Body Corporate

Case BriefsSupreme Court

Supreme Court: The bench of MR Shah* and Sanjiv Khanna, JJ has reversed the ruling of Customs, Excise & Service Tax Appellate Tribunal, Delhi (CESTAT) wherein it was held that the services rendered by a “Consulting Engineer” were not subjected to service tax.

Background

In the case at hand, a Chinese Government Company Sepco Electric Power Construction Corporation entered into a contract with Bharat Aluminium Co. Ltd. (BALCO) for providing “Design Engineering Services” and “Project Management & Technical Services”. In terms of the said agreement, it rendered “Consulting Engineer Services” to BALCO.

Pursuant to the CESTAT order, the question that fell for consideration before the Supreme Court was regarding the scope of definition of “consulting engineer” under Section 65(31) of the Finance Act, 1994, specifically as to whether a “body corporate” is covered within its sweep prior to the amendment in 2005.

It is important to note that post 2005, the definition of “consulting engineer” under Section 65(31) has been amended and now it specifically includes a “body corporate”. Therefore, as such, with respect to the proceedings post amendment 2005, there will be no difficulty. After the amendment, any “body corporate”, a service provider providing the services as “consulting engineer” is liable to pay the service tax.

Analysis

Under the Finance Act, 1994, the definition of “consulting engineer” in Section 65(31) covers services provided to a client by a professionally qualified engineer or an engineering firm consisting of professionally qualified engineers. The taxable attribute is that the services must be rendered in a professional capacity.

Prior to amendment 2005, by a Circular/Trade Notice dated 4.7.1997, the definition of “consulting engineer” under the Finance Act, 1994 was specifically explained and as per the said Trade Notice, “consulting engineer” means any professionally qualified engineer or engineering firm who, either directly or indirectly, venders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering. It also further clarified that “consulting engineer” shall include self-employed professionally qualified engineer who may or may not have employed others to assist him or it could an engineering firm – whether organised as a sole proprietorship – partnership, a private or a Public Ltd. company.

Also, in many places under the Finance Act, 1994, the Parliament/Legislature has used the word “person” (Sections 68, 69 and 70). At this stage, Section 3(42) of the General Clauses Act, 1897 is also required to be referred to, considered and applied. The word “person” includes any company or association or body of individuals, whether incorporated or not.

Hence, it could be seen that it was never the intention of the legislation to exclude a “body corporate” from the definition of “consulting engineer” and from the “service tax net”.

Further, if it is held otherwise, in that case, it would remove all companies providing technical services, advice or consultancy to their clients from the service tax net, while any such services rendered by an individual or a partnership firm would continue to remain taxable. That does not seem to be an intention on the part of the legislature to exclude the “body corporate” from the definition of “consulting engineer”. There does not seem to be any logic to exclude “body corporate” from the definition of “consulting engineer”.

“If the submission on behalf of the respondent is accepted and the “body corporate” is excluded from the service tax, in that case, it would not only lead to absurdity but also would create two different classes providing the same services. That cannot be the intention of the legislature to create two separate classes providing the same services and to exclude one class.”

Ruling on facts

Applying the aforementioned law to the case at hand, the Court held that the respondent, being a service provider providing consultancy engineering services, was/is liable to pay the service tax for such services being “consulting engineer” within the definition of Section 65(31) of the Finance Act, 1994 and therefore and thereby liable to pay the service tax under Section 66 r/w Section 68 of the Finance Act, 1994.

[Commissioner of Central Excise v. Sepco Electric Power Construction Corporation, 2022 SCC OnLine SC 833, decided on 11.07.2022]

*Judgment by: Justice MR Shah

Counsels

For Revenue: Additional Solicitor General of India Balbir Singh

For Respondent: Advocate P.K. Sahu

Case BriefsHigh Courts

Delhi High Court: Amit Bansal, J., expressed that an LLP or any other business entity can carry out business in different parts of the country, but that would not mean that a suit with regard to disputes between the partners, could be filed in any place where the business of the firm/LLP is carried out.

A petition was filed under Article 227 of the Constitution of India which impugned the order passed by the District Judge whereby the application was filed on behalf of the petitioners/defendants under Order VII Rule 10 and 11(d) of the Code of Civil Procedure, 1908 had been dismissed.

The plaint from which instant petition arose was filed by the respondent/plaintiff, being one of the partners of the petitioner 3/defendant 3 which was a Limited Liability Partnership (LLP) and against the respondents 1 and 2/defendants 1 and 2 who were the remaining partners of the said LLP.

Petitioners/Defendants counsel submitted that the registered office of the LLP was in Hyderabad, hence the Courts in Delhi did not have any jurisdiction.

Respondent/Plaintiff submitted that the business of the LLP was duly being carried out in Delhi through the respondent/plaintiff and therefore, the cause of action would arise in Delhi. Hence, the Courts in Delhi would be competent to try and entertain the present suit.

Grievance in the Matter

Respondent/plaintiff was aggrieved that he had been denied access to the business accounts of the respondent 3/defendant 3.

Analysis and Discussion

In the plaint it was nowhere submitted that the business accounts, in respect of which access has been sought were kept in Delhi, in fact, the plaint is conspicuously silent on the aspect of the cause of action for filing of the suit.

The entire basis of the respondent/plaintiff for filing the suit in Delhi was on account of the fact that the LLP carried out business in Delhi and that the products of the LLP were regularly sold in Delhi by means of online sales as well as through physical stores such as Nature’s Soul, which is in Delhi.

High Court opined that the fact that business of the LLP was being carried out in Delhi would not vest the Courts of Delhi with jurisdiction to try and entertain the present suit.

Additionally, the Bench stated that Section 13 of the LLP Act provides that every LLP shall have a registered office, where all communications and notices may be addressed and shall be received. In terms of Section 34(1) of the LLP Act, the books of account in respect of an LLP shall be maintained at the registered office.

Further, in view of the facts and circumstances of the case, Court decided that the jurisdiction to entertain the present suit shall vest with the Courts in Hyderabad.

Since there was no principal or subordinate office of the LLP in Delhi and neither the books of accounts were kept in Delhi, therefore, there was no cause of action in respect of the present suit which was arising within the territorial limits of the Courts in Delhi.

Parties by agreement cannot give jurisdiction to a Court which otherwise does not have such jurisdiction. 

Maintainability in Civil Court

Bench elaborated that, merely because the definition of the “body corporate” under Section 2(1)(d) of the LLP Act includes an LLP, it is not automatically implied that the NCLT would be the competent forum for deciding all disputes inter se the partners of an LLP. Unlike Section 430 of the Companies Act, 2013, there is no bar on the jurisdiction of the Civil Courts under the provisions of the LLP Act. Therefore, in terms of Section 9 of the CPC, the suit shall be maintainable in a Civil Court.

Decision

Courts in Delhi lack the territorial jurisdiction to try and entertain the present suit.

In view of the above discussion, the present suit stood allowed. [Aanchal Mittal v. Ankur Shukla, 2022 SCC OnLine Del 633, decided on 25-2-2022]

Advocates before the Court:

For the Petitioners: K.C. Mittal with Yugansh Mittal and Sanjay Kumar, Advocates

For the Respondent: Vishal Singh, Advocates