Indian Institute of Architects vs Union of India

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2001 Supreme(Mad) 546

High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE V.S. SIRPURKAR & THE HONOURABLE MR. JUSTICE A. KULASEKARAN
Indian Institute of Architects - Appellant
Versus
Union of India - Respondents
W.P. Nos. 8539, 345 & 19856 of 2000; 847, 6449 & 7411 of 1999 and 16297, 17833, 17834, 18129 & 20066 of 1998
Decided On : 30 April 2001

Appearing Advocates:Arvind P. Datar, R.Senthilkumar, Chitra Narayan, N. Dhanasekaran, Mohan Parasaran, N. Inbaragam, Meenakshisundaram, B.R. Ramesh Babu, T Susindran, M. Chandrasekaran, Veeraraghavan, Advocates.

Headnote:
SERVICE TAX - CONSTITUTIONAL VALIDITY - LEGISLATIVE COMPETENCE - TAX ON PROFESSION - TAX ON SERVICES - DISTINCTION - ENTRY 60 OF LIST II AND ENTRY 97 OF LIST I - INTERPRETATION - FINANCE ACT, 1994 - SECTIONS 65(48)(P), (S), 66(4), 67(O), (R) - CONSTITUTION OF INDIA, ARTS. 248(1), 276(2).
Fact of the Case:

The petitioners, representing architects and chartered accountants, challenged the constitutional validity of the provisions of the Finance Act, 1994, which brought the services offered by them under the tax net. The tax was levied at a rate of 5% of the value of the taxable service provided to any person by the architects or chartered accountants.
Finding of the Court:

The court held that the impugned provisions were constitutionally valid and that the Parliament had the legislative competence to enact them. The court distinguished between a tax on profession and a tax on services, holding that the former was covered by Entry 60 of List II (State List) while the latter was covered by Entry 97 of List I (Union List). The court further held that the impugned provisions did not offend Art. 14 of the Constitution, as they did not create any arbitrary or discriminatory classification.
Issues: 1. Whether the impugned provisions of the Finance Act, 1994, were beyond the legislative competence of the Parliament? 2. Whether the impugned provisions violated Art. 14 of the Constitution?
Ratio Decidendi: 1. The court held that the impugned provisions were within the legislative competence of the Parliament as they related to a tax on services, which was covered by Entry 97 of List I (Union List). The court distinguished between a tax on profession and a tax on services, holding that the former was covered by Entry 60 of List II (State List) while the latter was covered by Entry 97 of List I (Union List). The court further held that the impugned provisions did not offend Art. 276(2) of the Constitution, as they did not impose a tax on profession. 2. The court held that the impugned provisions did not violate Art. 14 of the Constitution, as they did not create any arbitrary or discriminatory classification.
Final Decision: The court dismissed all the petitions, holding that the impugned provisions were constitutionally valid.

Judgment :-

V.S. SIRPURKAR, J.

This judgment will govern the above writ petitions, which are filed under Art. 226 of the Constitution of India. Out of the above writ petitions, while W.P. No. 8539 of 2000 is filed by the Indian Institute of Architects Association, TamilNadu Chapter on behalf of the Architects in general, who are registered under it as the practicing Architects, rest of the writ petitions pertain to the Chartered Accountants and have been filed by the various representative bodies of which the practising Chartered Accountants are the members since the question involved in identical in all these petitions and they are being disposed of by this common judgment.

2. Shortly stated, the Architects and Chartered Accountants are challenging the constitutional validity of the provisions of Finance Act by which the services offered by the Architects and Chartered Accountants have been brought under the tax-net, which is to be charged at five per cent of the value of the tax able service provided to any person by the Architects or the Chartered Account ants. Sec. 116 of the Finance Act No. 2 of 1998 is in challenge, as amended by Act 32 of 1994, and has first defined the said services and included them in the tax-net. The relevant portions of the Finance Act are as under :

65. Definitions

In this context, unless the context otherwise requires,

(5) "architect" means any person whose name is, for the time being, entered in the register of architects maintained under section 23 of the Architects Act, 1972 (20 of 1972) and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering ser vices in the field of architecture.

(31) 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.

(48) "taxable service" means any service provided,

(p) to a client, by an architect in his professional capacity in any manner;

(s) to a client by a practicing chartered accountant in his professional capacity, in any manner;

The other features of the Act are that the providers of the services, i.e. "architects" and "practising chartered accountants" are assessees under the Act and are responsible for collecting the said tax at the prescribed rate. The relevant section, Sec. 66 (4), reads as follows :

66.Charge of service tax

(4) with effect from the date notified under section 116 of the Finance (No. 2) Act, 1998, there shall be levied a service tax at the rate of five per cent of the value of the taxable services referred to in sub-clause (p), (q), (r), (s), (t), (u), (v), (x), (y) and (z) of clause 48 of section 65 and collected in such manner as may be prescribed.

The said valuation of the "taxable services" is provided in Sec. 67. The relevant provisions are as under :

67.Valuation of taxable services for charging service tax

For the purposes of this Chapter, the value of taxable services.

(o) in relation to the service provided by an architect to a client, shall be the gross amount charged by such architect from the client for services rendered in professional capacity in any manner;

(r) in relation to the service provided by a practising chartered accountant to a client, shall be the gross amount charged by such account ant from the client for services rendered in professional capacity in any manner :

3.The main and the only challenge to the relevant provisions inflicting the tax liability is on the ground of lack of "legislative competence" on the part of the Parliament. According to the petitioners, the "Architects" and "Chartered Accountants" are the "professionals", which professions are governed and con trolled by the separate enactments and, therefore, considering the pith and sub stance of the present enactment, inflicting the tax, it is

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