CAs, architects to pay service tax: SC

The apex court upholds the Parliament’s legislative competence to levy service tax, reports Bhadra Sinha.

The Supreme Court on Wednesday upheld the Parliament’s legislative competence to levy service tax on chartered accountants, cost accountants and architects.

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Rejecting the contention of All India Federation of Tax Practitioners, a bench of Justice SH Kapadia and Justice B Sudershan Reddy said, “Service tax is a tax on each activity undertaken by a chartered accountant, a cost accountant or an architect. For each transaction or a contract, they render professional-based services.”

The bench further observed that although from the point of view from these professionals the activity undertaken by them is based on their performance but, from a client’s perspective, they are service providers. While upholding the Central

Government’s law to levy service tax through Finance Act 1994 and 1998 the bench also distinguished between a service tax and a professional tax. Rejecting the appellant’s argument that the word “profession” was synonymous with the word “service,” the bench held that service tax and professional tax were distinct.

Professional tax, according to the court, is a tax on an individual, person, a firm or a company. And, therefore, the state legislature was entitled to levy the same. However, service tax was a tax on the “status of a cost accountant or a chartered accountant.”

The SC’s ruling came on an appeal by All India Federation of Tax Practitioners who challenged a Bombay High Court judgement upholding the legislative competence of the Parliament to levy service tax on these professionals.