Indian Service Tax
Consulting Engineer
Effective Date 07/07/1997
Authority: Notification No. 23/97-ST, dt. 02/07/1997 (See at the end of this Chapter).
Rate of Service Tax: 8% from 14/5/2003 (5% upto 13/5/2003). 10% from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.
Definition
"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; [Section 65(31)]
Taxable service
Engineering consultation service by a consulting engineer in relation to advice consultancy or technical assistance in any manner in one or more discipline of engineering.
Value of taxable service
Gross amount charged by consulting engineer from the client for advice consultancy or technical assistance in any manner in one or more disciplines of engineering.
Exemptions
See Notification Nos. 4/99-ST, dt. 28/02/1999 and 18/2002-ST, dt. 16/12/2002.
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See Chapter on "General Exemptions"
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Specific exemptions
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Turnkey projects
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Erection, installation & commissioning
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Transfer of technology
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Architects, interior decorators
Person liable to pay: Consulting Engineer & Engineering Firm.
Head of Account
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Questions & Answers
Q. 1l Who is a "Consulting Engineer" ?
Ans. Consulting Engineer is 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.
Consulting engineers include self-employed, professionally qualified engineers, who may or may not have employed others to assist them or it could be an engineering firm- whether organised as a sole proprietorship, partnership, a private or a public Ltd. Company.
Q. 2 What is the taxable service in case of consulting engineer?
Ans. The taxable service rendered by a consulting engineer means any service 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 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 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 anyone or more of the following categories -
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Feasibility study;
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Pre-design services/project report;
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Basic design engineering;
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Detailed design engineering;
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Procurement;
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Construction supervision and project management;
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Supervision of commisssioning and initial operation;
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Manpower planning and training;
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Post-operation and management;
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Trouble shooting and technical services, inculding establishing systems and procedures for an existing plant.
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The list is only illustrative.
Q. 3 What is the value of taxable service in case of consulting engineer?
Ans. The value of taxable service in relation to the services provided by a consulting engineer to a client is 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.
QA Is Service Tax chargeable on Sub Consultant appointed by main consulting engineer?
Ans. No. 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 by the sub- consultant, the levy of Service Tax does not fall on the subconsultant but only on the prime or main consulting engineer who raises a bill on his client (which would include the charges for services by the sub-consultant).
Q. 5 What is the procedure to be followed when service charges for consulting engineers are received at different stages of work instead of as one time payment?
Ans. 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 as a single payment or in different stages based on the completion of work at each stage. The consulting engineers shall be required to pay Service Tax on the payments received at each stage from the client by the 25th of the succeeding month. Subsequent modification, if any, in the bills raised to the client at the time of final payment may be allowed after verification.
Q. 6 Is any exemption from Service Tax available to consulting engineers?
Ans. Yes. The value of taxable service rendered by a consulting engineer to a client in respect of any project based in a foreign country is fully exempt from the levy of Service Tax. However this exemption is subject to the condition that the charges for such services are received in convertible foreign exchange. (Authority: Notification NO.25/97 -ST dt. 2.7.97)
Q. 7 Are valuers liable for payment of service tax under the category of consulting engineer?
Ans. Yes, the services provided by Engineer Valuers regarding valuation of immovable property and plant & machinery fall within the purview of Consulting Engineers and is liable for payment of service Tax.
Q. 8 Would the trust/societies providing service in the field on engineering consultancy, be liable to pay service tax ?
Ans. Yes, the Societies/ Trust working in the field of Engineering Consultancy would be liable to pay service tax under the category of consulting engineer.
Q. 9 Are the services rendered by 'Consulting Engineer' to Central Govt./ State Govt. organisations or Public Sector undertakings exempted from payment of Service Tax?
Ans. No. There is no exemption to this effect. Such services would be as liable for paymentofService Tax as the services provided to private parties.
Q. 1O Are the Organisations functioning on behalfofthe Govt.ofIndia liable to pay Service Tax if they are engaged in rendering consultancy services on no profit, no loss basis?
Ans. Yes. If Govt. organisations are providing consultancy services and getting paid for the same, they would be correctly covered under category of 'Consulting Engineer'.
Q. 11 Whether a foreign company, which is not having registered office in India, but is providing services in India to Indian client, is liable to pay Service Tax ?
Ans. Yes, since the place of rendering the service is the criterion for deciding the liability to pay Service Tax, the foreign companies, which are providing engineering consultancy services in India, are liable to pay service tax after due registration. However, if they do not have any office in India, they can get registered at the head office of their client as their registered address for discharging their Service Tax liability.
Q. 12 If the foreign company is rendering services at different places all over India, is it necessary that different registrations be obtained for each place of operation or one registration is enough?
Ans. No, even if they are rendering services at different places in the Country, they need to take registration only at the place where the Central billing office operates from.
Q. 13 If payment to the foreign company is in foreign currency, what would be rate ofexchange to determine the Service Tax liability?
Ans. The rate of exchange prevailing on the date on which Indian client makes payment, would be the rate of conversion offoreign currency into Indian rupees.
Q. 14 Is Service Tax applicable to those firms, who undertake turn-key projects?
Ans. If the firms are manufacturing tailor made items and are also engaged in drawing, designing, erection & commissioning of the machinery at site, all the essential ingredients of'Consulting Engineers' i.e. advice, consultancy & technical assistance are present. Therefore, they would be liable for payment of Service Tax.
Q. 15 Whether fees charged by a consulting engineer for secondment /deputation of qualified engineers would attract levy of Service Tax?
Ans. Yes. Service Tax would be payable in the event consulting engineers are sent on deputation/secondment to other firms.
Q. 16 Are the services provided by a qualified engineer in the fieldofinsurance survey liable to Service Tax under the category of consulting engineer?
Ans. Yes. The services provided by a qualified engineer in the field ofinsurance survey would fall under service tax net under the category of service provided by consulting engineer.
Q. 17 In case of LPG road tanker, agencies authorised by the Director of Explosives, Nagpur conduct inspection and certify the tanker as road worthy. Such Inspections are not optional but compulsory (a statutory requirement). Whether the services rendered by such agencies will be covered under the scope of consulting Engineers?
Ans. Services rendered by Agencies authorised by Director ofExplosive, Nagpur to conduct inspection and certify road worthiness ofLPG tanker attract service tax as Consulting Engineer since these services are in the nature of technical assistance provided by an engineering firm to a client.
Q. 18 Is any exemption from service tax available to consulting engineers working in the field of computer software?
Ans. Yes. The value of taxable services provided to any person by a consulting engineer in relation to computer software is exempted from the whole of the service tax leviable thereon.
(Authority - Notfn. No.4/99-ST dt. 28/2/99)
[Source CBEC Website]
Changes from 10/9/2004
F.No. B2/8/2004-TRU, Date 10/9/2004
25. Withdrawal of exemption to engineering consultancy services in relation to computer software:
The exemption to services provided by a consulting engineer in relation to computer software (Notification No. 4/99-S.T.) has been withdrawn (Refer Notification No. 23/2004-S.T., dated 10/9/2004).
Main text of Departmental Circular/TN
TN No. 53-CE (ST)/97, date: 04.07.1997 of New Delhi Commissionerate
4.1 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 more discipline ofengineering. The taxable service rendered by a consulting engineer means any service provided to a client, by a 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 bysuch engineer from the client for advice, consultancy or technical assistance in any manner in one or more discipline of engineering.
4.2 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 Ltd., Company.
4.3 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 on or more of the following categories:
-
Feasibility study.
-
Pre-design services/project.
-
Basic design engineering.
-
Detailed design engineering.
-
Procurement.
-
Construction supervision & project management.
-
Supervision. of commissioning and initial operation.
-
Manpower planning and training.
-
Post-operation and management.
-
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.
4.4 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 service tax does not fall on the sub-consultant, the levy service tax does not fall on the sub-consultant but is on the prime of main consulting engineer who raises a bill on his client (which include the charge for services rendered by the sub-consultant).
4.5 As in the case of manpower recruitment agencies service tax on consulting engineers shall be the gross amount charged to the client for services rendered in relation to the recruitment of manpower excluding the amount incurred in the manpower recruitment agency on behalf of the client towards expenses which are reimbursed on actual basis an in case the client is titled on a lump sum basis any deduction from the same on account of reimbursible expenses, for the purpose on the basis of documentary evidence adduced by the agency.
4.6 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 modification, if any, in the bills raised to the client at the time of final payment may be allowed after verification.
4.7 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 (Notification No. 22/97-ST dated 2/7/97 refers).
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