Supreme Court of India
COMMISSIONER OF CENTRAL EXCISE, RAIPURversusM/S SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION
- Citation
- 2022 INSC 679
- Decided
- 11 July 2022
- Disposal
- Case Partly allowed
- Bench
- M R SHAH
Holding
Even before the 2005 amendment, the term “consulting engineer” under Section 65(31) of the Finance Act, 1994, includes a body corporate, rendering the respondent liable to pay service tax.
Summary
The Supreme Court examined whether the definition of “consulting engineer” in Section 65(31) of the Finance Act, 1994, before its 2005 amendment, covered a body corporate. The CESTAT had held that it did not, thereby exempting M/s Sepco Electric Power Construction Corp. from service tax. Relying on a 1997 circular and the definition of “person” in the General Clauses Act, the Court held that the term already included a body corporate, making the respondent liable for service tax. The Court also noted that the CESTAT had considered only this issue and ignored other grounds raised in the appeal. Consequently, the appeal was partly allowed, the CESTAT order was set aside, and the matter was remanded to the CESTAT to decide the appeal on all grounds.
Issues considered
- Whether the pre‑2005 definition of “consulting engineer” under Section 65(31) of the Finance Act, 1994, includes a body corporate.
- Whether the 2005 amendment adding “body corporate” is retrospective or merely clarificatory.
- Whether the CESTAT erred by deciding only the issue of the definition and not the other grounds raised in the appeal.
Legislation cited
- Finance Act, 1994s. 105, s. 65(31), s. 66, s. 68, s. 69, s. 70
- General Clauses Act, 1897s. 3(42)
Subjects
service taxconsulting engineerbody corporateFinance Act 1994statutory interpretationGeneral Clauses ActCESTATtaxabilityamendment
Judgment
[2022] 17 S.C.R. 1 1
COMMISSIONER OF CENTRAL EXCISE, RAIPUR A
v.
M/S SEPCO ELECTRIC POWER CONSTRUCTION
CORPORATION
(Civil Appeal No.4928 of 2018) B
JULY 11, 2022
[M. R. SHAH AND SANJIV KHANNA, JJ.]
Finance Act, 1994: s.65(31) – Service Tax – Definition of
“consulting engineer” u/s. 65(31) of the Act – Whether ‘body
C
corporate’ is covered within its sweep prior to 2005 amendment –
Held: Even before the 2005 amendment, the term ‘consulting
engineer’ included “body corporate” – Even in s.3(42) of the General
Clauses Act, 1897, the word “person” includes any company or
association or body of individuals, whether incorporated or not –
Therefore, there is no logic and/or reason to exclude a” body D
corporate” from the definition of “consulting engineer” and to
exclude the services of a “consulting engineer” rendered by a “body
corporate” to exclude and/or exempt from the service tax net – Such
an interpretation would lead to anomaly and absurdity – It will create
two different classes providing the same services which could not
E
be the intention of the Parliament/Legislature – General Clauses
Act, 1897 – s.3(42).
Partly allowing the appeal and remitting the matter to
CESTAT, the Court
HELD : 1.1. Prior to amendment 2005, by Circular/Trade F
Notice dated 4.7.1997, the definition of “consulting engineer”
under the Finance Act, 1994 was specifically explained and as
per the said Trade Notice, “consulting engineer” means any
professionally qualified engineer or engineering firm who, either
directly or indirectly, venders any advice, consultancy or technical
assistance in any manner to a client in one or more disciplines of G
engineering. It also further clarified that “consulting engineer”
shall include self-employed professionally qualified engineer who
may or may not have employed others to assist him or it could an
engineering firm – whether organised as a sole proprietorship –
partnership, a private or a Public Ltd. company. It can be seen H
1
2 SUPREME COURT REPORTS [2022] 17 S.C.R.
A that it was never the intention of the legislation to exclude a “body
corporate” from the definition of “consulting engineer” and from
the “service tax net”. [Para10][18-A-C]
1.2 In many places under the Finance Act, 1994, the
Parliament/Legislature has used the word “person” (Sections 68,
B 69 and 70). At this stage, Section 3(42) of the General Clauses
Act, 1897 is also required to be referred to, considered and
applied. The word “person” includes any company or association
or body of individuals, whether incorporated or not. Therefore,
there is no logic and/or reason to exclude a” body corporate”
from the definition of “consulting engineer” and to exclude the
C services of a “consulting engineer” rendered by a “body
corporate” to exclude and/or exempt from the service tax net.
Such an interpretation would lead to anomaly and absurdity. It
will create two different classes providing the same services which
could not be the intention of the Parliament/Legislature. [Para
D 11][33-F-H]
1.3 Under the Finance Act, 1994, in the definition of
“consulting engineer”, a “body corporate” is included and/or to
be read into so as to bring a “body corporate” being a service
provider providing the consultancy engineering services within
E the service tax net, as such, it is not necessary to consider whether
the subsequent amendment amending the definition of “consulting
engineer” by way of 2005 amendment adding a “body corporate”
within the definition of “consulting engineer” would be
retrospective and/or whether it can be said to be a clarificatory in
nature or not and the said issue would become academic now.
F [Para 12][34-B-D]
1.4 The respondent, being a service provider providing
consultancy engineering services, was/is liable to pay the service
tax for such services being “consulting engineer” within the
definition of Section 65(31) of the Finance Act, 1994 and therefore
G and thereby liable to pay the service tax under Section 66 r/w
Section 68 of the Finance Act, 1994. However, from the impugned
judgment and order passed by the CESTAT, it appears that the
CESTAT has considered only one issue namely whether for the
period pre 01.05.2006 – the Finance Bill, 2006 whether “body
H corporate” was covered within the definition of “consulting
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 3
ELECTRIC POWER CONST. CORP.
engineer” under Section 65(31) of the Finance Act, 1994 and had A
not considered any other issues/grounds raised in the Memo of
Appeal before the CESTAT. Therefore, the matter is remanded
to the CESTAT to examine and decide the appeal on other
grounds. [Para 13][34-D-G]
Commissioner of Customs (Import), Mumbai v. Dilip Kumar B
& Co., (2018) 9 SCC 1: [2018] 7 SCR 1191 – followed.
Commissioner of Income Tax, Bangalore v. J.H. Gotla,
Yadagiri, (1985) 4 SCC 343 : [1985] 2 Suppl. SCR 711;
K.P. Varghese v. Income Tax Officer, Ernakulam (1981)
4 SCC 173 : [1982] 1 SCR 629 – relied on. C
TCS v. Union of India 2016 (44) STR 33 (KAR);
M.N. Dastur Ltd. v. Union of India 2006 (4) STR (3)
CAL – approved.
CCE v. Simplex Infrastructure & Laundry Works 2014
(34) STR 191 (DEL), ST Bangalore v. Turbotech D
Precision 2010 (18) STR 545, Commissioner of Service
Tax, Bangalore v. ARACO Corporation, Japan 2010
SCC OnLine KAR 5448, Commissioner, Central Excise
& Customs, Kerala v. Larsen & Toubro Limited, (2016)
1 SCC 170 : [2015] 8 SCR 1046, Motipur Zamindari E
Co. Ltd. v. State of Bihar, AIR 1953 SC 320 : [1953]
SCR 720; Vanguard Fire & General Insurance Co. Ltd.,
Madras v. Fraser and Ross, AIR 1960 SC 971: [1960]
SCR 857; Bhag Mal v. Ch. Prabhu Ram, (1985) 1 SCC
61 : [1985] 1 SCR 1099; Pappu Sweets and Biscuits v.
Commissioner of Trade Tax, U.P, Lucknow (1998) 7 F
SCC 228 : [1998] 2 Suppl. SCR 119; Gem Granites v.
CIT, T.N., (2005) 1 SCC 289 : [2004] 6 Suppl. SCR
332; CIT v. Century Spinning and Manufacturing Co.
Ltd. (1953) 24 ITR 499, Vazir Sultan Tobacco Co. Ltd.
v. CIT, A.P., Hyderabad, (1981) 4 SCC 435 : [1982] 1 G
SCR 789; CIT v. Vatika Township Private Limited, (2015)
1 SCC 1 : [2014] 12 SCR 1037; Tata Consultancy
Services v. Union of India, 2001 (130) ELT 726; M.N.
Dastur Limited v. Union of India, 2006 (2) STR 532
CAL – referred to.
H
4 SUPREME COURT REPORTS [2022] 17 S.C.R.
A Case law reference
[1982] 1 SCR 629 relied on Para 8.1
[1985] 2 Suppl. SCR 711 relied on Para 8.2
[2018] 7 SCR 1191 followed Para 8.3
B [2015] 8 SCR 1046 referred to Para 3.7
[1953] SCR 720 referred to Para 3.10
[1960] SCR 857 referred to Para 3.11
[1985] 1 SCR 1099 referred to Para 3.12
C
[1998] 2 Suppl. SCR 119 referred to Para 4.2
[2004] 6 Suppl. SCR 332 referred to Para 4.2
[1982] 1 SCR 789 referred to Para 4.8
[2014] 12 SCR 1037 referred to Para 4.9
D
CIVIL APPELLATE JURISDICTION : Civil Appeal No.4928
of 2018.
From the Judgment and Order dated 04.12.2015 in Order No.STA/
53723/2015-CU(DB) of the CESTAT, New Delhi in Appeal No.ST/136/
2007.
E
Balbir Singh, ASG, Ms. Nisha Bagchi, Shyam Gopal, Amit Sharma,
Adit Khorana, Arvind Kumar Sharma, Mukesh Kumar Maroria, Advs.
for the Appellant.
P. K. Sahu, Kedar Nath Tripathy, Advs. for the Respondent.
F The Judgment of the Court was delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 04.12.2015 passed by the Customs, Excise & Service
G Tax Appellate Tribunal, Principal Bench, West Block No.2, R.K. Puram,
New Delhi (hereinafter referred to as the ‘CESTAT) in Appeal No. ST/
136/2007, by which the learned CESTAT has allowed the said appeal
preferred by the respondent herein and has set aside the demand towards
the service tax by holding that the services rendered by the respondent
– “Consulting Engineer Service” were not subjected to service tax, the
H Revenue has preferred the present appeal.
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 5
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
2. That the respondent herein – M/s Sepco Electric Power A
Construction Corporation is a Government of China company
incorporated in the Republic of China, having its office at SPEC Site
Office, Balco Nagar, Korba (C.G), entered into a contract dated
26.04.2003 with M/s. Bharat Aluminium Co. Ltd., Korba (for short,
“BALCO”) for providing “Design Engineering Services” and “Project
B
Management & Technical Services”. In terms of the said agreement, it
rendered “Consulting Engineer Services” to M/s BALCO. As per the
Revenue, on the services rendered by the respondent as “Consulting
Engineer Services”, the respondent was liable to pay the service tax.
According to the Revenue, neither the respondent was registered under
the Service Tax Act nor it paid the service tax on receipt of payments C
for such services. According to the Revenue, under the contract, taxable
service valued at Rs. 1,12,90,53,457/- was already rendered and the
payments were made to the respondent by M/s. BALCO, on which
service tax liability worked out was Rs. 10,42,71,437/- which was not
paid by the respondent. According to the Revenue, it also failed to obtain
D
Service Tax Registration from the department.
2.1 A show cause notice dated 26.05.2006 was issued by the
Commissioner of Central Excise, Raipur to the respondent under Section
73 read with Sections 65, 66 and 68 of the Finance Act, 1994 demanding
the service tax along with interest under Section 75 and for imposition of
penalty under Sections 76 & 77 of the Finance Act, 1994. E
2.2 The Commissioner of Central Excise, Raipur vide Order-in-
Original dated 31.01.2007 confirmed the demand of service tax amounting
to Rs.10,42,71,437/- and ordered for its recovery along with interest.
The Commissioner also imposed penalty amounting to the same amount
under Section 78 of the Finance Act, 1994, besides imposing penalty of F
Rs. 150/-per day under Section 76 and Rs.1000/- under Section 77 of
the Finance Act, 1994.
2.3 Feeling aggrieved and dissatisfied with the Order-in-Original
dated 31.01.2007, the respondent preferred an appeal before the
CESTAT, New Delhi bearing Appeal No. ST/136/2007. G
2.4 By the impugned judgment and order, the CESTAT has allowed
the said appeal setting aside the demand of service tax by holding that
during the relevant period of dispute, namely, August, 2003 to November,
2005, the respondent being a body corporate was not covered under the
H
6 SUPREME COURT REPORTS [2022] 17 S.C.R.
A definition of “Consulting Engineer”. Solely on the aforesaid ground, the
CESTAT has set aside the demand.
2.5 Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the learned CESTAT in setting aside the demand by
holding that during the relevant period the respondent being a body
B corporate was not covered under the definition of “Consulting Engineer”,
the Revenue has preferred the present appeal.
3. Shri Balbir Singh, learned Additional Solicitor General of India
has appeared on behalf of the Revenue and Shri P.K. Sahu, learned
Advocate has appeared on behalf of the respondent.
C 3.1 Shri Balbir Singh, learned ASG appearing on behalf of the
Revenue has submitted that the issue involved in the present appeal
relates to the scope of the definition of “Consulting Engineer” under
Section 65 (31) of the Finance Act, 1994, specifically as to whether a
“body corporate” is covered within its sweep prior to the amendment in
D 2005. It is submitted that the definition of “Consulting Engineers” in
Section 65 (31) covers services provided to a client by a professionally
qualified engineer or an Engineering firm consisting of professionally
qualified engineers. It is submitted that the taxable attribute is that the
services must be rendered in a professional capacity.
E 3.2 It is submitted that it is well settled that while construing taxation
statutes, the Courts have to apply the strict rule of construction. It is
submitted that strict interpretation does not encompass strict literalism
into its fold. This could result in ignoring an important aspect that is
“apparent legislative intent”. It is submitted that in the case of
Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co.,
F (2018) 9 SCC 1 (para 28), this Court has held and observed that ‘strict
interpretation’ does not encompass such literalism, which lead to absurdity
and go against the legislative intent. It is submitted that if literalism is at
the far end of the spectrum, wherein it accepts no implications or
inferences, then strict interpretation can be implied to accept some form
G of essential inferences which literal rule may not accept. It is submitted
that in the aforesaid decision it is further held and reiterated that essential
inferences can be read in while construing a taxing statute.
3.3 It is submitted that the definition of the term “Consulting
Engineer” has been tested on this principle in the decision of the Karnataka
High Court in Tata Consultancy Services v. Union of India, 2001
H
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 7
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
(130) ELT 726. It is submitted that the High Court proceeded on the A
principle that it is fairly well settled that where the language of a statute
in its ordinary meaning leads to a manifest anomaly or contradiction, the
Court is entitled to put upon it a construction which modifies the meaning
of the words used in the same. It is submitted that thereafter in para 11,
it is observed and held as under:
B
“The position is no different in the instant case. There is, in my
opinion, nothing repugnant in the subject or context of the Act,
which should prevent the inclusion of a Company for purposes of
levy of service tax on any advice, consultancy or technical
assistance provided by it to its clients in regard to one or more
disciplines of engineering. Indeed, if the argument advanced on C
behalf of the petitioner is accepted, it would remove all companies
providing technical services, advice or consultancy to their clients
from the tax net while any such services rendered by an individual
or a partnership concern would continue to remain taxable. The
Act does not, in my opinion, envisage any such classification let D
alone create and perpetuate anomalies that would flow from the
same. The view taken by the Additional Commissioner of Central
Excise that the petitioner-company was liable to pay service tax
cannot therefore be found fault with.”
3.4 It is submitted that the aforesaid decision of the Karnataka E
High Court in the case of Tata Consultancy Services (supra) was
followed by the Calcutta High Court in the case of M.N. Dastur Limited
v. Union of India, 2006 (2) STR 532 CAL. It is further submitted that
the aforesaid two decisions have been subsequently affirmed by the
Division Benches of the respective High Courts.
F
3.5 It is submitted that in the case of TCS v. Union of India
2016 (44) STR 33 (KAR), it was held that the intention of the legislature
is to bring within the ambit of the service tax, the “consulting engineer”
and so long as the person is a consulting engineer, whether it be an
individual, firm or even a company, they come under the ambit of
“consulting engineer”. G
3.6 It is submitted that in the case of M.N. Dastur Ltd. v. Union
of India 2006 (4) STR (3) CAL, itwasinter alia held that it is
inconceivable that a “consulting engineer” as an individual or constituting
a partnership firm or a proprietorship firm would be liable to pay tax
under the service tax laws, but the same persons forming a company, a H
8 SUPREME COURT REPORTS [2022] 17 S.C.R.
A different juristic person, a distinct legal entity apart from the shareholders,
would be outside the tax net. It is submitted that it is further held that
there is no reason as to why a company providing “taxable service” as
defined under Section 65 (48)(g) would not be a taxable service, when it
would be so when provided by an individual qualified engineer or a
proprietorship or partnership firm of engineers. It seems to be little absurd.
B
It is submitted that in the aforesaid two decisions, the respective High
Courts have considered in detail the entire scheme of the statute and the
context.
3.7 It is submitted that while passing the impugned order, the learned
CESTAT has relied upon the decision of the Delhi High Court in the
C case of CCE v. Simplex Infrastructure & Laundry Works 2014 (34)
STR 191 (DEL) which followed an earlier decision of the Karnataka
High Court in the case of CST Bangalore v. Turbotech Precision 2010
(18) STR 545. It is submitted that in the case of Turbotech Precision
(supra), the High Court followed its earlier decision in the case of
D Commissioner of Service Tax, Bangalore v. ARACO Corporation,
Japan 2010 SCC OnLine KAR 5448. It is submitted that both these
decisions contain no reasoning or any reference to the earlier binding
decisions of a Co-ordinate Bench in the cases of TCS (supra) and
M.N. Dastur (supra). It is submitted that in fact the department had
filed appeals to this Court against the decisions in Turbotech Precision
E (supra) and Simplex Infrastructure (supra) being Civil Appeal Nos.
6429/2015 and 6430/2015 respectively. However, the same have been
dismissed on separate issue of taxability of works contract in
Commissioner, Central Excise & Customs, Kerala v. Larsen &
Toubro Limited, (2016) 1 SCC 170.
F 3.8 It is further submitted that in the present dispute, the learned
Tribunal has not at all applied its mind though it noted that it would require
consideration of the contracts, to the aspect of works contract. Therefore,
the said decision has no application to the present case.
3.9 It is further submitted that the amendment of 2005 was purely
G clarificatory in intent and purpose and the substitution of the words
“engineering firm” with the words “any body corporate or any other
firm” is only a clarification. The amendment did not aim at inclusion of
the term “body corporate” simpliciter.
3.10 Relying upon the decision of this Court in the case of Motipur
H ZamindariCo. Ltd. v. State of Bihar, AIR 1953 SC 320, it is
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 9
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
further submitted by Shri Balbir Singh, learned ASG that it is observed A
and held by this Court that there is no reason to differentiate between an
individual proprietor and a company which owns estates or tenures.
3.11 Relying upon the decision of this Court in the case of
Vanguard Fire & General Insurance Co. Ltd., Madras v. Fraser
and Ross, AIR 1960 SC 971, it is submitted by Shri Balbir Singh, learned B
ASG that it is observed and held by this Court that all statutory definitions
or abbreviations must be read subject to the qualification variously
expressed in the definition clauses which created them and it may be
that even where the definition is exhaustive inasmuch as the word defined
is said to mean a certain thing, it is possible for the word to have a
somewhat different meaning in different sections of the Act depending C
upon the subject or the context.
3.12 It is further submitted that in the case of K.P. Varghese v.
Income Tax Officer, Ernakulam (1981) 4 SCC 173, this Court has
emphasised that the statutory provisions must be so construed, if possible,
that absurdity and mischief may be avoided.It is submitted that following D
the aforesaid decision in the case of Bhag Mal v. Ch. Prabhu Ram,
AIR 1985 SC 150 = (1985) 1 SCC 61, it is observed and held by this
Court that the plain and literal interpretation of a statutory provision
produces a manifestly absurd and unjust result, the Court might modify
the language used by the Legislature or even do some violence to it so E
as to achieve the obvious intention of the Legislature and produce a
rational construction.
3.13 Making the above submissions and relying upon the aforesaid
decisions of the High Courts in the cases of TCS and M.N. Dastur
(supra), it is prayed to allow the present appeal. F
4. The present appeal is vehemently opposed by Shri P.K. Sahu,
learned Advocate appearing on behalf of the respondent.
4.1 It is vehemently submitted that considering the provisions which
was prevailing before the amendment on 01.05.2006 on interpretation of
Section 65 (31) of the Finance Act, 1994 and considering the fact that G
the definition of “consulting engineer” has been subsequently amended
from 01.05.2006 to specifically include such services of “any body
corporate or any other firm”, the learned Tribunal has not committed
any error in holding that prior to 01.05.2006, the company/body corporate
was not included within the meaning of “consulting engineer”.
H
10 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 4.2 It is submitted that in the cases of Pappu Sweets and Biscuits
v. Commissioner of Trade Tax, U.P, Lucknow (1998) 7 SCC 228
and Gem Granites v. CIT, T.N., (2005) 1 SCC 289, this Court has
held that subsequent legislation may be looked into to fix the proper
interpretation of the statutory provision that stood earlier.
B 4.3 It is submitted that the amendment to Section 65(31) was
prospective and not by way of clarification/removal of any doubt. It is
submitted that the Government in Part-III of the Explanatory
Memorandum to Finance Bill, 2006, relating to service tax at Para (III)(10)
and in Letter F.No. 334/2006-TRU dated 28.02.2006, explaining the
changes in Budget 2006-07 at para 3.12(10) explained specifically that
C “consulting engineer service” has been amended to include “engineering
consulting services provided by any firm or body corporate”. It is submitted
that thus the intention was to bring in for the first time “engineering
consulting services by body corporate”. It is submitted that therefore
“body corporate” was not within the meaning of “consulting engineer”
D during the disputed period.
4.4 Now so far as the reliance placed upon the decisions of the
Karnataka High Court and Calcutta High Court in the cases of TCS &
M.N. Dastur (supra) by the learned ASG is concerned, it is submitted
that the said decisions/rulings of the High Courts on “consulting engineer”
E were before the amendment of 2006. It is submitted that after the
amendment, the High Courts of Delhi and Karnataka have relied upon
the subsequent legislation to interpret the earlier language and held that
“body corporate” was not within the meaning of “consulting engineer”.
It is submitted that there is no High Court ruling after the amendment
which has taken a different view. It is submitted that the learned CESTAT
F has been following consistently the view that “body corporate” became
taxable from 01.05.2006.
4.5 It is submitted that the most appropriate meaning of “engineering
firm” can be had by applying the principle of noscitur a sociis. Taking
colour from the expression “professionally qualified engineer”, an
G engineering firm should mean a partnership firm of professionally qualified
engineers. After the amendment, all other kinds of firms and body
corporates were included within the expression “consulting engineer”.
4.6 It is further submitted that in India, in common parlance as
well as in legal circles, “firm” is understood as partnership firm and not
H
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 11
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
as company. Service tax was introduced in 1994, twenty-seven years A
back. It is submitted that Black’s Law Dictionary, 6th Edition (1990),
defines “firm” as “Business entity or enterprise. An unincorporated
business. Partnership of two or more persons.” 8th Edition (2004) of this
dictionary states that traditionally this term has referred to a partnership,
but today it frequently refers to a company.
B
4.7 It is further submitted that Indian legislatures and courts have
been using “firm” and “company” as different expressions. In most of
the enactments, including Finance Act, 1994, Income Tax Act, 1961,
CGST Act, 2017, Companies Act, 2013, the word “person” has been
defined in the definitions clause to include “company” and “firm”
separately. The service tax law (Finance Act, 1994) has considered firm C
and company/body corporate as separate entities in several provisions:
65(19b) “business entity” include an association of persons,
body of individuals, company or firm but does not include an
individual.
D
65(105)(zzzl) …to a banking company or a financial institution
including a non-banking financial company or ay other body
corporate or a firm, by any person, in relation to recovery of
any sums due to such banking company or financial institution,
including a non-banking financial company, or any other body
corporate or a firm, in any manner E
It is submitted that there are other such separate mention of “firm”
and “company” in sections 65(105)(zzzl) and 73D Explanation. CGST
Act, 2017, mentions these terms separately in sections 90, 94, 137
Explanation and 159. In Companies Act, 2013, sections 2(49(, 7, 25, 215
and 341, the expressions firm and company/body corporate have been F
used side by side. In other enactments, company has been defined to
include firm for specific purposes, implying that both are not the same.
4.8 Shri Sahu, learned counsel for the respondent has further
submitted that it is held by this Court in the cases of CIT v. Century
Spinning and Manufacturing Co. Ltd. (1953) 24 ITR 499 and Vazir G
Sultan Tobacco Co. Ltd. v. CIT, A.P., Hyderabad, (1981) 4 SCC
435 = (1981) 132 ITR 559 (SC) that where an expression has not
been defined, the Court shall resort to the ordinary natural meaning as
understood in common parlance. It is submitted that in common parlance,
Court rulings and legislations, “firm” has been always understood as
H
12 SUPREME COURT REPORTS [2022] 17 S.C.R.
A partnership firm. Therefore, in the present case, “consulting engineer”
before its amendment in 2006 should include only individual and partnership
firm and not “body corporate”.
4.9 It is further submitted that as observed and held by this Court
in the case of CIT v. Vatika Township Private Limited, (2015) 1 SCC
B 1 that if the provision is ambiguous and is susceptible to two
interpretations, the interpretation which favours the assessee, as against
the Revenue, has to be preferred.
4.10 Making the above submissions, it is prayed to dismiss the
present appeal.
C 5. We have heard the learned counsel for the respective parties
at length.
The short question which is posed for the consideration of this
Court is, the scope of definition of “consulting engineer” under Section
65(31) of the Finance Act, 1994, specifically as to whether a “body
D corporate” is covered within its sweep prior to the amendment in 2005.
5.1 At this stage, it is required to be noted that post 2005, the
definition of “consulting engineer” under Section 65(31) has been amended
and now it specifically includes a “body corporate”. Therefore, as such,
with respect to the proceedings post amendment 2005, there will be no
E difficulty. After the amendment, any “body corporate”, a service provider
providing the services as “consulting engineer” is liable to pay the service
tax. The only question which remains is, whether under the erstwhile
definition of “consulting engineer” under Section 65(31) of the Finance
Act, 1994, a “body corporate” providing services as “consulting engineer”
F was liable to pay the service tax or not?
6. While considering the present issue, the relevant statutory
provisions under the Finance Act, 1994 are required to be referred to,
which are as under:
“Section 65. Definitions – In this Chapter, unless the context
G otherwise requires: -
xxx xxx xxx xxx xxx
(31) “consulting engineer” means any professionally qualified
engineer or an engineering firm who, either directly or indirectly,
renders any advice, consultancy or technical assistance in any
H manner to a client in one or more disciplines of engineering;
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 13
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
xxx xxx xxx xxx xxx A
(105) “taxable service” means any service provided {or to be
provided)
xxx xxx xxx xxx xxx
(g) to a client, by a consulting engineer in relation to advice, B
consultancy or technical assistance in any manner in one or
more disciplines of engineering including the discipline of
computer hardware engineering but excluding the discipline of
computer software engineering;
xxx xxx xxx xxx xxx C
Explanation – For the purposes of this section, taxable service
includes any taxable service provided or to be provided by an
unincorporated association or body of persons to a member
thereof, for cash, deferred payment or any other valuable
consideration. D
Charge of service tax.
Section 66. There shall be levied a tax (hereinafter referred
to as the service tax) at the rate of twelve per cent of the
value of taxable services referred to in sub-clauses ……of
clause (105) of section 65 and collected in such manner as E
may be prescribed.
xxx xxx xxx xxx xxx
Payment of service tax
Section 68 (1) Every person providing taxable service to any F
person shall pay service tax at the rate specified in section 66
in such manner and within such period as may be prescribed.
(2) Notwithstanding anything contained in sub-section (1), in
respect of any taxable service notified by the Central
Government in the Official Gazette, the service tax thereon G
shall be paid by such person and in such manner as may be
prescribed at the rate specified in section 66 and all the
provisions of this Chapter shall apply to such person as if he is
the person liable for paying the service tax in relation to such
service.
H
14 SUPREME COURT REPORTS [2022] 17 S.C.R.
A Registration.
Section 69 (1) Every person liable to pay the service tax under
this Chapter or the rules made thereunder shall, within such
time and in such manner and in such form as may be prescribed,
make an application for registration to the Superintendent of
B Central Excise.
(2) The Central Government may, by notification in the Official
Gazette, specify such other person or class of persons, who
shall make an application for registration within such time and
in such manner and in such form as may be prescribed.
C Furnishing of returns.
Section 70 (1) Every person liable to pay the service tax shall
himself assess the tax due on the services provided by him and
shall furnish to the Superintendent of Central Excise a return
in such form and in such manner and at such frequency and
D with such late fee not exceeding two thousand rupees, for
delayed furnishing of return, as may be prescribed.
(2) The person or class of persons notified under sub-section
(2) of section 69, shall furnish to the Superintendent of Central
Excise, a return in such form and in such manner and at such
E frequency as may be prescribed.”
6.1 Definition of “consulting engineer” under Section 65(31), post
amendment 2005, reads as under:
“Section 65(31) “consulting engineer” means any
professionally qualified engineer or any body corporate or any
F
other firm who, either directly or indirectly, renders any service,
consultancy or technical assistance in any manner to a client
in one or more disciplines of engineering”
6.2 Before it is considered, the effect of the amendment
incorporating the words “any body corporate”, post 2005, we have to
G consider whether the original definition of “consulting engineer” under
the Finance Act, 1994 may include “any body corporate” or not.
7. Under the Finance Act, 1994, the definition of “consulting
engineer” in Section 65(31) covers services provided to a client by a
professionally qualified engineer or an engineering firm consisting of
H
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 15
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
professionally qualified engineers. The taxable attribute is that the services A
must be rendered in a professional capacity.
7.1 From the relevant provisions under the Finance Act, 1994,
referred to hereinabove, “taxable service” means any service provided
or to be provided. Under the relevant provisions of Finance Act, 1994, at
many places, the word used is “person”. For example, as per Section 68, B
every “person” providing taxable service to any “person” shall pay service
tax. Section 69 provides that every “person” liable to pay the service
tax….may make an application for registration. In Section 70 also, the
words used are”every person liable to pay the service tax…”
8. If the submission on behalf of the respondent is accepted, in C
that case, it would remove all companies providing technical services,
advice or consultancy to their clients from the service tax net, while any
such services rendered by an individual or a partnership firm would
continue to remain taxable. That does not seem to be an intention on the
part of the legislature to exclude the “body corporate” from the definition
of “consulting engineer”. There does not seem to be any logic to exclude D
“body corporate” from the definition of “consulting engineer”. If the
submission on behalf of the respondent is accepted and the “body
corporate” is excluded from the service tax, in that case, it would not
only lead to absurdity but also would create two different classes providing
the same services. That cannot be the intention of the legislature to E
create two separate classes providing the same services and to exclude
one class.
8.1 In the case of K.P. Varghese (supra), it is observed and held
by this Court that the statutory provision must be so construed, if possible,
that absurdity and mischief may be avoided. F
8.2 In the case of Commissioner of Income Tax, Bangalore v.
J.H. Gotla, Yadagiri, (1985) 4 SCC 343, this Court has observed and
held in paragraph 46 as under:
“46. Where the plain literal interpretation of a statutory
provision produces a manifestly unjust result which could never G
have been intended by the Legislature, the Court might modify
the language used by the Legislature so as to achieve the
intention of the Legislature and produce a rational construction.
The task of interpretation of a statutory provision is an attempt
to discover the intention of the Legislature from the language
H
16 SUPREME COURT REPORTS [2022] 17 S.C.R.
A used. It is necessary to remember that language is at best an
imperfect instrument for the expression of human intention. It
is well to remember the warning administered by Judge Learned
Hand that one should not make a fortress out of dictionary but
remember that statutes always have some purpose or object
to accomplish and sympathetic and imaginative discovery is
B
the surest guide to their meaning.”
8.3 In the case of Dilip Kumar and Company (supra), a
Constitution Bench of this Court observed and held as under:
“i) In interpreting a taxing statute, equitable considerations are
C entirely out of place;
ii) a taxing statute cannot be interpreted on any presumption or
assumption;
iii) a taxing statute has to be interpreted in the light of what is
clearly expressed;
D
iv) it cannot imply anything which is not expressed;
It is further observed and held that:
v) the “plain meaning rule” suggests that when the language in
the statute is plain and unambiguous, the court has to read and
E understand the plain language as such, and there is no scope for
any interpretation;
vi) the principle of literal interpretation and the principle of strict
interpretation are sometimes used interchangeably, however, this
principle, may not be sustainable in all contexts and situations;
F vii) though all cases of literal interpretation would involve strict
rule of interpretation, but the strict rule may not necessarily involve
the former, especially in the area of taxation;
viii) while interpreting a statutory law, if any doubt arises as to the
meaning to be assigned to a word or a phrase or a clause used in
G an enactment and such word, phrase or clause is not specifically
defined, it is legitimate and indeed mandatory to fall back on the
General Clauses Act;
ix) An Act of Parliament/Legislature cannot foresee all types of
situations and all types of consequences. It is for the court to see
H
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 17
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
whether a particular case falls within the broad principles of law A
enacted by the Legislature;
x) In all the Acts and Regulations, made either by Parliament or
Legislature, the words and phrases as defined in the General
Clauses Act and the principles of interpretation laid down in the
General Clauses Act are to be necessarily kept in view; B
xi) the purpose of interpretation is essentially to know the intention
of the Legislature. Whether the Legislature intended to apply the
law in a given case; whether the Legislature intended to exclude
operation of law in a given case; whether the Legislature intended
to give discretion to enforcing authority or to adjudicating agency C
to apply the law, are essentially questions to which answers can
be sought only by knowing the intention of the legislation;
xii) a statute must be construed according to the intention of the
Legislature and the courts should act upon the true intention of
the legislation while applying law and while interpreting law. If a D
statutory provision is open to more than one meaning, the Court
has to choose the interpretation which represents the intention of
the Legislature;
xiii) if the plain language results in absurdity, the court is entitled
to determine the meaning of the word in the context in which it is E
used keeping in view the legislative purpose. Not only that, if the
plain construction leads to anomaly and absurdity, the court having
regard to the hardship and consequences that flow from such a
provision can even explain the true intention of the legislation; and
xiv) the principle that in case of ambiguity, a taxing statute should F
be construed in favour of the assessee does not apply to the
construction of an exception or an exempting provision, they have
to be construed strictly. A person invoking an exception or an
exemption provision to relieve him of the tax liability must establish
clearly that he is covered by the said provision. In case of doubt
or ambiguity, benefit of it must go to the State.” G
9. Applying the law laid down by this Court in the aforesaid
decisions on law of interpretation of a taxing statute, it is required to be
considered, whether a “body corporate” was excluded from the service
tax net under the Finance Act, 1994.
H
18 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 10. At this stage, it is required to be noted that prior to amendment
2005, by Circular/Trade Notice dated 4.7.1997, the definition of “consulting
engineer” under the Finance Act, 1994 was specifically explained and
as per the said Trade Notice, “consulting engineer” means any
professionally qualified engineer or engineering firm who, either directly
or indirectly, venders any advice, consultancy or technical assistance in
B
any manner to a client in one or more disciplines of engineering. It also
further clarified that “consulting engineer” shall include self-employed
professionally qualified engineer who may or may not have employed
others to assist him or it could an engineering firm – whether organised
as a sole proprietorship – partnership, a private or a Public Ltd. company.
C From the aforesaid, it can be seen that it was never the intention
of the legislation to exclude a “body corporate” from the definition of
“consulting engineer” and from the “service tax net”.
10.1 At this stage, it is required to be noted that during the Finance
Act, 1994 regime and prior to amendment 2005, the definition of
D “consulting engineer” applicable under the Finance Act, 1994 fell for
consideration before the High Courts of Karnataka and Calcutta in the
cases of TCS (supra) and M.N. Dastur (supra). In both the aforesaid
cases, the respective High Courts had an occasion to consider in detail
the definition of the term “consulting engineer”.
E 10.2 In the case of TCS (supra), it was the case on behalf of the
TCS that it was not liable to either recover or deposit any tax as it was
not providing a taxable service within the meaning of Section 65(41) of
Chapter V of the Finance Act, as amended from time to time. It was
contended that service provided by a consulting engineer in relation to
F advice, consultancy or technical assistance in any discipline of engineering
was taxable only if such services were provided by a consulting engineer
as defined in Section 65(31) of the Finance Act. According to the TCS,
service provided by a company even when it may have engaged qualified
engineers to carry on or promote its business would not tantamount to a
taxable service within the meaning of the Finance Act so as to justify
G any demand on the basis thereof. After analysing the entire scheme of
the service tax liability imposed by the Finance Act, 1994, it is observed
and held in paragraphs 6 to 11 as under:
“6. It is evident from a conspectus of the provisions referred
to above that the taxable event is the providing of service with
H
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 19
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
the levy falling on the provider. It is also evident that the liability A
to pay is not confined to only individuals. The levy falls on
‘every person’ providing the service. The expression ‘every
person’ in turn is wide enough to include a Company
incorporated under the Companies Act. Suffice it to say that
the Scheme of the Act envisages a tax on such services as
B
have for purposes of the levy been described as taxable. It is
for purposes of levy and collection of the tax immaterial whether
the provider of the service is an individual or a juristic person
like an incorporated Company. Thus far there is no difficulty.
What according to the petitioner makes the allimportant
difference is the definition of the expressions “consulting C
engineer” and “taxable service” as provided by Section 65(13)
and Section 65(48) of the Act. The same may at this stage be
extracted for ready reference.
“Section 65(13): “consulting engineer” means any professionally
qualified engineer or an engineering firm who, either directly D
or indirectly, renders any advice, consultancy or technical
assistance in any manner to a client in one or more disciplines
of engineering.”
“Section 65(48): “taxable service” means any service
provided- E
(g) to a client, by a consulting engineer in relation to advice,
consultancy or technical assistance in any manner in one or
more disciplines of engineering.”
7. The argument is that a service provided by a technically
qualified person in regard to advice, consultancy or technical F
assistance in one or more disciplines of engineering is taxable
only if the same is provided either by an individual, who is a
professionally qualified engineer or by an engineering firm. Any
service provided by a Company even when based on the advice
of professionally qualified engineers is not a taxable service so G
as to attract the levy under the Act. Since the petitioner-
Company is neither an individual nor a partnership concern,
any service provided by it even when the same may relate to
any discipline of engineering and be based on the opinion of
qualified engineers engaged by it cannot be regarded as a
taxable service. The argument is nodoubt attractive though H
20 SUPREME COURT REPORTS [2022] 17 S.C.R.
A not equally sound. The reasons are not far to seek. The question
in essence is whether the Scheme of the Act makes any
distinction between services rendered or provided by individuals
and partnership concerns on the one hand and incorporated
companies on the other. The answer has to be in the negative.
As noticed earlier, the Act aims at levying a tax on the services
B
declared taxable regardless whether the same are provided by
a natural or a juristic person. There is no distinction under the
Act between the provider of a service, who is an individual, a
partnership concern or an incorporated company. The liability
to pay tax on the service provided falls uniformly on all the
C three, provided the service is of a kind that has been declared
taxable under Section 65(48) of the Act. Viewed thus, what is
taxed by the Act in the case of service provided by consultant
engineers is the service provided directly or indirectly in the
nature of advice, consultancy or technical assistance in any
manner and relating to any disciplines of engineering. The fact
D
that the service is provided by an individual or a partnership or
by a Company is wholly inconsequential. It is true that inclusion
of in the definition of the expression “consulting engineer” could
include a Company to set the entire controversy at rest, but
the very fact that a Company providing a technical assistance
E in any engineering discipline is not specifically included in the
definition of the expression “consulting engineer” would not
ipso facto mean that service rendered by any such Company
cannot be considered to be taxable. It is fairly well settled that
where the language of a statute in its ordinary meaning leads
to a manifest anomaly or contradiction, the Court is entitled to
F
put upon it a construction which modifies the meaning of the
words used in the same. The decision of the Supreme Court
in Tirath Singh v. Bachittar Singh (AIR 1955 SC 830), where
the Court made the following observations is apposite: —
“Where the language of a statute, in its ordinary meaning
G and grammatical construction, leads to a manifest
contradiction of the apparent purpose of the enactment, or
to some inconvenience or absurdity, hardship or injustice,
presumable not intended, a construction may be put upon it
which modifies the meaning of the words, and even the
H structure of the sentence.”
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 21
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
8. Reference may also be made to the decision of the Supreme A
Court in Commissioner of Income Tax, Bangalore v. J.H.
Gotla(AIR 1985 SC 1698), wherein their lordships declared
that a plain interpretation of the statutory provision produces a
manifestly unjust result, which could never have been intended
by the legislature, the Court may modify the language: —
B
“Where the plain literal interpretation of a statutory provision
produces a manifestly unjust result which could never have
been intended by the legislature, the Court might modify
the language used by the legislature so as to achieve the
intention of the legislature and produce a rational
construction. The task of interpretation of a statutory C
provision is an attempt to discover the intention of the
Legislature from the language used. It is necessary to
remember that language is at best an imperfect instrument
for the expression of human intention. Section 16(3) of the
Act has to be read in conjunction with Section 24(2) for the D
purpose in question. If the purpose of a particular provision
is easily discernible from the whole scheme of the Act which
in this case is, to counteract, the effect of the transfer of
assets so far as computation of income of the assessee is
concerned then bearing that purpose in mind, the intention
must be found out from the language used by the Legislature E
and if strict literal construction leads to an absurd result i.e.
result not intended to be subserved by the object of the
legislation then if other construction is possible apart form
strict literal construction then that construction should be
preferred to the strict literal construction. Though equity F
and taxation are often strangers, attempts should be made
that these do not remain always so and if a construction
results in equity rather than in injustice, then such
construction should be preferred to the literal construction.”
9. Reference may also be made to the decision of the Supreme G
Court in Nagpur Electric Light and Power Company
Limited v. K. Shreepathirao(AIR 1958 SC 658), where the
Court declared that even a definition clause in an enactment
must derive its meaning from the context or subject.
H
22 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 10. In Motipur Zamindari Company Limited v. State of Bihar
and Another (AIR 1953 SC 320), the Court held that there
was no justification to differentiate between a company and
an individual and that there was nothing in the statute being
interpretedCourt in that case, which would prevent the inclusion
of the Company. The Court was in that case interpreting the
B
term “proprietor” as defined by Section 2(O) of Bihar Land
Reforms Act. It held that in view of the object of the Bihar
Land Reforms Act, there was no reason to differentiate
between an individual proprietor and a company which owns
estates or tenures.
C 11. The position is no different in the instant case. There is, in
my opinion, nothing repugnant in the subject or context of the
Act, which should prevent the inclusion of a Company for
purposes of levy of service tax on any advice, consultancy or
technical assistance provided by it to its clients in regard to
D one or more disciplines of engineering. Indeed, if the argument
advanced on behalf of the petitioner is accepted, it would remove
all companies providing technical services, advice or consultancy
to their clients from the tax net while any such services rendered
by an individual or a partnership concern would continue to
remain taxable. The Act does not, in my opinion, envisages
E any such classification let alone create and perpetuate anomalies
that would flow from the same. The view taken by the
Additional Commissioner of Central Excise that the petitioner-
Company was liable to pay service tax cannot therefore be
found fault with.”
F 10.3 A similar controversy arose before the Calcutta High Court
in the case of M.N. Dastur (supra). The Calcutta High Court in the
said case was also considering the service tax law under the Finance
Act, 1994 regime. The question before the Calcutta High Court was as
to whether the expression “engineering firm” used in the definition of
G “consulting engineer” in Section 65(31) of the Finance Act, 1994, Chapter
V, relating to service tax includes a company.
The aforesaid issue had been considered in detail by the High
Court after considering the entire scheme of the service tax and the
object of the Act including the taxable even etc. and ultimately held
H against the petitioner and it was held that the petitioner in that case being
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 23
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
a “company” was subjected to service tax law under the Finance Act, A
1994. The relevant discussion, observations and the findings recorded
by the High Court in paragraphs 8 to 30 are as under:
“Consulting engineer: Whether includes a company:
8. The definition of “consulting engineer” admittedly has not
used identical expression used in defining the other assessees B
liable to pay service tax. Apart from the definition of “consulting
engineer” in section 65(13), in all other cases, the expression
“person” or “concern” or “commercial concern” has been used.
Admittedly, a different expression has been used in defining
“consulting engineer”7. It could not have been contended, and C
rightly, that the Legislature had made a distinction consciously
and by reason of such distinction, it had intended differently. A
fiscal statute has to be construed strictly, if something is not
subject to levy of tax clearly expressed in the statute, the same
cannot be brought within the tax net by way of interpretation
as was held in A.V. Fernandez, [1957] 8 STC 561 (SC). It is a D
settled proposition that it is the clear words of law and not the
intention of the Legislature, which is to be examined to find out
what the taxing statute has clearly said. There is no room for
intendment. There is no equity about a tax. There is no
presumption as to tax. Nothing is to be read in, nothing is to be E
implied. Only the language used is to be looked at fairly as was
laid down in Orissa State Warehousing Corporation, [1999]
237 ITR 589 (SC) quoting from Cape Brandy
Syndicate v. IRC, [1921] 1 KB 64 and also in CIT v. Ajax
Products Ltd., [1965] 55 ITR 741 (SC). At the same time, as
held in C.A. Abraham, [1961] 41 ITR 425 (SC), the court F
cannot proceed to make good the deficiency, if there be any.
The court must interpret the statute as it stands. In the case of
doubt, the interpretation favourable to the taxpayer is to be
adopted. At the same time, in the case of absurdity the court
can make good the deficiency, remove the absurdity and G
interpret the statute according to its objects and purposes.
9. The word “firm” cannot include a company. The name of a
partnership firm is a compendious method of describing the
partners in a partnership firm as was laid down in Mrs. Bacha
F. Guzdar, [1955] 27 ITR 1 (SC), Dulichand Laxminarayan, H
24 SUPREME COURT REPORTS [2022] 17 S.C.R.
A [1956] 29 ITR 535 (SC) and Malabar Fisheries Co., [1979]
120 ITR 49 (SC). It is distinct from a company, a juristic person
distinct from its shareholders; whereas a partnership firm
comprises the partners and has no separate entity or existence
without the partners. According to section 4 of the Partnership
Act, 1932, a “firm” means persons entering into partnership
B
with another collectively called a firm, a compendious method
of describing the partners in a partnership. The partners own
absolute interest in the partnership firm and its assets and
properties. The partners and the partnership firm are not distinct
and separate entities and are identified with each other.
C Whereas a company is a juristic person, a distinct and separate
entity other than its shareholders. The shareholders by reason
of their holding of shares do not hold any interest in the assets
and properties of the company. The shareholders’ interest is
confined to the profits and gains of the company; it does not
extend beyond the interest to receive dividends or liability to
D
the proportion of his shareholding. A shareholder cannot claim
any interest in the property of the company. It was so held
in Mrs. Bacha F. Guzdar, [1955] 27 ITR 1 (SC).
10. In Vazir Sultan Tobacco Co Ltd., [1981] 132 ITR 559,
the Supreme Court had made a distinction between the company
E and a firm, which is to be understood in the light of the definition
given in section 4 of the Indian Partnership Act. There is no
doubt about the legal proposition. But each case has to be
considered according to its own merits having, regard to the
facts and circumstances of the case. So far as the decision
F in Vazir Sultan Tobacco Co. Ltd., [1981] 132 ITR 559 (SC)
is concerned, it was dealing with the expression “reserve” as
defined in the Companies (Profits) Surtax Act, 1964. The
provisions contained therein were distinct and different from
the provisions with which we are concerned. In the context of
the said 1964 Act, the Supreme Court was considering the
G expression with reference to the Companies Act holding that
the expression not defined in the 1964 Act is to be understood
by reference to the expression used under the Companies Act,
1956. Therefore, this decision will not help us in order to
interpret the expression “firm” used in the definition of
H “consulting engineer” in the Finance Act, 1994.
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 25
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
11. Keeping the above settled principles of law in mind, we A
may now proceed to find out as to whether the expression
“firm” used in section 65(13) is to be understood differently.
Section 65: The definitions: Scheme and context:
12. In order to ascertain the Situation/the principles of
interpretation have to be followed. The court in order to B
construe the definition comprehensively may apply the golden
rule of interpretation according to the ordinary grammatical
meaning having regard to the scheme of the definitions and in
the context of the provisions contained in the statute and the
object and purpose for which it was enacted. It is apparent C
that the expressions “person”, “concern” or “commercial
concern” have been used to define all other assessees liable to
pay service tax except section 65(13) defining “consulting
engineer”. The word “person” as defined in section 3(42) of
the General Clauses Act includes an individual, a company or
an association of persons. A “person” includes a juristic person. D
A company is a juristic person and there would be no difficulty
to include a company when the definition uses the expression
“person”. Similarly, a “concern” without any qualification can
include any business or professional establishment and the
“commercial concern” would include all concerns connected E
with commerce carrying on trade or profession or any kind of
commercial activities and includes a company.
13. In the present case, section 65(13) includes an individual
professionally qualified as an engineer. This does not seem to
be disputed. The definition also includes an engineering firm. F
According to Dr. Pal, though qualified by the word
“engineering”, a “firm” is to be understood something distinct
from the company. According to him, it clearly means a
partnership firm. It may be proprietorship firm but in any event
it would be an association of qualified engineers without losing
its entity or identity of being a qualified engineer either as an G
individual or as a partner in the partnership firm or as a person
in an association of persons without losing its identity other
than a compendious mode of describing themselves without
resulting into an entity different from the firm as it would be in
the case of a company in relation to its shareholders. H
26 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 14. Therefore, if the definition does not clearly include a
company in view of the principles on which the fiscal statute is
interpreted, a company cannot be brought within the taxing net
and when there is some doubt, the benefit would be available
to the assessee, the taxpayer. Admittedly, the court while
interpreting the provision cannot make good the deficiency;
B
therefore, it is to be understood as it is.
15. But, it appears that there is a fallacy hidden in the definition
under section 65(13). The expression “firm” has not been used
independent of its qualification. The engineers are definitely
individuals or persons, but are not ordinary individuals or
C persons. They are qualified engineers. Therefore, an individual
qualified engineer may be a person and means a person as
well and include a person, who is a qualified engineer. But the
expression “person” may include a qualified engineer but the
said expression is insufficient to identify a particular class of
D persons who are qualified engineers. Therefore, the expression
“person” could not be used to define a “consulting engineer”
when he is an individual or an association of persons or
otherwise.
16. The expressions “person”, “concern” or “commercial
E concern” appear to have been used freely in its common and
ordinary meaning apposite to the particular class of assessee
subject to service tax. It does not seem to give any particular
or specified meaning. These expressions have been used to
identify a class of assessee. It does not make any distinction
inter se within the particular class. The definition is intended to
F embrace the class of assessee subject to service tax. In none
of the definitions, it appears that any class within the class had
ever been intended to be identified. Neither it appears that a
class within the class was made liable or was intended to be
excluded from the liability to pay service tax The context in
G which these definitions were given was intended to identify a
particular class of assessee liable to pay service tax.
17. Therefore, when in none of the definitions there was any
attempt to identify a class within the class in order to make
liable or exempt from the liability, that particular class within
H the class from being subjected to service tax, it cannot be
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 27
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
conceived that the Legislature had attempted to make such a A
distinction in the definition of “consulting engineer” by creating
a class within the class for the purpose of exemption from the
liability to pay service tax. When in all classes of assessees as
defined in section 65, the whole of the particular class falling
within the definition have been made liable, it would be wholly
B
against the scheme, object and purpose of the legislation to
exempt a particular class coming within the definition of
“consulting engineer”. The definitions have been intended to
identify a particular class liable to pay service tax. There cannot
be any earthly reason to tax all coming within the particular
class except one within that class. Nothing seems to appear C
from the scheme and the context in which the legislation was
enacted to make a rational or intelligible differentia to exempt
one class within the class.
18. It is inconceivable that a consulting engineer as an individual
or constituting a partnership firm or a proprietorship firm would D
be liable to pay tax under the service tax laws, but the same
persons forming a company, a different juristic person, a distinct
legal entity apart from the shareholders, would be outside the
tax net. We do not find any reason as to why a company
providing “taxable service” as defined under section 65(48)(g)
would not be a taxable service, when it would be so when E
provided by an individual qualified engineer or a proprietorship
or partnership firm of engineers. This seems to be little absurd.
Sections 66 and 68 : The chargeability : The taxable event:
19. Section 66 is the charging section. Under sub-section (3), F
service tax is levied at the rate of 5 per cent, of the value of
the taxable service referred to in sub-clause (g) among others
enumerated in section 65(48) and collected in such manner as
prescribed. Section 68 provides that every person providing
taxable service to any person shall pay service tax at the rate
specified in section 66 in such manner and within such period G
as may be prescribed. That apart, by reason of sub-section (2)
of section 68, any other taxable service on being notified by
the Central Government may also be liable to service tax in
the same manner as may be prescribed and the rate specified
in section 66 subject to the provisions of Chapter V may apply H
28 SUPREME COURT REPORTS [2022] 17 S.C.R.
A to such person as if he is the person liable to pay the service
tax in relation to such taxable service.
20. Therefore, section 65 cannot be read out of the context
and the scheme of the Act. It has to be read in consonance
with sections 66 and 68, namely, the charging section and the
B liability to pay. Rule 6 in sub-rule (1) provides that service tax
on the value of the taxable service received during the calendar
month shall be paid to the credit of the Central Government by
25th day of the month immediately following. The proviso,
however, carves out an exception in respect of the assessee,
who is an individual or a proprietary firm or a partnership firm,
C who are supposed to pay on the 25th day of the month
immediately following the quarter in which service tax in the
value of taxable service is received.
21. Admittedly, the word “firm” has not been defined in the
Act. We are to give the ordinary grammatical meaning of the
D word “firm” in order to interpret the provisions of section 65(13).
While ascertaining the meaning of the word “firm” intended to
be given by the Legislature, we may first look into the word if
used elsewhere in the statute in consonance with the taxing
event apparent from the scheme and gather the meaning
E therefrom. In Nagpur Electric Light and Power Co.
Ltd. v. K. Shreepathirao, [1958-59] 14 FJR 199; AIR 1958
SC 658, the apex court declared that a definition clause in an
enactment must derive its meaning from the context or subject.
We find that the word “firm” has been used in section 81 where
it was explained in relation to imposition of penalty. It has been
F used in rule 6 to make a distinction with regard to the manner
of payment. This use of the word “firm” in the statute and the
rules indicates how it is to be interpreted. It is the responsibility
of the court to interpret the word in a manner consonance with
the scheme and the object and its purpose as well as the different
G expressions used in the statute unless a different intention of
the Legislature is apparent to impute a different meaning. While
fixing the liability on account of breach of the provisions of the
statute, a company has been explained to include a partnership
firm. According to the scheme of the Act, the tax is leviable on
the provider of taxable service. The providing of the taxable
H
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 29
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
service is taxable event. Under section 68, every person A
providing taxable service is made liable to pay the tax. Thus, it
appears that the Legislature had never intended to make any
distinction between a firm and a company for the purpose of
defining “consulting engineer”. If for the purpose of penalty, it
can be so, then it would also be so in relation to chargeability.
B
22. Any other interpretation would lead to absurdity, a
deficiency supposed to be made good by the court while
interpreting. If two views are possible, and one leads to
absurdity, the other possible view is to be accepted. The
principle of beneficial interpretation in favour of the assessee
cannot come into play on the face of absurdity. The use of the C
word “firm” qualified by the word “engineering” was intended
to denote a conglomeration of engineers providing taxable
service in its ordinary, common and natural sense. The words
“engineering firm” denote an establishment of engineers
providing taxable service defined under section 65(48)(g). The D
Legislature had never used nor intended to use the word “firm”
in its legal or technical sense.
23. Words used in a statute dealing with matters relating to
the general public are presumed to have been used in their
popular rather than narrow, legal or technical sense. The E
doctrine of loquitur ut vulgus, i.e., according to the common
understanding and acceptance of the terms, is to be applied in
construing the words used in the statute dealing with matters
relating to the public in general. If an Act is directed to dealings
with matters affecting everybody generally, the words used
have the meaning attached to them in the common and ordinary F
use of language. It was so observed by Lord Esher M.R. at
page 119 in Unwin v. Hanson, [1891] 2 QB 115 (CA). That
the Income-tax Act and for that matter the Finance Act is of
general application is beyond dispute. It is all the more so
because the Finance Act is one consolidating and amending G
the law relating to income-tax, super tax, service tax, etc. To
support this proposition, we may derive inspiration from Rao
Bahadur Ravulu Subba Rao v. CIT, [1956] 30 ITR 163 (SC)
at page 169. Therefore, the natural not the legal or technical
meaning of the word “firm” is to be given.
H
30 SUPREME COURT REPORTS [2022] 17 S.C.R.
A Section 65(13): Firm: Natural meaning:
24. Having read the provisions in the context it is used and the
scheme in which it is intended to be used and the object and
purpose of enacting the statute and the absence of any
intelligible differentia or a rational classification, it has to be
B interpreted to include all kinds of firm, i.e., a business
establishment. This again we must note that the Legislature
had used the expression “engineering firm”. The firm has been
qualified by the word “engineering”. Therefore, the word “firm”
has been used in this particular class of assessee to include all
classes of firms dealing with engineering. The word “firm”
C was not used for the purpose of indicating the constitution of
the firm, namely, a proprietorship or partnership, but in order to
identify a class of firm providing taxable service within the
meaning of section 65(48)(g).
25. In these circumstances, we do not think that there is any
D deficiency in the definition of “consulting engineer”, which could
be presumed to have excluded a company providing taxable
service defined under section 65(48)(g) when its counterparts
comprising an individual or a proprietorship or partnership firm
or an association of person are included. From the scheme of
E the Act, we have not been able to find out any intelligible
differentia or rational classification for excluding a company
providing taxable service under section 65(48)(g) when its
counterparts being individuals or proprietorship or partnership
or association of persons are coming within the taxing net
providing the same service. This is further supported from the
F scheme of the 1994 Act. The Act aims at levying tax on service.
It is the taxable service, which makes the provider liable. Thus,
the taxable event is the providing of service and the levy falls
on the provider. It would be inconceivable that the Legislature
had intended that the levy would fall on a provider when an
G individual or a proprietorship or partnership firm but not when
a company. The distinction seems to be unintelligible and without
any rationale, thus absurd. Under section 68 the liability is of
every person. In support of this proposition, we may gainfully
refer to the decision in Motipur Zamindari Co. Ltd. v. State
of Bihar, AIR 1953 SC 320, where the court held that there
H
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 31
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
was no justification to differentiate between a company and A
an individual and that there was nothing in the statute being
interpreted by the court in that case, which would prevent the
inclusion of the company. The court was in that case
interpreting the term “proprietor” as defined by section 2(o) of
the Bihar Land Reforms Act. It held that in view of the object
B
of the Bihar Land Reforms Act, there was no reason to
differentiate between an individual proprietor and a company,
which owns estates or tenures.
26. The object of the Act is of general application, and not
intended to confer any special benefit to a company. The
definition of all other assessees includes company, then it is C
not known why the Legislature would intend to exclude a
company providing a particular class of taxable service falling
within section 65(48)(g). Though eloquently argued by Dr. Pal,
the rationale between the differentiation having regard to the
expression “firm” imposing liability to the whole class to exempt D
a class within the class is not intelligible and does not at all
make out a case of rational classification to interpret the said
definition otherwise than in consonance with the definition given
to all other class read together with sections 66 and 68 having
regard to the object and purpose of the enactment. When the
statute is not a statute aimed at conferring certain special E
treatment for protecting the interest of a company, such an
interpretation is not possible. Therefore, though for different
reason, we are in agreement with the decision of the learned
single judge since appealed against.
27. To support our view, we may borrow the reasoning from F
the decision of the Karnataka High Court in Tata Consultancy
Services, [2002] 257 ITR 710, relying on the decisions in Tirath
Singh v. Bachittar Singh, AIR 1955 SC 830 and CIT v. J.H.
Gotla, [1985] 156 ITR 323; (1985) 4 SCC 343 : AIR 1985 SC
1698 to support its view, as quoted hereafter (page 715): G
“There is no distinction under the Ad between the provider of
a service, who is an individual, a partnership concern or an
incorporated company. The liability to pay tax on the service
provided falls uniformly on all the three, provided the service is
of a kind that has been declared taxable under section 65(48) H
32 SUPREME COURT REPORTS [2022] 17 S.C.R.
A of the Ad. Viewed thus, what is taxed by the Act in the case of
service provided by consultant engineers is the service provided
directly or indirectly in the nature of advice, consultancy or
technical assistance in any manner and relating to any disciplines
of engineering. The fad that the service is provided by an
individual or a partnership or by a company is wholly
B
inconsequential. It is true that inclusion in the definition of the
expression ‘consulting engineer’ could indude a company to
set the entire controversy at rest, but the very fad that a
company providing a technical assistance in any engineering
discipline is not specifically included in the definition of the
C expression ‘consulting engineer’ would not, ipso facto, mean
that service rendered by any such company cannot be
considered to be taxable. It is fairly well-settled that where the
language of a statute in its ordinary meaning leads to a manifest
anomaly or contradiction, the court is entitled to put upon it a
construction which modifies the meaning of the words used in
D
the same.
28. The decision in Dr. V. Shanmughavel, [2001] 131 ELT 14
(Mad) may not help us much since in that case the distinction
was sought to be made as to whether the services rendered by
a valuer or by an engineer would come within the definition of
E “consulting engineer” or not. Though some other decisions have
since been cited by Dr. Pal, but we do not find any reason to
discuss the same, since, in our view, any further discussion
would be superfluous.
Conclusion:
F
29. Thus, the circular dated July 2, 1997, issued by the Ministry
of Finance and the said circular dated July 3, 1997, cannot be
held to be contrary to the provisions of the statute or
inconsistent with the scheme and the context of the service
tax law or repugnant to the clear legislative provisions defining
G “consulting engineer” under section 65(13). Having regard to
the discussion made above, it cannot be said that the said circular
was issued in excess of the parameters limited by the legislation
delegating the power. It is well within the parameters and,
therefore, can never be ultra vires the parent Act or void.
H Therefore, the ratio decided in G.S. Dali and Flour Mills,
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 33
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
[1991] 187 ITR 478 (SC) cannot be attracted. Since it is well A
within the enactment, it is not a case that a tax is being imposed
by reason of the said two circulars on the company though not
liable through subordinate legislation without being authorised
by the parent Act as was held in Gopal Narain, AIR 1964 SC
370.
B
30. From the discussion above, we are of the view that the
word “firm” used in the definition of “consulting engineer”
interpreted in the context and the scheme of section 65 in
consonance with section 66 and section 68 and the meaning
conferred to the word “firm” elsewhere in the statute includes
a company as explained in section 81 since there is nothing to C
support an intelligible differentia or a rational classification
between a company and a firm providing taxable service defined
under section 65(48)(g) to exclude a company from the tax
net when both providing the same taxable service being the
taxable event in a statute, which is not meant for providing D
special provisions for or benefit to a company.”
10.4 At this stage, it is required to be noted that all the decisions of
some of the High Courts relied upon on behalf of the respondent are of
post amendment 2005. In none of the cases, the respective High Courts
had an occasion to consider the actual meaning and definition of E
“consulting engineer” contained in Finance Act, 1994, which directly fell
for consideration before the Karnataka and Calcutta High Courts in the
cases of TCS (supra)and M.N. Dastur (supra).
11. As observed hereinabove, in many places under the Finance
Act, 1994, the Parliament/Legislature has used the word “person” F
(Sections 68, 69 and 70). At this stage, Section 3(42) of the General
Clauses Act, 1897 is also required to be referred to, considered and
applied. The word “person” includes any company or association or
body of individuals, whether incorporated or not. Therefore, there is no
logic and/or reason to exclude a” body corporate” from the definition of
“consulting engineer” and to exclude the services of a “consulting G
engineer” rendered by a “body corporate” to exclude and/or exempt
from the service tax net. Such an interpretation would lead to anomaly
and absurdity. As observed hereinabove, it will create two different
classes providing the same services which could not be the intention of
the Parliament/Legislature. Therefore, we are in complete agreement H
34 SUPREME COURT REPORTS [2022] 17 S.C.R.
A with the view taken by the High Court of Karnataka in the case of TCS
(supra) and the Calcutta High Court in the case of M.N. Dastur (supra),
taking the view that a “firm” and a” company” can be said to be a
“consulting engineer” as defined under the Finance Act, 1994 and liable
to pay the service tax as a service provider.
B 12. In view of our above finding that under the Finance Act, 1994,
in the definition of “consulting engineer”, a “body corporate” is included
and/or to be read into so as to bring a “body corporate” being a service
provider providing the consultancy engineering services within the service
tax net, as such, it is not necessary to consider whether the subsequent
C amendment amending the definition of “consulting engineer” by way of
2005 amendment adding a “body corporate” within the definition of
“consulting engineer” would be retrospective and/or whether it can be
said to be a clarificatory in nature or not and the said issue would become
academic now.
D 13. In view of our discussion and for the reasons stated above,
the impugned judgment and order dated 04.12.2015 passed by the
CESTAT is unsustainable. It is held that the respondent, being a service
provider providing consultancy engineering services, was/is liable to pay
the service tax for such services being “consulting engineer” within the
definition of Section 65(31) of the Finance Act, 1994 and therefore and
E thereby liable to pay the service tax under Section 66 r/w Section 68 of
the Finance Act, 1994. The impugned judgment and order dated
04.12.2015 passed by the CESTAT in Appeal No. ST/136/2007 is hereby
quashed and set aside. However, from the impugned judgment and order
passed by the CESTAT, it appears that the CESTAT has considered
F only one issue namely whether for the period pre 01.05.2006 – the Finance
Bill, 2006 whether “body corporate” was covered within the definition
of “consulting engineer” under Section 65 (31) of the Finance Act, 1994
and had not considered any other issues/grounds raised in theMemo of
Appeal before the CESTAT. Therefore, the matter is remanded to the
CESTAT to examine and decide the appeal on other grounds, if any,
G raised in the Appeal Memo before it afresh in accordance with law and
on its own merits and in light of the observations made hereinabove and
the law laid down by this Court in the present judgment and order. The
aforesaid exercise shall be completed by the learned CESTAT within a
period of three months from the date of receipt of the present order,
H
COMMISSIONER OF CENTRAL EXCISE, RAIPUR v. M/S SEPCO 35
ELECTRIC POWER CONST. CORP. [M. R. SHAH, J.]
which shall be produced by the Revenue before the learned CESTAT A
within a period of four weeks from today without fail.
14. The present appeal is accordingly allowed to the aforesaid
extent. However, in the facts and circumstances of the case, there shall
be no order as to costs.
B
Devika Gujral and Amarendra Kumar Appeal partly allowed.
(Assisted by : Pragya Samal, LCRA)
C
D
E
F
G
H
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