Dr. vs Shanmughavel v. Commissioner of Central Excise

Sirpurkar, J.

W.P. No. 7273 of 1998 has been filed by the Chairman, Institution of Valuers, Tamil Nadu 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 u/s 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, Chennai, by its letter dated 1-5-1998 informed the Chairman of the Institution of Valuers that as per sub-clause

(g) of clause (48) of section 65 of the Finance Act, 1994 (hereinafter referred to as ''the Act'') 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 then 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 of

1997 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 u/s 34AB would not be covered by the provisions of the Finance Act which came to be made applicable by

section 88, Chapter VI of 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 consulting 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 Act. Section 65(13) is the definition clause, defining the term

''consultancy engineer'', it reads as follows :

(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)(g) defines the term ''taxable service'' in case of a ''consulting engineer'' as under :

(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.

Section 66(3) is the ''charging section'' which suggests that on and from 16-7-1997, 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 clause (f) defines the value of the ''taxable

services'' of a ''consulting engineer'' as under :

(f) 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 an assessee

before any wealth-tax authority or the 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 :

34AB. Registration of valuers.(1) The Chief Commissioner or 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

prescribed 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 value;

(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 be deemed to be the

''consulting engineers'' under the provisions of section 65(f). On this backdrop, 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 for being a ''registered

valuer'', a person has to have certain specific qualifications. Rule 8A 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 plantations, tea plantations, rubber plantations or cardamom plantations;

(iv) valuer of forests; (v) valuer of mines and quarries; (vi) valuer of stocks, shares, debentures, 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 prescribed for these two categories of valuers.

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

8A. Qualifications for registered valuers.(1)** ** **

(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 from 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 ten 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

(c) architectural or structural designing of buildings or town planning; or

(d) construction of buildings or development of lands;

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 from a recognised university, or possesses 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 be a person formerly employed-

(a) in a post under the 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 services 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 fora period of not less

than ten years; or

(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 ''registered valuer'' if he fulfils the conditions in rule 8A(2)(ii).

Sub-rule (c) of rule 8A(2)(i)(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 surveying 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.

Insofar as rule 8A(8) is concerned, it will be seen that a ''register valuer'' of plant and machinery must be a graduate in mechanical or electrical

engineering and must have held a gazetted post under the 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 at least 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 of wealth-tax. The learned counsel submits that

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. Chandrasekaran, however, points out that insofar as the ''registered valuers'' of machinery and

plant are concerned, there can be no dispute that such persons are evaluating 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 an 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 already 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 insofar, as the case of the valuers of plant and machinery is concerned,

there has to be advice, consultancy service or technical assistance in the subjects completely connected with the engineering. 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 a ''consulting

engineer''.

Now we take up the case of ''registered valuer'' of immovable property. The 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. The 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

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 be registered under the Finance Act. The Assistant Commissioner, Service Tax Cell, by his reply, dated 28-8-1997

specifically pointed out that the services offered by every consulting engineer comes within the purview of service tax and, therefore, it was

necessary for the members of the petitioner-institute to be registered. 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 estop the respondent from pleading that the services offered by an engineer

in the capacity of a ''valuer'' come under the category of ''taxable services''.

The learned counsel for the respondent has pointed out that by a subsequent letter dated 1-5-1998 written to the Chairman, Institute of

Valuers, Tamil Nadu 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 full

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 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 points out that this letter dated 1-5-1998 was accompanied by a Service Tax Notice No. 13 of

1997, 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 :

A.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, here

italicised in print, 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 at least 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) 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''s 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 advice in their capacity as the ''registered

valuers'' of immovable property or plant and machinery cannot be brought into the tax net u/s 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.

WP. 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 services. After giving the brief history of the provisions of 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). 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(1)(g) of the Constitution. Considering the petition

generally, though we were never addressed by the learned counsel, we feel that there is ''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. 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 Constitution and 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 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 argument is that while the other professionals are not taxed, the ''consulting engineers'' are taxed

and, therefore, it is arbitrary. The argument is clearly untenable 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.