By K Sivarajan, CA
SECTION 65(31) of the Finance Act, 1994 defines ‘consulting engineer’ to mean any professionally qualified engineer or an engineering firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering.
The words ‘engineering firm’ are sought to be substituted by ‘any body corporate or any other firm’.
In Tata Consultancy Services vs. UOI 2001 (2003-TIOL-118-HC-KAR-ST), the High court observed as under:
“The fact 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 in any engineering discipline is not specifically included in the definition of the expression “consulting engineer” which would not ipso facto mean that service rendered by any such Company cannot be considered to be taxable.”
In M.N.Dastur & Company Ltd. 2002 (2003-TIOL-121-HC-KOL-ST), the Calcutta High court held that limited companies would also be covered in the definition even though the words used are engineering ‘firm’.
The amendment now specifically includes ‘any body corporate or any other firm’ to set the controversy at rest.
However, the amendment has removed the words ‘engineering firm’.
In Pfizer Ltd. vs. CCE 2005 (188) E.L.T. 456 (Tri. - Mumbai), Pfizer, a New York agreed to disclose Technical know-how in relation to certain pharmaceutical products as also allowed the use of the patents held for the products to the Indian company. The department sought to levy tax on these services under ‘consulting engineer’, which was negated by the Tribunal. One of the reasons for such negation is that Pfizer, New York cannot be understood as an ‘Engineering Firm’ by a common man. The Tribunal, after referring to the decisions in the case of M.N.Dastur and TCS, observed that even though Pfizer, New York, may be covered in the definition of person, yet it will not cast a liability of Consulting Engineer or Engineering Services having been provided.
In Roots Industries vs. CCE (2005-TIOL-1170-CESTAT-MAD), it was observed that since the show cause notice did not claim that the appellants were a professionally qualified engineering firm, the demand could not be sustained.
In CCE vs. Jain Steel, (2005-TIOL-785-CESTAT-DEL) the department’s appeal was rejected since the respondent-firm did not consist of any professionally qualified persons so as to bring within the scope of an engineering firm. The Gujarat High Court’s decision in Chartered Accountants Association v. Union of India 2005 (179) ELT 129 (Gujarat) in which the High Court has held in Para 14 that it is the services rendered by the professional which are taxed, was relied on.
In Navinon Ltd. vs. CCE (2004-TIOL-710-CESTAT-MUM) it was contended by the assessee that royalty paid is not taxable under ‘consulting engineer’ since M/s. CIBA Geigy Limited, being a manufacturer is not an engineering firm. The Tribunal held that since Ciba Geigy Ltd, Switzerland were also manufacturers of the same goods, the definition of consulting engineer and providing the services as per sub-section of Section 65 of the Act cannot be upheld. This decision has been relied on subsequently in a lot of decisions relating to royalty payments.
• The amendment has removed the words ‘engineering’ and therefore, post amendment, it is not necessary that the body corporate or firm providing the service should be an ‘engineering’ firm.
• However, the nature of royalty payment is another factor that was mainly considered for deciding that royalty is not taxable as an engineering service. This has not changed.