Service Tax on Consulting Engineers – Reg.

Service Tax on Consulting Engineers
– Erection & Commissioning Service Liable to Tax
– Initial Designing & Drawing of Turnkey Projects Not Taxable
– Amendments to Initial Designing is Taxable

Sir,

I am directed to invite your attention to Section 65(25) of the Finance Act, 1994 (as amended), which defines Consulting Engineer as “any professinally 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 2.7.97, services relating to construction activities are covered therein.

2. 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 lumpsum amount without 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.

3. This issue has bee 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.

4. Another point raised is whether “erection & 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 2.7.97].

5. Trade Notice may be issued for information of the trade

6. Receipt of this letter may be acknowledged.

Sd/-
(A.K. Prasad)
Director (CX.4)

F.No. 137/13/2001 CX.4

(Please refer CIR. NO.79/09/2004-CX(ST), DT. 13/05/2004 - Application of Service Tax on activities of Erection and Commissioning)