New Delhi, August 23, 2007
The Supreme Court on Wednesday upheld the Parliament’s legislative competence to levy service tax on chartered accountants, cost accountants and architects.
Rejecting the contention of All India Federation of Tax Practitioners, a bench of Justice SH Kapadia and Justice B Sudershan Reddy said, “Service tax is a tax on each activity undertaken by a chartered accountant, a cost accountant or an architect. For each transaction or a contract, they render professional-based services.”
The bench further observed that although from the point of view from these professionals the activity undertaken by them is based on their performance but, from a client’s perspective, they are service providers. While upholding the Central Government’s law to levy service tax through Finance Act 1994 and 1998 the bench also distinguished between a service tax and a professional tax. Rejecting the appellant’s argument that the word “profession” was synonymous with the word “service,” the bench held that service tax and professional tax were distinct.
Professional tax, according to the court, is a tax on an individual, person, a firm or a company. And, therefore, the state legislature was entitled to levy the same. However, service tax was a tax on the “status of a cost accountant or a chartered accountant.”
“As long as a person remains in the profession, he has to pay professional tax. That tax has nothing to do with the commercial transaction he undertakes for his client. Even if he has no work through the year, still he has to pay professional tax,” the bench said. However, service tax was levied on each contract and same cannot be levied under the Finance Act without service being provided.
The SC’s ruling came on an appeal by All India Federation of Tax Practitioners who challenged a Bombay High Court judgement upholding the legislative competence of the Parliament to levy service tax on these professionals.
Thursday, August 23, 2007
Apex court upholds levy of service tax on CAs, architects
|Plea by federation dismissed|
Parliament has legislative competence to levy service tax
Service tax is a value-added tax
New Delhi: The Supreme Court has upheld the levy of ‘service tax’ on chartered accountants, cost accountants and architects.
“We hold that Parliament has legislative competence to levy service tax by way of the impugned Finance Acts of 1994 and 1998 under Entry 97 of List I on chartered accountants, cost accountants and architects,” said a Bench of Justice S. H. Kapadia and Justice B. Sudershan Reddy dismissing an appeal filed by the All-India Federation of Tax Practitioners.
The Bench said service tax was a value-added tax (VAT), which in turn was both a general tax as well as a destination-based consumption tax levied on services provided within the country.
“Service tax is VAT. Just as excise duty is a tax on value addition on goods, service tax is on value addition by rendition of services,” the bench said.
The Bench categorised services as ‘property-based services’ and ‘performance-based services.’
It said the first category would cover service providers such as architects, interior designers, real estate agents and construction services.
The second category would cover stock brokers, chartered accountants, cost accountants, security agencies, tour operators, event managers and travel agents among others.
The Federation had challenged the Bombay High Court order upholding the legislative competence of Parliament to levy service tax.
The appeal had questioned the competence of Parliament to levy service tax on CAs and architects having regard to Entry 60 List II of the Seventh Schedule to the Constitution and Article 276 of the Constitution.
Dismissing the appeal, the Bench said, “The activity undertaken by the chartered accountant or cost accountant is similar to a saleable or marketable commodities produced by the assessee and cleared by the assessee for home consumption under the Central Excise Act. It is a tax on the status of a cost accountant or a chartered accountant.”
Writing the judgment, Mr. Justice Kapadia said, “Service tax is an economic concept. It has evolved on account of service industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of the Finance Act, 1994, the Central Government derived its authority from the residuary Entry 97 of the Union List [in the Constitution] for levying tax on services.
The legal backup was further provided by the introduction of Article 268 A in the Constitution vide the Constitution (Eighty-eighth Amendment) Act, 2003 which stated that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States.”
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