CA, CS, CWA lose service tax case

THE Supreme Court has ruled that Parliament is empowered to levy service tax on practicing chartered accountants, cost accountants and architects.

 For full text of judgment – click here

The central government had imposed a tax on the services rendered by the practicising chartered accountants, cost accountants and architects in professional capacity from their clients at the rate of 5% of the amount so charged. It was challenged by the All India Federation of Tax Practioners and others.

A bench comprising Justice SK Kapadia and Justice BS Reddy dismissing the plea said, “We hold that Parliament has legislative competence to levy service tax by way of impugned Finance Acts of 1994 and 1998 under Entry 97 of List I (Seventh Schedule of Constitution) on chartered accountants, cost accountants and architects.”

The court turned down the plea of the federation that Parliament has no jurisdiction to levy such tax on them as their service came under tax on professions covered under the Entry 60 of List II, a state subject. The federation had claimed that services rendered by chartered accountants/cost accountants were those performed as professionals.

The court rejected the plea and said the tax on professions referred to in Entry 60 List II covered professionals who obtain licences to practice. On that privilege, the state is empowered to levy tax. But, it can not be read to include every activity undertaken by them. Service tax is a tax on each activity undertaken by them, said Justice Kapadia.

The court said that for example, the chartered accountant/cost accountant/architects charges his client for advise as well as doing the work of costing etc. For each transaction or contract, they render professional services. The activity undertaken by chartered accountants/cost accountants/architects has two aspects. From their point of view, it is an activity undertaken by them based on performance and skill. But for clients, they are service providers. Hence it is tax on ‘service’. The activity undertaken by chartered accountant/cost accountant/ architects is similar to a saleable or marketable commodities produced by the assessee and cleared by the assessee for home consumption under the Central Excise Act, court said.

Such tax is not levied on them unless they provide services to their clients. However, the tax on professions is a tax on their status and is paid irrespective of their services. Even if they do not have any work throughout the year, still they have to pay the professional tax. So the two categories are different, said court.

The Federation had moved the apex court after Bombay High Court dismissed their petition.

The high court upheld the legislative competency of Parliament to levy service tax on them had said that it falls in Entry 97 List I of Seventh Schedule which is a Union subject.