1. The Revenue appeals and parties appeals raises a common question of law and facts and hence, they are taken up together for disposal as per law. The question in these appeals is as to whether the activities carried out by Chartered Accountant such as opening ledger accounts, preparation of monthly bills preparation of skeleton bills, recording of demand and recoveries, maintenance of daily abstract and tallying, preparation and issue of disconnection lists to field staff and preparation of Union MIS Statements, consolidated DCB statements would come within the ambit of professional activity of practicing Chartered Accountant or under any other alternative classification proposed subsequently? This category of activity has come into existence in 2006 under the 'Support Services of Business or Commerce'.
2. The Service provider being a Chartered Accountant obtained the outsourcing work from M/s. MESCOM, KPTCL and KEB. The activity was done by an ordinary SSLC passed candidates and not by an aspirant clerical staff who wants to become a Chartered Accountant. This was an additional activity taken up by the Chartered Accountant, which was not connected with professional work of Chartered Accountant's Act 1949.
They contended that the Minimum Wages Act was applicable to the employees and the Contract Labours (Regulation and Abolition Act, 1970). The payment to the employees were based on the number of electricity meters checked by them and details collected for billing purpose. It was a mere billing and accounting work not connected to the professional capacity and it was an outsourcing work which has come into existence in 2006 under the category of 'Support Service of Business or Commerce'. They also referred to Board's Circular No.334/4/2006 TRU dated 20.2.2006 wherein Para 3.13 referred to 'Business Support Services' and stated as follows: Business Support Service: Business entities outsource a number of services for use in business or commerce. These services include transaction processing, routine administration or accountancy, customer relationship management and tele-marketing. There are also business entities which provide infrastructural support such as providing instant offices along with secretarial assistance known as "Business Centre services". It is proposed to tax all such outsourced services. If these services are provided on behalf of a person, they are already taxed under Business Auxiliary Service.
Definition of support services of business or commerce gives indicative list of outsourced services.
3. The Commissioner (A) examined the issue in great length and after due consideration noticed that the activity carried out by the professional Chartered Accountant on obtaining contract from the said agencies was not part and parcel or any activity as defined under the Chartered Accountant's Act 1949. The findings recorded in Revenue's Appeal No. 310/2006 by Commissioner (A) in Paragraph 1 to 13 are reproduced herein below.
1. The adjudicating authority has confirmed demand of Service Tax and other consequential liabilities on services provided to M/s MESCOM for various items of work namely, opening ledger accounts, preparation of monthly bills, preparation of skeleton bills, accounting of demands and recoveries, maintenance of daily abstracts and tallying, preparation and issue of disconnection lists to field staff and preparation of union MIS and consolidated DCB statements.
The confirmation has been done on the ground that these are taxable services of accounting provided by a practicing chartered accountant in his professional capacity and Notification No. 59/98 ST dated 16.10.1998 includes such a service of accounting for attracting levy of Service Tax on professional services of a practicing chartered accountant.
2. The appellant on the other hand contended that the services provided to M/s MESCOM were not provided by him in his professional capacity as a practicing chartered accountant and that the service actually done was limited to maintaining ledger accounts of billing related activity which did not amount to professional accounting service of a practicing chartered accountant. The appellant also claimed alternative classification under Business Support Services coming into existence only in 2006.
3. The issue of dispute is mainly whether the appellant offered his services in his professional capacity of a practicing chartered accountant and if the service offered amounted to professional service of accounting liable to attract Service Tax in terms of Notification No. 59/1998 ST. 4. I find from the case record that service contract was offered to the appellant on account of his being an empanelled chartered accountant. This shows that services were sought and offered in professional capacity only. But a careful examination of contractual responsibilities, obligations and conditions reveal that it is not a contract for availing professional accounting services of a chartered accountant. It is mainly a contract for outsourcing operations of ledger maintenance relating to billing activities of M/s MESCOM where the appellant was obliged to provide the manpower and take responsibility of maintaining true and proper accounts in accordance with given plans and specifications. The manpower so provided was required to attend to work at the premises of M/s MESCOM under the supervision and control of officials of M/s MESCOM. The appellant was required to make wage payment to these semi skilled workers in terms of relevant laws of the State of Karnataka.
The contract envisages payment to appellant on the basis of quantity of billing work attended and not on the basis of lumpsum fees for attending accounts. The contract also has penalty clause and provision for the appellant to make a security deposit. It is therefore clear that the relationship between the appellant and M/s MESCOM is not that of a practicing chartered accountant and a client but that of an agent and his principal. The service so provided therefore does not fit into the description of taxable service in terms of Section 65[105][s].
5. I further observe that the work allotted to appellant was capable of being allotted to persons other than a chattered accountant which implies that the work is not one requiring hiring of a chartered accountant for his professional skills of accounting. Provisions relating to termination of contract at one month's notice and termination following computerization of ledgers, the fact that both chartered accountants and non chartered accountants were paid similar service charges etc. go to establish that contract is for outsourcing the work of ledger maintenance and billing and not for hiring a chartered accountant for his specialized professional skills of accounting involving application of principles and procedures of accounting which cannot be dispensed with on account of computerization of ledgers or be attended by persons other than a chartered accountant.
6. I therefore come to a conclusion that notwithstanding the fact that contract was offered to appellant on account of his being a empanelled chartered accountant, the nature and scope of work given and conditions of work envisaged makes it clear that the services were further offered nor provided as a professional service of accounting attracting Service Tax liability in terms of Notification No. 59/1998 ST. 7. Even if it is accepted that the service was offered in professional capacity only, I find not all professional services were liable to tax.
8. Thus the second issue is whether ledger maintenance and billing related work done by the appellant amounted to professional service of accounting done by a practicing chartered accountant attracting Notification No. 59/1998 ST for levy of Service Tax since all services rendered by a practicing chartered accountant were not subject to Service Tax unless they figured in the list of taxable services appearing in Notification No. 59/1998 ST. In the present case the relevant service is that of accounting and auditing appearing at Sl.No. [i] of list of taxable services of Notification No. 59/1998.
9. The appellant has contested with some force that services rendered by him was that of book keeping / ledger maintenance for area specified in the contract and not of professional accounting by a Chartered accountant which has a different scope and meaning.
10. I find from the written submission and extracts from a text book on Accountancy by B.S. Raman, furnished at the time of personal hearing, by other appellants in cases of appeal involving similar facts and issues, that book keeping / ledger maintenance though an essential part of accounting process, cannot by themselves amount to a professional service of accounting offered by a practicing chartered accountant. Book keeping or ledger maintenance is the process of recording business transactions in appropriate books of account in a systematic manner so as to ascertain and understand the result and effect of these transactions in form of a statement of their result. I find that the ledger maintenance work attended by the appellant is confined to certain specified transactions and not all business transactions of M/s MESCOM. Thus even, as book keeping the work cannot lead to any accounting. The area so specified is billing, recoveries and generation of related list and reports. On the other hand the professional service of accounting requiring the services of a practicing chartered accountant as a matter of necessity attracting tax liability in terms of Notification No. 59/1998 ST, covers a much wider area than mere ledger maintenance.
Accounting involves identification and summarization of all business transactions of a client, analysis and interpretation of results thereof and communicating the result of this interpretation to the end user for decision making. The appellant could have been held liable to tax for having rendered accounting service only if he had maintained ledgers and carried out all the process referred above for ultimately drawing a balance sheet for M/s MESCCM. Ledger maintenance per se is not a taxable service of accounting done by chartered accountant in his professional capacity.
11. It is therefore dear from the scope of contract that the appellant actually provided services of ledger maintenance, by way of deputing manpower, as per plans and specification already determined for transactions limited to the area of billing, recoveries, etc. and generated relevant MIS and DCB statement. These statements and reports do not amount to a balance sheet for M/s MESCOM. I therefore come to a conclusion that services provided by the appellant to M/s MESCOM do not amount to a professional service of accounting provided by a practicing chartered account and accordingly did not attract Service Tax liability in terms of Notification No. 59/1998 ST. I also hold that ledger maintenance is only an ingredient and process of professional accounting, which involves several other stages and processes resulting in production of a balance sheet for the client. The work of ledger maintenance by a practicing chartered accountant did not attract Service Tax under Notification No. 59/1998 ST. 12. In Para 5 of Grounds of Appeal. The appellant claims that classification under Business Auxiliary Services was applicable during the relevant period. I however find no evidence of his having filed any declaration or discharged any liability under this classification. The classification claimed now under Business Support Service is not applicable for services rendered during 1999-2001 as fee new classification has been introduced only in 2006. Moreover Notification No. 59/1998 ST itself has been withdrawn as a result of which any services provided by a practicing chartered accountant will now attract Service Tax under classification of practicing chartered accountant only. The submission of the appellant is therefore irrelevant in so far as classification under Business Support Service is concerned. The issue of alternative classification under Business Auxiliary Service has however not been taken up in the impugned order.
13. In view of above discussion, I set aside the impugned order confirming liability of Service Tax and other consequential liabilities under the classification of services of practicing chartered accountant for services of ledger maintenance rendered to M/s MESCOM in terms of the contract on the ground that services rendered are not a professional service of accounting rendered by a practicing chartered accountant.
4. The learned JDR files a detailed written submission and contends that the order passed by the Commissioner (A) in Revenue's appeals is not correct, legal and proper, while the order passed in the party's appeal is correct and that should be accepted and followed in the Revenue appeals. It is his submission that the activity carried out by the Chartered Accountant were within the definition of Professional Chartered Accountant. Therefore, the services rendered by them and fee collected is required to be brought under the professional Chartered Accountant's Act for levy of Service Tax. The extended period is also applicable and demand should be confirmed for larger period. He submits that the reliance of the appellant on the Commissioner (A)'s order in Revenue appeals is not correct, as the order is not legal and proper.
Further reliance on Board's Circular is also mis-placed. He takes me through the detailed written submission filed by the Revenue and prays for allowing the Revenue appeals and dismissing the party's appeal.
5. The learned Counsel argued at great length. He took me first through the Chartered Accountant's Act 1949 wherein the activities of Chartered Accountant are listed. He pointed out from the said legislation that the activity of outsourcing done by the Chartered Accountant is not a professional Chartered Accountant's activity. The Chartered Accountant's professional activity is that of auditing and certification, while the present activity is done by a non-professional and employees who are not qualified beyond SSLC. These employees are covered under the labour legislation and employed on contract basis and their payments is based on the quantum of work done by them. Therefore, it is not at all related to any activity connected with professional training of a Chartered Accountant or any activity of Chartered Accountant. Hence, the Commissioner (A)'s finding in Revenue appeals is correct and proper, which is required to be upheld and the Chartered Accountant's Appeal in E/209/2006 should be allowed. He submits that this type of activity which has been outsourced need not be done by professional Chartered Accountant and such work has been given on contract to non-professionals also and refers to the contracts dated 1.9.1999 between the KPTCL and a person by name Shri Harinakshi. There are several such types of agencies who are carrying on the work of meter reading and preparing the bills and maintaining the ledgers. The MESCOM, KPTCL and KEB found this activity to be burdensome during the computerization period and therefore, they outsourced these activities.
It has nothing to do with the professional activity of Chartered Accountant. He points out to the Board's Circular which clearly lays down that the 'Business Support Service' brings into its ambit the services like transaction processing, routine administration or accountancy, customer relationship management and telemarketing. He points out that the activity done by the service provider in these cases has been subsequently brought under a separate category of 'Support Services of Business or Commerce'. Therefore, the Commissioner (A) was right in dropping the demands in Revenue's appeals.
6. On a careful consideration and examination of the definition given in the Chartered Accountants Act and the provisions there-under, which are referred in the written submission on this point brought out by the counsel in the paper book at page 59, 60, 61 and 62, which is as follows: As per the definition given in the Chartered Accountants Act, 1949, A member of the Institute shall be deemed to be in practice when individually or in partnership with Chaptered Accountants in practice, he in consideration of remuneration received or to be received.
Comment: It is to be noted that this does not cover raising of bills and maintenance of ledgers.
ii) offers to perform or performs services involving the auditing or verification of financial transactions, books, accounts, or records or the preparation, verification or certification of financial accounting and related statements or holds himself out to the public as an account; or Comment: This also does not cover the raising. If it were the verification of bills raised by others then it would be applicable.
iii) renders professional services or assistance in or about matters of principle or detail relating to accounting procedure or the recording, presentation or certification of financial facts or data; or Comment: This is also about advise or guidance far recording or accounting and not the recording itself.
iv) renders such other services as, m the opinion of the Council, are or may be rendered by the Chartered Accountant in practice; and the words "to be in practice" with their grammatical variations and cognate expressions shall be construed accordingly.
Pursuant to Clause (iv) above the Council has resolved that in its opinion the services that may be rendered by a Chartered Accountant in practice includes b. in his professional capacity (and neither in his capacity nor in his capacity as an employee), acts as a liquidator, trustee, executor, administrator, arbitrator, receiver, adviser or representative of costing, financial or taxation matters or takes up an appointment made by the Central Government or a State Government or a Court or law or any other legal authority or acts as Secretary unless his employment is on a salary-cum-full-time basis.
The Council has clarified the scope of the expression "Management Consultancy Services" as follows: Management Consultancy Services' shall not include the functions of statutory or periodical audit, tax (both direct taxes and indirect taxes) representation or advice concerning tax matters or acting as liquidator, trustee, executor, administrator, arbitrator or receiver, but shall include the following.
i) Financial, management planning and financial policy determination.
ii) Capital structure planning and advice regarding raising finance by issue of capital or by way of borrowings.
v) Preparing Cash Budgets, Cash flow statements, profitability statements, Statement of Sources and application of funds etc.
xv) Business policy, Corporate planning, Organisational Development Growth and diversification.
xvi) Organisational structure and behavior, development of human resources including design and conduct of training programmes work study-job description, job evaluation and evaluation of work loads.
xvii) System analysis and computer related services including selection of hardware development of software in all areas of services, which can otherwise be rendered by chartered accountant in practice and also to carryout any other professional services relating to EDP. Comment: The services of raising bills or maintaining the ledgers cannot be said to be that of management consultancy.
Therefore the practicing chartered accountant can do only the above said activities under his professional capacity.
6.1 On the above reading of the extract from the Chartered Accountants Act, it is clear that the activity of outsourcing of meter reading, billing and ledger posting which was an activity to be done by the respective companies does not come within the ambit of the professional activity of Chartered Accountant. It is also seen from the records that the said three companies had outsourced the work to other private parties also who were not Chartered Accountants. Moreover, the fact of the matter is that the employees were not getting trained as Chartered Accountant under the Chartered Accountants Act. They were unskilled personnel without qualifications and were only doing manual work. The employees were covered under the various labour legislations such as Contract Labour (Regulation and Abolition Act, 1970) and Minimum Wages Act. Therefore, the order given by the Commissioner (A) in the service providers case, of which one of the order is extracted is a correct order and requires to be upheld. Revenue's appeals are rejected and the party's appeal in ST/209/2006 is allowed.