B.N. Srikrishna, CJ.

This Writ Petition under Art.226 of the Constitution of India impugns the constitutional validity of Service Tax levied under the Finance Act, 1998 (2 of 1998) on taxable service rendered by practising Chartered Accountants.

2. The petitioner is an Association of Chartered Accountants in Kerala registered under the Travancore Cochin Charitable Societies Act, which impugns the service tax levied on its members by reason of Ss.64 to 96 of the Finance Act, 1994, (32 of 1994), as amended by Finance Act, 1998 (2 of 1998).

Background of the levy :

As an off-shot of the recommendations of the Dr. Raja Chelliah Committee in 1990, for the first time, in the Union Budget for 1994-95, a levy of service tax on service relating to three categories, i.e., stock brokers, general insurers and telephone services was imposed. The Raja Chelliah Committee had observed that indirect tax at the Central level should be broadly neutral in relation to production and consumption of goods and should, in course of time, cover commodities and services. It felt that the country should move towards full-fledged Value Added Tax (V. A. T. ) in due course covering services and commodities. It was envisaged that as the central excise on commodities would get gradually transformed into a value added tax at the manufacturing level, service tax will get woven into the system. The Committee, therefore, recommended charging of tax on service as such advertising, insurance, share broking, telecom, etc. to begin with. The purpose of Service Tax is to broaden the tax base, augment revenue and enhance participation of citizens in the economic development of the nation. It was estimated that as much as 40% of the G. D. R was in the service sector had remained unexploited and out of the tax net. Finance Act 2 of 1996 extended the scope of the levy of service tax by covering the services of advertising agencies, courier agencies and pager services. In the Finance Act, 1997, the net was widened further by extending the service tax to twelve more services, viz., Man Power Recruitment Agency, Consulting Engineer, Custom House Agent, Steamer Agent, Mandap Keeper, Air Travel Agent, Clearing and Forwarding Agent,' Rent-a-cab Operators, Tour Operators, Goods Transport Operators, Outdoor Caterers and Pandal or Shamiana Contractors. In the Finance Act 2 of 1998, twelve more services, viz. , Architects, Interior Decorators, Management Consultants, Real Estate Agents, Practising Chartered Accountants, Practising Cost Accountants, Market Research Agencies, Underwriters and Mechanised Slaughter Houses were included in the tax net. At the same time, there services, namely, Outdoor Caterers, Pandal or Shamiana Contractors and Goods Transport Operators were deleted. The Finance Act, 1999 did not extend the scope of levy of service tax to any new category of services. Even in the Union Budget 2000-01, the Finance Minister declared that no change would be required at present as an expert group has been set up to go into all aspects of the matter, review the experience so far and make a report and advice the Finance Ministry. An expert group under the Chairmanship of Dr. M. Govinda Rao is seized of the issue and examining its ramification in great details.

Legal provisions of the levy :

3. To understand the contentions urged at the Bar, it would be necessary to look at some of the provisions of the Finance Act. Chapter V of the Finance Act, 1994, as amended by the Finance Act of 1998, deals with the subject of "Service Tax". S.65(31) defines the expression "practising Chartered Accountant' as under: "practising Chartered Accountant means a person who is a member of the Institute of Chartered Accountants of India and is holding a certificate of practice granted under the provisions of the Chartered Accountants Act, 1949 (38 of 1949) and includes any concern engaged in rendering services in the field of Chartered Accountancy".

The expression "taxable service", in rela