and held that: v) the "plain meaning rule" suggests that when the language in the statute is plain and unambiguous, the court has to read and understand the plain language as such, and there is no scope for any interpretation; vi) the principle of literal interpretation and the principle of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed in favour of the assessee does not apply to the construction of an exception or an exempting provision, they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State." 9. Applying the law laid down by this Court in the aforesaid decisions on law of interpretation of a taxing statute, it is required to be considered, whether a "body corporate" was excluded from the service tax net under the Finance Act, 1994. 10. At this stage, it is required to be noted that prior to amendment 2005, by Circular/Trade Notice dated 4.7.1997, the definition of "consulting engineer" under the Finance Act, 1994 was specifically explained and as per the said Trade Notice, "consulting engineer" means any professionally qualified engineer or engineering firm who, either directly or indirectly, venders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering. It also further clarified that "consulting engineer" shall include self-employed pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for purposes of levy and collection of the tax immaterial whether the provider of the service is an individual or a juristic person like an incorporated Company. Thus far there is no difficulty. What according to the petitioner makes the all important difference is the definition of the expressions "consulting engineer" and "taxable service" as provided by Section 65(13) and Section 65(48) of the Act. The same may at this stage be extracted for ready reference. "Section 65(13): "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): "taxable service" means any service provided- (g) 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." 7. The argument is that a service provided by a technically qualified person in regard to advice, consultancy or technical assistance in one or more disciplines of engineering is taxable only if the same is provided either by an indiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same. The decision of the Supreme Court in Tirath Singh v. Bachittar Singh (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 enactment, or to some inconvenience or absurdity, hardship or injustice, presumable not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence." 8. Reference may also be made to the decision of the Supreme Court in Commissioner of Income Tax, Bangalore v. J.H. Gotla (AIR 1985 SC 1698), wherein their lordships declared that a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistance 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 partnership concern would continue to remain taxable. The Act does not, in my opinion, envisages any such classification let alone create and perpetuate anomalies that would flow from the same. The view taken by the Additional Commissioner of Central Excise that the petitioner-Company was liable to pay service tax cannot therefore be found fault with." 10.3 A similar controversy arose before the Calcutta High Court in the case of M.N. Dastur (supra). The Calcutta High Court in the said case was also considering the service tax law under the Finance Act, 1994 regime. The question before the Calcutta High Court was as to whether the expression "engineering firm" used in the definition of "consulting engineer" in Section 65(31) of the Finance Act, 1994, Chapter V, relating to service tax includes a company. The aforesaid issue had been considered in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p firm is a compendious method of describing the partners in a partnership firm as was laid down in Mrs. Bacha F. Guzdar, [1955] 27 ITR 1 (SC), Dulichand Laxminarayan, [1956] 29 ITR 535 (SC) and Malabar Fisheries Co., [1979] 120 ITR 49 (SC). It is distinct from a company, a juristic person distinct from its shareholders; whereas a partnership firm comprises the partners and has no separate entity or existence without the partners. According to section 4 of the Partnership Act, 1932, a "firm" means persons entering into partnership with another collectively called a firm, a compendious method of describing the partners in a partnership. The partners own absolute interest in the partnership firm and its assets and properties. The partners and the partnership firm are not distinct and separate entities and are identified with each other. Whereas a company is a juristic person, a distinct and separate entity other than its shareholders. The shareholders by reason of their holding of shares do not hold any interest in the assets and properties of the company. The shareholders' interest is confined to the profits and gains of the company; it does not extend beyond the interest to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here would be no difficulty to include a company when the definition uses the expression "person". Similarly, a "concern" without any qualification can include any business or professional establishment and the "commercial concern" would include all concerns connected with commerce carrying on trade or profession or any kind of commercial activities and includes a company. 13. In the present case, section 65(13) includes an individual professionally qualified as an engineer. This does not seem to be disputed. The definition also includes an engineering firm. According to Dr. Pal, though qualified by the word "engineering", a "firm" is to be understood something distinct from the company. According to him, it clearly means a partnership firm. It may be proprietorship firm but in any event it would be an association of qualified engineers without losing its entity or identity of being a qualified engineer either as an individual or as a partner in the partnership firm or as a person in an association of persons without losing its identity other than a compendious mode of describing themselves without resulting into an entity different from the firm as it would be in the case of a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the definition of "consulting engineer" by creating a class within the class for the purpose of exemption from the liability to pay service tax. When in all classes of assessees as defined in section 65, the whole of the particular class falling within the definition have been made liable, it would be wholly against the scheme, object and purpose of the legislation to exempt a particular class coming within the definition of "consulting engineer". The definitions have been intended to identify a particular class liable to pay service tax. There cannot be any earthly reason to tax all coming within the particular class except one within that class. Nothing seems to appear from the scheme and the context in which the legislation was enacted to make a rational or intelligible differentia to exempt one class within the class. 18. It is inconceivable that a consulting engineer as an individual or constituting a partnership firm or a proprietorship firm would be liable to pay tax under the service tax laws, but the same persons forming a company, a different juristic person, a distinct legal entity apart from the shareholders, would be outside the tax net. We do not find any reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eepathirao, [1958-59] 14 FJR 199; AIR 1958 SC 658, the apex court declared that a definition clause in an enactment must derive its meaning from the context or subject. We find that the word "firm" has been used in section 81 where it was explained in relation to imposition of penalty. It has been used in rule 6 to make a distinction with regard to the manner of payment. This use of the word "firm" in the statute and the rules indicates how it is to be interpreted. It is the responsibility of the court to interpret the word in a manner consonance with the scheme and the object and its purpose as well as the different expressions used in the statute unless a different intention of the Legislature is apparent to impute a different meaning. While fixing the liability on account of breach of the provisions of the statute, a company has been explained to include a partnership firm. According to the scheme of the Act, the tax is leviable on the provider of taxable service. The providing of the taxable service is taxable event. Under section 68, every person providing taxable service is made liable to pay the tax. Thus, it appears that the Legislature had never intended to make any distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of firm, i.e., a business establishment. This again we must note that the Legislature had used the expression "engineering firm". The firm has been qualified by the word "engineering". Therefore, the word "firm" has been used in this particular class of assessee to include all classes of firms dealing with engineering. The word "firm" was not used for the purpose of indicating the constitution of the firm, namely, a proprietorship or partnership, but in order to identify a class of firm providing taxable service within the meaning of section 65(48)(g). 25. In these circumstances, we do not think that there is any deficiency in the definition of "consulting engineer", which could be presumed to have excluded a company providing taxable service defined under section 65(48)(g) when its counterparts comprising an individual or a proprietorship or partnership firm or an association of person are included. From the scheme of the Act, we have not been able to find out any intelligible differentia or rational classification for excluding a company providing taxable service under section 65(48)(g) when its counterparts being individuals or proprietorship or partnership or association of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d against. 27. To support our view, we may borrow the reasoning from the decision of the Karnataka High Court in Tata Consultancy Services, [2002] 257 ITR 710, relying on the decisions in Tirath Singh v. Bachittar Singh, AIR 1955 SC 830 and CIT v. J.H. Gotla, [1985] 156 ITR 323; (1985) 4 SCC 343 : AIR 1985 SC 1698 to support its view, as quoted hereafter (page 715): "There is no distinction under the Ad 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 Ad. Viewed thus, what is taxed by the Act in the case of service provided by consultant engineers is the 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 fad that the service is provided by an individual or a partnership or by a company is wholly inconsequential. It is true that inclusion in the definition of the expression 'consulting engineer' could indude a company to set the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an intelligible differentia or a rational classification between a company and a firm providing taxable service defined under section 65(48)(g) to exclude a company from the tax net when both providing the same taxable service being the taxable event in a statute, which is not meant for providing special provisions for or benefit to a company." 10.4 At this stage, it is required to be noted that all the decisions of some of the High Courts relied upon on behalf of the respondent are of post amendment 2005. In none of the cases, the respective High Courts had an occasion to consider the actual meaning and definition of "consulting engineer" contained in Finance Act, 1994, which directly fell for consideration before the Karnataka and Calcutta High Courts in the cases of TCS (supra) and M.N. Dastur (supra). 11. As observed hereinabove, in many places under the Finance Act, 1994, the Parliament/Legislature has used the word "person" (Sections 68, 69 and 70). At this stage, Section 3(42) of the General Clauses Act, 1897 is also required to be referred to, considered and applied. The word "person" includes any company or association or body of individuals, whether incorporated or not. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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