Summary
A Chinese state company rendered design engineering and project management services to BALCO between 2003 and 2005 without registering or paying service tax. The CESTAT set aside a demand of Rs 10.42 crore solely on the ground that before the 2005 amendment, which inserted 'any body corporate or any other firm' into Section 65(31) of the Finance Act, 1994, the definition of 'consulting engineer' — 'any professionally qualified engineer or an engineering firm' — did not cover a company. The Supreme Court reversed. The charging and payment provisions speak of every 'person', which under Section 3(42) of the General Clauses Act includes a company; the 1997 trade notice treated public and private companies as engineering firms; and excluding companies while taxing individuals and partnerships rendering identical services would create an absurd classification the legislature never intended.
Issues
- Whether a body corporate rendering engineering consultancy was a 'consulting engineer' under Section 65(31) of the Finance Act, 1994 as it stood before the 2005 amendment expressly added 'any body corporate or any other firm'.
- Whether 'engineering firm' in the unamended definition is confined to a partnership firm by applying noscitur a sociis and the common-parlance meaning of 'firm'.
- How far the rule of strict construction of taxing statutes permits a court to avoid an absurd result, and whether the later amendment indicates that companies were previously outside the net.
Provisions considered
- Section 65(31) (definition of 'consulting engineer'), Section 65(105)(g), Sections 66, 68, 69 and 70, Finance Act, 1994The taxable attribute is that services are rendered in a professional capacity; the charging and compliance provisions place the liability on every 'person' providing taxable service. Read with the scheme, 'engineering firm' includes a company; the respondent was liable to service tax under Section 66 read with Section 68 for the period August 2003 to November 2005. (¶¶ 6, 7, 7.1, 11, 13)
- Section 3(42), General Clauses Act, 1897'Person' includes any company or association or body of individuals, whether incorporated or not; there was therefore no logic in excluding a body corporate from the definition of consulting engineer or exempting its services from tax. (¶ 11)
- Section 65(31) as amended in 2005, Finance Act, 1994Since a body corporate was already within the unamended definition, it was unnecessary to decide whether the amendment adding 'any body corporate or any other firm' was retrospective or clarificatory; the question became academic. (¶¶ 5.1, 6.1, 12)
- Sections 73, 75, 76, 77 and 78, Finance Act, 1994The show cause notice, demand with interest and penalties were issued under these provisions; the matter was remanded to the CESTAT to decide the other grounds in the appeal memo within three months. (¶¶ 2.1, 2.2, 13)
Held
- If companies were excluded, all companies providing engineering advice or consultancy would leave the service tax net while identical services by individuals or partnerships remained taxable; the legislature cannot have intended to create two classes rendering the same service and exempt one. Where the plain literal interpretation produces a manifestly unjust or absurd result never intended, the court may modify the language to achieve the legislative intention (K.P. Varghese, J.H. Gotla), and strict interpretation of a taxing statute does not encompass literalism leading to absurdity (Dilip Kumar). (¶¶ 8, 8.1, 8.2, 8.3, 9)
- The Trade Notice of 04.07.1997 explained that a consulting engineer includes a self-employed professionally qualified engineer or an engineering firm whether organised as a sole proprietorship, partnership, or private or public limited company, showing that it was never the intention to exclude a body corporate. (¶ 10)
- The Karnataka High Court in Tata Consultancy Services and the Calcutta High Court in M.N. Dastur, which analysed the unamended definition in the context of the whole scheme, correctly held that 'firm' in the expression 'engineering firm' was used in its ordinary sense to denote an establishment of engineers and includes a company, there being no intelligible differentia for excluding a company. The later High Court decisions relied on by the assessee arose after the amendment and never examined the original definition. (¶¶ 10.1, 10.2, 10.3, 10.4, 11)
- The CESTAT having decided only the body-corporate question, the matter was remanded for decision of the other grounds in the appeal memo on merits within three months. (¶ 13)
Result
Appeal partly allowed; the CESTAT order of 04.12.2015 quashed, the respondent held liable to service tax as a 'consulting engineer' under Section 65(31) read with Sections 66 and 68 of the Finance Act, 1994, and the appeal remanded to the CESTAT to decide the remaining grounds within three months. No costs.