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Architect's Services [Sec 65(105)(p)]
Effective upto 30th June, 2012
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Landmark Service Tax Judgment - Architect's Services

INTRODUCED: With Effect From 16th October 1998
 
Contents
Scope
Exemption
Relevant Notifications / Circulars
Landmark Judgements
Accounting Code
Service Tax 00440072
Interest
00440073
Penalty 00441314
 
DEFINITION:

According to Section 65 (105) (p), any service provided or to be provided to any person, by an architect in his professional capacity, in any manner is a taxable service

According to Section 65 (6), '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 services in the field of architecture;

 
SCOPE:
TOP

The nature and scope of the services rendered by architects are well described under the provisions of the Architects Act. Broadly, the work of an architect starts from providing appropriate advice keeping in view the requirements of the client at the preliminary stage of initial sketches, specifications and drawing of plans, and consists of providing detailed drawings, approval of the drawings from the concerned authorities, supervision at each stage of construction, and till the point when the completion certificate is obtained from the authorities.  

Value of the taxable service shall be the gross amount charged by an architect for services rendered in his professional capacity in any manner. The services rendered by Architect are of a diverse nature and spread over long period of time. The payment of fees for each service is normally spelt out in the contract entered into with the client. The fees are paid at periodic intervals depending on the pace of completion of the work or at the completion of the whole project. Service tax has to be paid accordingly to the fees received.

 
SERVICE TAX EXEMPTIONS:
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(a)  Small service providers whose aggregate value of taxable services rendered in the previous year has not exceeded the limit of Rs. 10,00,000/-  (Service Tax Notification No. 8/2008-ST dated 01.03.2008)

(b)  Services provided to the United Nations or International Organisations

(c)  Services provided to Special Economic Zones (SEZ) units (including unit under construction) and SEZ developers

(d)  Services which are exported as per ‘Export of Services’ Rules

(e)  Services provided for official or personal use of foreign diplomatic missions and family members of diplomatic missions.

(f)  Services provided by Reserve Bank of India

(g)  Out of total value of service provided proportionate value of goods and material provided by the Service Provider

 
RELEVANT SERVICE TAX CIRCULARS/INSTRUCTIONS/TRADE NOTICES:
 
Service Tax CBEC Circular 111/05/2009, dated 24-02-2009 Clarification regarding export criteria of services.
Service Tax CBEC Instruction Letter (F. No. 334/1/2008) dated 29-02-2008 Clarification on rationale of change in the definition from “to client” to “to any person”.
Service Tax CBEC Master Circular No. 96/7/2007, dated 23-08-2007 Clarification that all sub-contractors providing taxable services are liable to pay Service Tax.
Service Tax 5/98-Trade Notice dated 14-10-1998
 
 
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Case Laws Related

  • STO 2011 CESTAT 37
  • Service Tax: Architect’s Service: Pre-deposit : Prima facie, assessee is not a commercial concern as it is not profit oriented and the fact that the applicant collect charges from banks, individuals, hotels, consulates etc. is not prima facie sufficient to hold that it is a commercial concern. The assessee has made out a prima facie case for waiver on merits, and hence waive predeposit and stay recovery of the amount in question pending the appeal. (para 2)

  • STO 2009 Del 877
  • Scope of Levy: Revenue can collect tax only upon being invested with due legal authority; an event which occurred on the insertion of Section 66A in the Finance Act, 1994 w.e.f. 18.04.2006 by virtue of the Finance Act, 2006.

  • STO 2007 CESTAT 1020
  • Penalty : Tax not paid in time during the relevant period on account of the fact of pendency of writ petition before the Hon’ble Madras High Court and no mala fide can be attributed to the appellant. The said fact constituted a reasonable cause for the appellant to believe that the service tax is not payable, thus attracting the provisions of Section 80 justified.

  • STO 2007 CESTAT 543
  • Architect Service: Enhancement of Penalty under Revision: Stay: Appellant firm was providing services as architects. Service Tax was short-paid and returns were not filed. Penalty enhanced by Commissioner on revision. Appellant strongly contended that, the Commissioner did not have the power to impose penalty under Section 78 of the Act, But by virtue of the powers conferred on him under Section 84(1). The Commissioner was empowered to make such order "as he thinks fit". Thus, stay partly granted.

  • STO 2007 CESTAT 1402
  • Appellant carrying activities more akin to civil work in terms of the definition of the term “Commercial or Industrial Construction Services” were brought under the definition of “Interior Decorators”. The facts for both services almost identical, therefore, stay partly granted. (para 4)

  • STO 2007 CESTAT 374
  • Architect Service: Amnesty Scheme: Penalty: Assessee was under the belief that he is not liable to pay Service Tax. However, on being pointed out by the department, he discharged the entire Service Tax liability and interest thereon before expiry of amnesty scheme. Thus, penalty imposed is unwarranted and impugned order is set aside.

  • STO 2007 CESTAT 451
  • Penalty: As the impugned order is not legal and proper in view of the contentions on account of time bar and want of jurisdiction to impose penalty of more than 25,000/- without Commissioner's permission as provided under Section 78 of the Finance Act, 1944. Matter remanded to the Original authority for de novo decision.

    Natural Justice: The party should be given an opportunity of hearing. The Original authority shall decide the issue after observing the principles of 'Natural Justice'.

  • STO 2006 CESTAT 609
  • Architect: Sub-Contractor: the liability to tax arises only against the main consultant and not on the sub-contractor.

  • STO 2006 CESTAT 582
  • Architect Service: Valuation: Supervision Charges: Stay: The professional charges have been collected and the same has been held to be added in professional fee received by the appellant for carrying on services of architecture. This has been contested on the ground that supervision does not become a part of the professional service and therefore Service Tax is not leviable. Stay partly granted.

  • STO 2006 CESTAT 11
  • Penalty: Service tax along with interest already paid, amount of interest is about 30% of the service tax any pecuniary advantage gained by the appellant is neutralised by payment of interest, the a small tax payer, penalty increased in review order set aside.

  • STO 2003 CESTAT 2
  • Penalty reduced: Penalty for late filing reduced as assessee was under a bonafide belief that Vastu Shastra Architect is not covered under taxable service in the category of Architect service.

  • STO 2001 Mad 193
  • Service Tax: Architects and Chartered Accountants challenged the constitutional validity of the provisions of Finance Act by which their services have been brought under the tax-net: lack of "legislative competence" on the part of the Parliament: Scope and liability: According to the petitioners, the "Architects" and "Chartered Accountants" are the "professionals", which professions are governed and controlled by the separate enactments and, therefore, considering the pith and substance of the present enactment, inflicting the tax, it is nothing but a "tax on profession, trade, business and calling, which is covered under entry 60 of the State List (List II). The petitioners further contend that the so-called "service tax" is presumably being inflicted under the "residuary entry", i.e. Entry 97 of the Union List (List I) provided by Art. 248 of the Constitution and since the said challenged tax fall under entry 60 of the State List (List ii), the Parliament was not competent to legislate the present enactments.(Para 3).

    The aspect of service cannot be separated from the profession as the professional has no other task except providing his professional services. in pith and substance this legislation could not be said to be a tax "on" profession though it related "to" the profession. Even if the language of entry 60 is to be construed in its widest amplitude, the present legislation could not be said to be inflicting a tax "on" profession, trade, calling, etc. If this tax had been inflicted by the State Government, then, it would have been surely hit by the provisions of Art. 276. The nature of tax is entirely different and merely because it relates "to the" profession, it cannot be said to be a tax "on" profession. The Parliament has taken the recourse to the residuary power under Art. 248 read with entry 97 of the Union List (List I) for enacting the present legislation. (Para 8,10). "Service tax" is sui generis and it is a complete statute providing for (i) tax on the services; (ii) it defines the taxable services; and (iii) it also provides the measure thereof. While dealing with this, the Apex Court in Laghu Udyog Bharati v. Union of India, [STO 1999 SC 7] points out that Sec. 66, which is a charging section, has to be read with Sec. 65(d)(41) [now Sec. 65(48)]. In paragraph 8, the Supreme Court says it is clear from the reading of these provisions that according to the Finance Act, the charge of the tax is on the person who is responsible for collecting the service-tax. It is he who by virtue of provisions of Sec. 65(5) is regarded as an assessee. He is the person who provides the services.(Para 16).

    Tax on profession: In Kamtaprasad case (AIR 1974 SC 685) the Supreme Court observed: "A tax on profession is not necessarily connected with income. This is clear from the tax on professions imposed by several municipal authorities at certain rates mentioned in the relevant statutes. A tax on income can be imposed if there is income. A tax on profession can be imposed if a person carries on a profession. Such a tax on profession is irrespective of the question of income."(Para 17).

    Professional income cannot be viewed as a profession tax: Therefore, any provision which was likely or capable of committing a breach of Art. 276(2) would clearly be void and, therefore, vitiated. In our opinion, Art. 276(2) itself creates a fiction that though a tax on profession relates to an income therefrom, it will not be so and by the creation of a limit to the profession tax sub-Art. (2) of Art. 276 itself suggests that income from the profession is irrelevant in the matter of tax on profession. It is only with that idea that sub-Art. (2) creates a limit. The creation of the limit itself gives a distinct character to the tax on profession and, therefore, a tax which is not fettered by a limit like one created by Art. 276(2) and which relates to the professional income cannot be viewed as a profession tax. Even if this service tax was linked with the professional income or the professional services even then, it had a "distinct aspect" of services. The tax was not on the basis that a professional was carrying on his profession like a Chartered Accountant or a Cost Accountant. The tax was, on the other hand, on the "professional services" offered by him to the clients and the service aspect was a distinct aspect and could not be confused with the aspect of a tax which arose only on account of the fact that a professional was having the privilege of carrying on his profession. A tax which the professional had to pay because he has had the privilege to carry on the profession or because he was carrying on the profession in a particular State is totally distinct and separate from the tax which he has to pay on services and which tax he would be able to pass on the customer who has had the advantage of his professional services. (Para 27,30).

    Therefore, there would be no question of finding any fault with the legislature for picking up the Chartered Accountants or the Cost Accountants or the Architects also for taxing their services.

    Petitions dismissed.

     
     

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