TATA CONSULTANCY SERVICES Vs. UNION OF INDIA

JUDGEMENT

(1.) IN this petition for a writ of certiorari, the petitioner has called in question the validity of an order dated November 18/ 24, 1999, passed by the Additional Commissioner, Central Excise, Bangalore, demanding payment of service tax and imposing penalties for the defaults committed by the former. A declaration to the effect that the petitioner-company is not a "consulting engineer" within the meaning of Section 65 of the Finance Act, 1994, so as to be liable to pay tax on the "service" provided by it has also been prayed for, besides a certiorari quashing circular dated July 22, 1997, issued by the Ministry of Finance and referred to in Trade Notice No. 78 of 1997, dated July 4, 1997, emanating from the office of the Commissioner of Central Excise, Bangalore.

(2.) THE petitioner-company is a division of Tata Sons Limited engaged in the development of computer software. Upon the introduction of service tax under Chapter V of the Finance Act, 1994, it appears to have applied for and secured registration as a consulting engineer in terms of a certificate dated January 9, 1998. THE Central excise authorities being of the opinion that the petitioner was engaged in providing "taxable service" as a consulting engineer called upon the company to furnish details of the value of the service rendered for the period July 7, 1997, to September 30, 1998. In reply, the company appears to have argued that in terms of a resolution of the Planning Commission published in Gazette of India, Extraordinary, Part I, dated July 25, 1998, service tax was not applicable to computer software development industries. This was followed by another letter dated January 25, 1999, from the petitioner, in which it was contended that since the petitioner was a division of Tata Sons Limited, it did not fall within the purview of the expression "consulting engineer" as defined in Clause (13) of Section 65 of the Finance Act, 1994. THE respondents remained dissatisfied with these explanations resulting in the issue of a summons dated February 7, 1999, by which the petitioner-company was called upon to produce the books of account for verification and determination of the tax liability. While certain books of account appear to have been produced by the petitioner, it stuck to its stand that the company was not liable to pay any service tax. Reliance was also placed by the petitioner upon a notification dated February 28, 1999, in support of the contention that the computer software industries like the petitioner were exempt from payment of service tax and that the exemption granted under the said notification related back to the date the tax was initially levied. THE Additional Commissioner of Central Excise was not impressed with the contentions urged on behalf of the petitioner and upon scrutiny of the invoices produced by the petitioner prima facie came to the conclusion that the petitioner had either suppressed or concealed the value of taxable service with an intent to evade payment of the same. THE petitioner was accordingly called upon to show cause as to why it should not be held liable to pay service tax as a consulting engineer and an amount of Rs. 9,88,379 recovered from it for the period mentioned earlier in terms of Section 68 of the Finance Act, 1994. It was also called upon to show cause why interest at the rate of 5 per cent. per month be not demanded in terms of Section 75 of the Act aforementioned and penalties in terms of Sections 76, 77 and 78 thereof be not levied.

(3.) IN order to appreciate the merits of the contentions urged at the Bar, it is necessary to briefly refer to the provisions of the Act for a clear understanding of the scheme underlying the same. Service tax was for the first time imposed by the Finance Act, 1994. It was initially meant to cover only three types of services, viz., those provided by stock brokers, the telegraph authorities and the insurance companies. By the Finance Act, 1997, Parliament amended certain provisions of the Act and defined "taxable service" under Section 65(48) to include various kinds of services that were not initially included within the tax net. Service provided by a consulting engineer in relation to advice, consultancy or technical assistance was also one such service brought within the tax net. Suffice it to say that Section 66 of the Act as amended from the year, 1997, envisages charging of service tax in respect of different types of services at the rate stipulated therein. IN so far as the service provided by consulting engineers was concerned, it envisages a tax at the rate of 5 per cent. of the "value of taxable service" with effect from the date notified under section 84. Section 67 of the Act provides the basis on which the value of the services has to be determined for purposes of the levy. IN so far as consulting engineers are concerned, Section 67(f) provides that the value of taxable service shall be the gross amount charged by such engineer for advice, consultancy or technical assistance in any manner in one or more disciplines of engineering. Section 68 regulates collection and recovery of service tax and, inter alia, provides that every person providing taxable service to any person shall collect the service tax at the rate specified in Section 66. That provision may at this stage be gainfully extracted :