The essential requisite of the taxable service of Consulting Engineer services are:
Services are rendered by an Engineer.
The services rendered should be by way of advise, consultancy or technical assistance.
The services rendered relate to any one or more disciplines of Engineering such as Electronics, Mechanical, Civil, Production, Structural, agricultural, Automotive, Mining etc.
The tax under this category of Service is levied only upon advise, consultancy and technical assistance and not upon the actual execution related activities.
Consulting engineer means any professionally qualified engineer or 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 taxable service rendered by a consulting engineer means any services provided 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. The rate of service tax is 5% and the value of taxable service in relation to service provided by a consulting engineer to a client shall be the gross amount charged by such engineer from the client for advice, consultancy or technical assistance in any manner in one or more disciplines of engineering. (PARA 2.1, Extracts of instruction F.No. 43/5/97-TRU, dated 2-7-1997/trade notice no. 7/97-ST, dated 4-7-1997, Mumbai Commissionerate-I)
Such codes are no longer statutory but used for statistical purpose for the purpose of registration and for payment of tax as specified vide Circular No.165/16/2012 –ST dated 20.11.2012:
Tax Collection of Service
Interest and penalties on such service
Taxability as settled by precedents / Circulars / Trade notices
Whether falls within the scope of present service
Outright distribution scheme of DISCOM
Discom Ltd v CCE, Aurangabad, 2009-TIOL-1589-CESTAT-MUM
Operation and maintenance of power plant
GVK Power & Infrastructure Ltd., Rajahmundry v CCE&ST, Vishhapatnam 2008-TIOL-335-CESTAT-BANG
Certificate issued for ISO
CCE, Banglore v Sai Global Ltd., 2007-TIOL-1114-CESTAT-BANG
Testing instrument and furnishing test report
Central Power Research Institute v CCE., Banglore-III, 2006-TIOL-1131-CESTAT-BANG
Eco conservation work to preserve the wasteland and bringing them into use, especially for the development of tribals
CCE, Cochin v Nippon KOEI Co. Ltd., 2007-TIOL-48-CESTAT-BANG
An agreement for transfer of technology under foreign collaboration
Araco Corporation v CCE, 2005 (180) ELT 91
Ircon International Limited v CCE, Mumbai IV, 2006 (1) STR 46 (Tri.-Del.)
Design or drawing etc, done during the turnkey projects
Erection, Commissioning and Installation services to be taxed under the present category?
Circular 79/9/ 2004-Service Tax dated 13-5-2004
qualified engineers who act as insurance surveyors and loss assessor
CBEC Circular No. 34/2/2001-CX, dated 30-4-2001
Any civil construction work to commence, a lot of preparatory work is required, e.g. soil testing, survey, planning, designing, drawing, etc. Once the design and drawings are completed by the construction company, it always seeks the approval of the client before proceeding with the construction. If the client suggests some changes they are incorporated in the design. This portion of the work is provided to its client and the service is definitely of a consulting engineer.
Circular No. 49/11/2002-ST, dated 18-12-2002
Services provided by such self-employed professionally qualified engineer to a client in relation to one or more discipline of engineering
Circular no. 96/7/2007-ST, dated 23-8-2007, as amended by Circular no. 98/1/2008-ST, dated
Central Power Research Institute V CCE, Bangalore-III 2006 (3) STR 637
Third party inspection and certification carried on by agents where certificate given is under the authority of any statute
MF (DR) Circular F.No. 177/5/2001-CX 4
Consultancy service covering both computer hardware and software service consultancy
Circular DOF No. 334/1/2008-Tru dated 29-2-2008
Value of Taxable Service
Section 67 read along with Service Tax (Determination of Value) Rules, 2006 provides the manner of determining the value of taxable services on which services tax should be levied.
In respect of Consulting Engineer services, no specific provision for determination of taxable value has been provided. However it has been clarified that the value of taxable services is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration are indicated separately in the invoice. Thus, the value of taxable Consulting Engineer services is to be determined in terms of provision of Section 67 read with the prescribed Rules.
No abatement has been granted to any person liable to pay service tax under the Section.
Small Service Provider
Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.
Import of Technology
Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.
To Foreign Diplomatic missions and their personnel
Vide Notification No 27/2012-ST, dated 20.06.2012 – Exemption for all the taxable services provided by any person, for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein.
Services by TBI or STEP
Vide Notification No 32/2012-ST, dated 20.06.2012 – All taxable services provided by TBI or STEP have been exempted
Services provided to SEZ
Vide Notification No 40/2012-ST, dated 20.06.2012, all taxable services received by a Unit located in a Special Economic Zone (SEZ) or Developer of SEZ for the authorized operations, has been exempted from the levy of whole of the service tax.
No specific exemption has been granted to this service. However, most relevant exemption for this service is that provided by Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.
Provisions relating to point of taxation
As per Rule 3 of Point of Taxation Rules, 2011, the point of taxation shall be-
Time when the invoice for the service provided or to be provided is issued. As per Rule 4A of Service Tax Rules, invoice shall be issued within 30 days from the date of completion of service. In case invoice is not issued within 30 days from the completion of service, the point of taxation shall be the date of completion of service.
In case where the person providing the service receives payment before the time specified above, the date of receipt of payment shall be the point of taxation.
Provisions relating to Place of Provision of Service Rules, 2012
The Place of Provision of Service Rules, 2012 contains different rules for different nature of services. Since no specific Rule applied to such services, the place of provision shall fall under Rule 3 which provides that location of service recipient shall determine place of provision of such services. Thus, if the recipient is within taxable territory, place of provision shall be within taxable territory and taxable, else, non taxable.
Provisions relating to reverse charge
These services are not included under the mechanism of Reverse Charge. Hence, the person providing the service shall be the person liable to pay service tax.
Para 4 of Circular/letter D.O.F. No. 334/1/2008-TRU, dated 29-2-2008-amendments by Finance Act, 2008
Circular no. 96/7/2007-ST, dated 23-8-2007,as amended by Circular no. 98/1/2008-ST, dated 04.01.2008-clarification on technical issues relating to taxation of services under Finance Act, 1994
Extracts of Instruction F. No. 43/5/97-TRU, dated 2-7-1997/Trade Notice No. 7/97-ST, dated 4-7-1997, Mumbai Commissionerate
2.1 Consulting engineer means any professionally qualified engineer or 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 taxable service rendered by a consulting engineer means any services provided 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. The rate of service tax is 5% and the value of taxable service in relation to service provided by a consulting engineer to a client shall be the gross amount charged by such engineer from the client for advice, consultancy or technical assistance in any manner in one or more disciplines of engineering.
2.2 Consulting engineers shall include self-employed, professionally qualified engineer who may or may not have employed others to assist him or it could be an engineering firm whether organised as a sole proprietorship, partnership, a private or a public limited company.
2.3 The services which attract the levy include all the services which are rendered in the capacity of a professional person and specifically include the services pertaining to structural engineering works, civil/mechanical/electrical engineering works or relating to construction management. All services rendered within the above scope of the term ‘engineering’ attract service tax provided they are rendered in the capacity of a consulting engineer. The scope of the services of a consultant may include any one or more of the following categories :—
(i) Feasibility report;
(ii) Pre-design services project report;
(iii) Basic design engineering;
(iv) Detailed design engineering;
(vi) Construction supervision and project management;
(vii) Supervision of commissioning and initial operation;
(viii) Manpower planning and training;
(ix) Post-operation and management;
(x) Trouble shooting and technical services, including establishing systems and procedures for an existing plant.
Though the above list is not exhaustive, it illustrates the wide scope and nature of the services rendered by a consulting engineer.
2.4 The services should be rendered to a client directly, and not in the capacity of a sub-consultant/associate consultant to another consulting engineer, who is the prime consultant. In case services are rendered to the prime consultant, the levy of the service tax does not fall on the sub-consultant but it falls on the prime or main consulting engineer who raises a bill on his client (which includes the charge for services rendered by the sub-consultant).
2.5 As in the case of manpower recruitment agencies, service tax on consulting engineer shall be the gross amount charged to the client for services rendered in relation to the recruitment of manpower excluding the amount incurred by the manpower recruitment agency on behalf of the client towards expenses which are reimbursed on actual basis and in case the client is billed on a lump sum basis, any deductions from the same on account of reimbursable expenses, for the purpose of determining the value of taxable service shall be permitted on the basis of documentary evidence adduced by the agency.
2.6 Normally the consulting engineer receives remuneration from the client for the services rendered by him as per the stipulations in the contract/agreement between them. The payment from the client is received at different stages, based on the completion of work at each stage. The Consulting Engineer shall be required to pay service tax on the payments received at each stage from the client by the 15th of the succeeding month. Subsequent modifications, if any, in the bills raised to the client at the time of final payment will be allowed after verification.
2.7 The services rendered by a consulting engineer on overseas projects shall be fully exempted from payment of service tax provided it is received in convertible foreign exchange.
CBEC Circular No. 34/2/2001-CX, dated 30-4-2001
I am directed to say that doubts have been raised as to whether the services rendered by qualified engineers as insurance surveyor and loss assessor, would come under the purview of service tax levied on the service provided by the consulting engineers.
The matter has been examined in the Board’s office. As per sub-clause (g) of clause (48) of section 65 of the Finance Act, 1994 as amended, the taxable service in case of consulting engineer has been defined as “any service provided to a client, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering”. Hence the services which will come under the purview of service tax in the category of consulting engineer, will be those rendered in a discipline of engineering, by a qualified engineer or an engineering firm.
Section 64UM of the Insurance Act, 1938, prescribes that any qualified engineer, chartered accountant, cost accountant, actuary, any person holding diploma in relation to insurance from a recognised institute or any technical qualification which may be prescribed, can act as surveyor or loss assessor after obtaining a licence.
It is evident that a number of professionals other than engineers can also be engaged by the insurer for surveying and loss assessments. The very fact that a number of professionals such as Chartered Accountant, Cost Accountant, Actuary, or a person holding diploma in relation to insurance can provide services as surveyors or loss assessor in itself suggest that the service provided by the surveyor or loss assessor is not in the field of engineering. It is a job, which can be performed by an engineer so also by other specified professionals. The function to be performed by the surveyor or the loss assessor is to compute and assess the nature and quantum of loss/valuation of property, which may require basic knowledge of accounting, mathematics and science etc. The services provided by any qualified engineer in the area of insurance survey or loss assessment are therefore not in the nature of services in an engineering discipline. Even as per the WTO classification of services, insurance survey and loss assessment is categorised as insurance auxiliary services and not as “consulting engineer services”.
In view of the facts mentioned above, it is clarified that the term ‘consulting engineer’ as defined in the Service Tax Act, will not include those qualified engineers who act as ‘insurance surveyors and loss assessor’ within its scope and therefore service tax levy on the consulting engineer in any discipline of engineering will not cover the insurance surveying and loss assessment services rendered by a qualified engineer.
In exercise of the powers conferred under section 37B of the Central Excise Act, 1944 (as made applicable to Service Tax by section 83 of the Finance Act, 1994), the Central Board of Excise and Custom considers it necessary, for the purpose of uniformity in connection with classification of services, to issue the following instructions.
Doubts have been raised as to whether ‘third party inspections and certifications’ carried out by certifying agencies in respect of marine as well as non-marine equipments, can be considered as a service provided by a ‘consulting engineer’ or not.
This matter was also raised by two service providers before the Mumbai High Court, in Writ Petition No. 1436/2000. The petition was disposed of by the Hon’ble Court on 11-9-2001 with directions to the Board to issue a section 37B order in the matter for ensuring uniformity.
The two service providers were heard in the matter on 4th January, 2002. Views of the field formations were also procured. Some of the types of inspection and certification work carried out by the said two service providers relate to :—
(i) New Construction
(ii) Periodical Surveys
(iii) Marine equipment and components
(iv) Type approval
(v) Marine specification
(vi) Confirmation of class
(i) Plan approval and Inspection
(ii) ASME Inspection Service
(iii) System Integrity and Management
It is observed that as per clause (18) of section 65 of the Finance Act, 1994, ‘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 manner to a client in one or more disciplines of engineering.
The issue, therefore, is whether the service of ‘third party inspection and certification’ carried out by a professionally qualified engineer or an engineering firm can fall under the category of advice, consultancy or technical assistance.
The main point raised by some service providers is that where they are carrying out any certification as required by any statute it cannot come under the purview of either consultancy, advice or technical assistance. As for example, some of them have been authorised under section 9 of the Merchant Shipping Act, 1958, to survey and classify ships and issue necessary certification. [Refer S.O. No. 769(E), dated 7-11-1997 issued under section 9 of the Act ibid.]
In the case of ‘Management Consultants’, the Board had clarified, in Para 11 of the section 37B Order No. 1/1/2001-ST, dated 27-6-2001, that “. . . banks who are required to play only a statutory role under any Act or regulation, such as Takeover Regulations of SEBI, and do not provide any advice or consultancy but merely verify and submit a report to the concerned authorities, in connection with merger and acquisition transaction, are not treated as Management Consultants. . . .” The definition of “Management Consultant” also uses the words ‘Consultancy, advice or technical assistance’.
Certificates given under authority of any statute/international protocol/code/convention, cannot be considered to be a consultancy job. It is then to be examined whether this activity can come under the purview of advice or technical assistance. An advice is generally understood to be optional in nature and has no statutory force. It is upto the client to accept the advice or not. The activity of certification will therefore not fall under the category of advice. As regards ‘technical assistance’, it is observed that an assistance is normally for the purpose of achieving a particular aim or result. A certificate given by, say, the Boiler Inspector under the Factory’s Act, 1948, about the safety of a boiler, cannot be considered to be an ‘assistance’ to the person using the said boiler in his factory. Thus, if a certifying agency issues a ‘Cargo ship safety construction certificate’ under section 299(A)(i) of the Indian Merchant Shipping Act, 1958, it cannot be considered to be either an advice or a technical assistance.
To issue certificates under the authority of any statute it will obviously be necessary for the certifying agency to conduct some survey/inspection. Thus the survey/inspection by an agency for the purposes of issuing certificates by the same agency under an authority of law, will also not amount to consultancy, advice or technical assistance. If, however, the shipping company gets the ship surveyed or inspected by another, agency before taking it for certification by an authorized agency, only then can it be said that the first agency is providing some technical assistance or advice.
It will, therefore, be essential to examine each activity of a service provider on the basis of facts, the terms of agreement between the assessee and the clients and the corresponding provisions of Indian or International Statute/Convention/Protocol or Code, to determine whether the certificate being given is under the authority of any such statute, convention, protocol or code. If it is so, the payment received for that service will not be taxable under the head ‘consulting engineer’.
Any other inspection, survey, assessment, technical assistance, consultancy, recommendation, advice undertaken/provided directly or indirectly, by the assessee would be liable to Service Tax under the head ‘Consulting Engineer’.
Circular No. 49/11/2002-ST, dated 18-12-2002
I am directed to invite your attention to section 65(25) of the Finance Act, 1994 (as amended), which defines Consulting Engineer as “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 types of services a consulting engineer normally renders are illustrated in Board’s letter F. No. 43/5/97-TRU, dated 2-7-1997, services relating to construction activities are covered therein.
Some construction agencies take up turnkey projects for construction of flats, administrative building, etc., for constructing these flats they have to do some designing, drawing and also provide advice and technical assistance. The contract is generally for a lump sum amount with no separate allocation for the above charges. Some field officers are taking part of the contract as a ‘service’ provided by a ‘consulting engineer’ and levying service tax on the same. Representations have been received that in respect of such turnkey contracts for carrying out construction activities, the designing and drawing work is a service provided to themselves in the course of the construction activity and there is, therefore, no question of charging any service tax on this amount.
This issue has been examined in the Board. For any civil construction work to commence, a lot of preparatory work is required, e.g. soil testing, survey, planning, designing, drawing, etc. Once the design and drawings are completed by the construction company, it always seeks the approval of the client before proceeding with the construction. If the client suggests some changes they are incorporated in the design. This portion of the work is provided to its client and the service is definitely of a ‘consulting engineer’ and hence taxable.
Another point raised is whether “erection and commissioning charges” are liable to service tax, or not. This matter has also been examined in the Board. The work of erection and commissioning of machineries and plants, is definitely one of providing “technical assistance” to buyer of plant/machinery and is, therefore, in the nature of services provided by a “Consulting Engineer” and hence taxable [Refer para 3(vii) of Board’s letter dated 2-7-1997].
Circular No. 79/9/2004-ST, dated 13-5-2004
I am directed to draw attention to the Circular No. 49/11/2002-ST, dated 18-12-2002, whereby it was clarified that the work of Erection and Commissioning is in the nature of services provided by a “Consulting Engineer” and hence taxable under Service-tax. Also in the year 2003, Service-tax was imposed on Commissioning and Installation Service, effective from 1st July, 2003. In terms of Circular No. 59/8/2003, dated 20-6-2003, issued from File No.B-3/7/2003-TRU, it was clarified that charges for erection of plant would not be covered under the Commissioning and Installation services.
In the light of above conflicting views, several representations have been received in the Board for clarification as to whether
the charges for erection would be covered under Service tax or not ?
the Commissioning or Installation service would be covered under Service tax under Consulting Engineer service effective from 7-7-1997
The issue has been examined by the Board in consultation with the Ministry of Law and Justice and in this regard I am directed to say that charges for erection, installation and commissioning are not covered under the category of Consulting Engineer Services. Commissioning or Installation service will be separately taxable under relevant entry and are not chargeable under Consulting Engineer Services. Accordingly, the clarification issued videthe Circular No. 49/11/2002-ST, dated 18-12-2002stands modified to this extent.
Para 4 of Circular/letter D.O.F. no. 334/1/2008-TRU, dated 29-2-2008
4.1.7 Following consequential amendments in other taxable services are also being made:
Services provided in relation to advice, consultancy and assistance on matters related to IT software shall be leviable to service tax under the IT software service. Consulting engineer’s service [section 65(105)(g)] in the discipline of computer hardware engineering is leviable to service tax whereas consulting engineer’s service in the discipline of computer software engineering is not leviable to service tax by way of specific exclusion. Specific exclusion of ‘consultancy in the discipline of computer software engineering’ from the scope of ‘consulting engineer’s service’ is not necessary and, therefore, being deleted.
To clarify that a consultancy service, covering both hardware and software consultancy, shall be classifiable under ‘Consulting engineer’s service’.
Circular no. 96/7/2007-ST, dated 23-8-2007, as amended by Circular no. 98/1/2008-ST, dated 4-1-2008
Whether a self-employed professionally qualified engineer can be considered as ‘consulting engineer’ [section 65(31)] and service provided by such self – employed professionally qualified engineer to a client in relation to one or more discipline of engineering is liable to service tax under consulting engineer service