Architect's services were brought under the Service Tax net by the Finance (No. 2) Act, 1998 w.e.f. 16-10-1998 vide Notification No. 53/98, dated 7-10-1998. The service shall be taxed, if provided by an Architect to clients.

Rate of Service Tax: The rate of service tax is specified in section 66 of the Act. The Finance (No. 2) Act, 2004 has substituted the charging section 66, and the rate of service tax is enhanced from 8% to 10% ad valorem. The increase in tax rate has come into force from the date of enactment of the Finance (No. 2) Act, 2004 i.e. 10-9-2004. Further, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has also levied an education cess @ 2 % of the service tax. The cess paid on inputs services shall be available as credit for payment of cess on output services. For further discussion in this regard, refer -'Payment of Service Tax'.

The definition of architect has been given under clause (6) of section 65. It provides that:

"architect means any person whose name is, for the time being, entered in the register of architects maintained under section 23 of the Architects Act, 1972 and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture."

The definition of architect is very specific, it must specifies the following conditions:

§ he may be any person;

§ person name is for the time being entered in the register of architects maintained under section 23 of the Architects Act, 1972, and also;

§ includes any commercial concern engaged in any manner;

§ rendering services in the field of architecture;

§ service may be rendered either directly or indirectly.

(1) Meaning of 'person'

The term 'person' has been defined as "person shall include any company or association or body of individual, whether incorporated or not" [Clause (42) of section 3 of General Clauses Act, 1897]. Therefore, it denotes both natural and artificial and juristic person. But, in the present context, the term 'person' would be only an individual human being, as per section 25 of the Architects Act, 1972 only name of individual name can be entered into in the register of architects.

(2) 'entry in the register of architects'

As per the definition of architect, person name, for the time being, entered in the register of architects. Section 23 of the Architects Act, 1972 contains the provisions related to maintenance of register of architects and section 25 of the said Act contains the provisions related to qualification for entry in register of architects.

According to section 25 of the Architects Act, 1972:

Qualification for entry in register of architects. -A person shall be entitled on payment of such fee as may be prescribed by rules to have his name entered in the register, if he resides or carries on the profession of architect in India and

(a) holds a recognized qualification, or

(b) does not hold such a qualification but, being a citizen of India, has been engaged in practice as an architect for a period of not less than five years prior to the date appointed under sub-section (2) of section 24, or

Provided that no person other than a citizen of India shall be entitled to registration by virtue of a qualification

(a) recognized under sub-section (1) of section 15 unless by the law and practice of a country outside India to which such person belongs, citizens of India holding architectural qualification registrable in that country are permitted to enter and practice the profession of architect in such country, or

(b) unless the Central Government has, in pursuance of a Scheme of reciprocity or otherwise, declared that qualification to be a recognized qualification under sub-section (2) of section 15.

According to section 23 of the Architects Act, 1972:

Preparation and maintenance of register of architects:

(1) The Central Government shall, as soon as may be, cause to be prepared in the manner hereinafter provided a register of architects for India.

(2) The Council shall upon its constitution assume the duty of maintaining the register in accordance with the provisions of this Act.

(3) The register shall include the following particulars, namely: -

(a) the full name with date of birth, nationality and residential address of the architect;

(b) his qualification for registration, and the date on which he obtained that qualification and the authority which conferred it;

(d) his professional address; and

(e) such further particulars as may be prescribed by rules.

(3) 'commercial concern engaged in any manner'

The term 'commercial concern' denotes a firm or a business entity or organization, engaged in commercial activities like sale, purchase or providing services for consideration and having profit motive. A charitable institution cannot fall under the category of a 'commercial concern', because it does not have profit motive. The term 'commercial concern' in the context of this service means the concern engaged in providing architectural services, it is not necessary that the person who owned the commercial concern must also be an architect, such concern may be engaged in rendering services in the field of architecture by employing other architects. The word 'engaged' refers to occupied. The phrase 'in any manner' has been used in the conjunction with term 'commercial concern' which implies that the constitution of commercial concern may be in any form. It may be a sole proprietorship/ partnership firm or a public/private limited company, corporation, societies, government enterprises, Hindu undivided family (HUF), etc.

(4) 'architecture'

The term 'architecture' means 'the art or science of building: structure: in specific sense, one of the fine arts, the art of designing buildings: style of building' (reference the Chambers English Dictionary). The term 'architecture' has not been defined in the context of service tax. Therefore, it should be understood in the context of its commonly understood meaning and scope. The scope of architectural services includes preparation of the map/plan of the building and submit to the town planning/local authority for its approval, supervision of the construction work to ensure that it is in conformity with the plan/map, obtained the completion certificates from the concerned authority, designing of structure of any building, damps, swimming pools, etc. Thus, architectural work is related to the designing/ planning of buildings, etc., it does not include the work of actual construction.

(5) 'Directly or indirectly

Services are subject to tax when provided 'directly or indirectly'. Sometimes, it may be possible that service provider may not alone be able to execute the work and take the help of other person or concern by employing them on subcontract basis for the execution of work. In this case, even if service provider get the part of the service done by employing the services of other person or concern, it will be treated that services are provided by the original service provider and tax would be charged on the entire services.

Taxable service

The definition of taxable service provided by an architect has been given under sub-clause (p) of clause (105) of section 65. That is:

“any service provided "to a client, by an architect in his professional capacity, in any manner."

(1) Architectural services fall under the consulting engineering services

No, in a point raised before the Government - whether the services rendered by the Architects would come under the purview of service tax levied or services provided by consulting engineers? The Government in the Trade Notice No. 1/98-ST, dated 5-1-1998 (appended as Annexure I) has clarified, "the term 'Consulting Engineer' will not include 'architect' within its scope and therefore, service tax levy on services rendered by a consulting engineer in any discipline of engineering will not cover the architectural services rendered by architects". However, the reader may note this question was raised when architect's services was not taxable, now when architect service has been made as separate taxable service. However, it may be noted that same service cannot be taxed twice in the hand of same person under the two different categories. Further, the Finance Act, 2003, w.e.f. 14-5-2003, has introduced a new section 65A to provide the manner of determination of classification of taxable services, which has been discussed in detail in the Chapter - 'Classification of Services'. Therefore, now, determination of classification of taxable service shall be made according to the manner given in the provision of section 65A and tax shall be paid according to that category of taxable service.

(2) Landscape designing/valuation of property is taxable service

Sometimes, an architect also provides the service of landscape designing or valuation of property. The service of landscape designing has been specifically included in the 'interior decorator's services' and valuation of property in the 'technical inspection and certification services'. Therefore, such services are apparently taxable under the above-mentioned categories of taxable service. Therefore, if an architect also does the landscape designing or valuation of property, he shall also be liable to pay service tax on such services, because these services are rendered by an architect in professional capacity. However, it may be noted that same service cannot be taxed twice in the hand of same person under the two different categories. Further, the Finance Act, 2003, w.e.f. 14-5-2003, has introduced a new section 65A to provide the manner of determination of classification of taxable services which has been discussed in detail in 'Classification of Services'. Therefore, now, determination of classification of taxable service shall be made according to the manner given in the provision of section 65A and tax shall be paid according to that category of taxable service.

Liable to pay service tax

Service tax is liable to be paid when architectural services are provided by an architect, which has already been defined at the outset of this Chapter.

(1) Sub-contractor is liable to pay service tax

No. In cases where an architect sub-contracts part/whole of his work to another architect, the Government in its Circular F. No. B-11/3/98-TRU, dated 7-10-1998 (appended as Annexure 11) has clarified that, "no service tax is required to be paid by the sub-contractor provided that the principal architect has paid the service tax on the services rendered by him to the client and provided the sub-contracting is in respect of the same service category. In other words, work is sub-contracted by one architect to another architect. In such cases, if the principal architect pays the service tax on services rendered by him to his client, the sub-contracting architect is not required to pay the service tax".

It has been further clarified that service tax would be required to be paid in a case where sub-contracting is to a different service category. For example where an architect sub-contracts his work to a consulting engineer, the service tax would be required to be paid by both the architect and the consulting engineer on the services rendered by them.

Architect's services liable to be charged to tax

Architect's services liable to be charged to service tax when provided to

§ a client;

§ in any manner,

§ in professional capacity.

(1) Client

Services are liable to be charged to tax only when it is provided to a 'client'. The word 'client' as per the dictionary meaning means "a person who employs a lawyer or professional adviser; a customer" (reference the Chambers English Dictionary) or "a person using the services of a professional person; customer" (reference the Oxford Mini Dictionary).

Therefore, the 'client' is necessarily an external person who hires or uses the services of another person for consideration. Service tax will attract only if services are rendered to a client, not to the other department within the same concern. In other words, services must be provided to the separate entity or external person. When services are provided to the charitable institution for which no fee is charged it is not a client. Therefore, there is no question of service tax unless services are provided to a client on payment basis.

(2) Meaning of 'in any manner'

The words 'in any manner' signify the manner of giving services. The service may be provided oral, or in writing, or may be over the telephone, or video conference or by any other mode of communication like fax or e-mail. Thus, service may be rendered in any manner, but it will be taxable under the category of architect service only if it is in the field of architecture.

(3) 'professional capacity'

The term 'professional capacity' has not been specifically denied in the context of service tax, therefore, it should be understood in the commonly understood meaning. The professional capacity in the present context refers act done by a person having in-depth knowledge and authority is conferred by the profession to which he belongs. Whether an architect has rendered a service in his professional capacity or not, it depends on the facts and circumstances of each case. An architect or a commercial concern is deemed to be rendering services in the professional capacity when he/commercial concern renders architectural services. Therefore, if an architect renders any service other than in his professional capacity, it shall not be covered under the service tax. For instance - if an architect engaged himself in teaching, such service is not rendered in professional capacity, therefore, would not be covered under the service tax.

The value of taxable services for charging tax

The value of taxable services in relation to Architect's services provided by an architect to a client shall be the gross amount charged from the clients for services rendered in the field of architecture [section 67]. The 'gross amount' has been used in the contrast to net amount. The 'gross amount' here indicates that no abatements towards administrative/ office expenses incurred for rendering such services shall be allowed.

Explanation 1 has also been added to section 67, which provides that, for the removal of doubt, in respect of only certain specific services, it is declared that certain amount shall be the part of value of taxable services and certain amount shall not be the part of the value of taxable services, but nothing has been specified in respect of architect's services.

(1) The value of taxable service when bill raised for turnkey project

Where an architect gets a contract for turnkey project which will include supply of materials, labour charges, etc., the value of taxable services shall be the amount which is attributable to the field of architecture. In the context of 'interior decorator's service', the Government in its Circular F. No. B-11/3/98TRU, dated 7-10-1998 (appended as Annexure 11) has clarified that service tax is not leviable on supply of materials, items of furniture or decoration, per se, but on services rendered, the same can be followed in case of this service also.

Therefore, in case of turnkey project, to avoid dispute, it is advisable to give break-up for the amount charged in respect of various services, materials, components etc. The Government has issued Notification No. 12/2003-ST, dated 20-6-2003, w.e.f. 1-7-2003 (appended as Annexure IV and discussed in detail in 'Payment of Service Tax') by giving a general exemption from part of the value of all taxable services from service tax which represents the cost of goods or material sold by the service provider to the receiver of such services during the course of providing taxable service provided it has been quantified and shown separately in the invoice.

Exempted Services

The Government has granted exemption from the whole of Service Tax in respect of all taxable services, for services provided to United Nations or an International Organisation. Similarly, the exemption, subject to certain conditions, has also been granted for taxable service provided to a developer or units of Special Economic Zone (SEZ). The Government, w.e.f. 20 November, 2003 has restored the exemption, as an interim measure, from the whole of service tax when payment is received in convertible foreign exchange for the taxable services rendered in India provided it was not repatriated from or sent outside India, such exemption was earlier withdrawn w.e.f. 1-3-2003. The reader may note that detailed discussion about aforesaid exemptions along with relevant notifications have been given in the Chapter on 'Exemption from whole of Service Tax - Some Cases'.

N.B. The readers may note that provisions, procedures and other related discussion related to registration, payments of service tax, filing of return, interest and penalty, assessment procedure, appeal, refund of tax, etc., which are same, as applicable in respect of other taxable services, have been given in separate Chapters of this Book.

Annexure I

'Architects’1 not under ambit of services provided by Consulting Engineers

[CCE, Delhi-I, Trade Notice No. 1/98-S.T., dated 5-1-1998]

Attention of the Trade and all other concerned is invited that a number of references have been received from the trade and industry and the field formations as to whether the services rendered by Architects would come under the purview of Service Tax levied on the services provided by consulting engineers.

2. The matter has been carefully examined by the department. As per sub-clause (g) of clause (41) of section 65 of the Finance Act, 1994, as amended, the taxable service 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 in one or more disciplines of engineering". Clause (II) of the said section defines a consulting engineer as "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. To come under the purview of Service Tax, the service rendered should be in a discipline of engineering and it should be rendered by a professionally qualified engineer or an engineering firm.

3. In this context, it is pertinent to note that there is a separate piece of legislation for architects, namely, The Architects Acts, 1972 which provides for the registration of architects and for matters connected therewith. Under this legislation, a Council of Architecture has been constituted for registration of architects and for governing other matters connected therewith. Any person who wants to practise as an 'architect' has to register himself with the Council of Architecture subject to satisfaction of qualifications prescribed in this regard. The educational qualifications prescribed for registration of architects is a degree or diploma in architecture. Thus, the law itself recognises architects as a distinct or separate profession.

4. The All India Council for Technical Education who were consulted in the matter have clarified that 'architecture' and 'engineering' are two separate disciplines of technical education and these are two separate professions. Consulting Engineers Association of India who were consulted in the matter have stated that though there is overlapping in architectural and engineering services, yet "Architecture" discipline and "Engineering" decipline are two different disciplines and separate educational facilities exist for both the disciplines.

5. In the light of the facts mentioned above, it is clarified that the term 'Consulting Engineer' will not include 'architects' within its scope and therefore the Service Tax levy on the services rendered by a consulting engineer in any discipline of engineering will not cover the architectural services rendered by architects.

6. It is quite possible that many a time an engineering firm will be providing both engineering services and architectural services and a lump sum amount is charged for both the services. In such cases service tax will have to be collected on the entire amount charged. However, if separate break-up is given in the bill for engineering services and architectural services, then service tax needs to be paid only the charges for engineering services.

Annexure II

Clarifications on services brought under the service tax net by the Finance (No. 2) Act, 1998

CBEC Circular F. No. B-11/3/98-TRU, dated 7-10-1998, relevant extract

5.1 Under section 65(5) of the Finance Act, 1994 an "architect" has been defined to mean any person whose name is, for the time being, entered in the register of architects maintained under section 23 of the Architects Act, 1972 and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture. The nature and scope of the services rendered by architects are well delineated under the provisions of the Architects Act.

5.2 Broadly, the work of an architect starts from providing appropriate advice keeping in view the requirements of the client at the preliminary stage of initial sketches, specifications and drawing of plans, and consists of providing detailed drawings, approval of the drawings from the concerned authorities, supervision at each stage of construction, and till the point when the completion certificate is obtained from the authorities.

5.3 The services rendered by an architect are of a very diverse nature and are spread over a fairly long period of time. At the time when an architect is actually engaged for a particular project, letter (contract) is exchanged for the same between the architect and the person engaging him. The contract/ agreement details the entire scope of the services to be rendered by the architect, including the terms and conditions of employment and the payment schedule for the service rendered by the architect. The "taxable service" means any service provided to a client by the architect in his professional capacity in any manner.

5.4 As per section 65(20) "interior decorator" means any person engaged, whether directly or indirectly, in the business of providing by way of advice, consultancy, technical assistance or in any other manner, services related to planning, design or beautification of spaces, whether man-made or otherwise and includes a landscape designer. The "taxable service" in the case of an interior decorator means any service provided to a client in relation to planning, design or beautification of spaces, whether man-made or otherwise, in any manner.

5.5 An issue has been raised as regards the basis on which determination of the service tax liability on ongoing projects (on the date of service tax coming into effect) is to be made. In this regard it is clarified that service tax is payable only in respect of services rendered on or after the date on which the service tax provisions come into force. Service tax is not required to be paid on payments received for services rendered prior to the service tax concerned being notified.

5.6 Further, in cases where an architect/ interior decorator sub-contracts part/whole of his work to another architect/ interior decorator, it is clarified that no service tax is required to be paid by the sub-contractor provided that the principal architect/ interior decorator has paid the service tax on the services rendered by him to the client and provided the sub-contracting is in respect of the same service category. In other words, work is sub-contracted by one architect to another architect. In such cases, if the principal architect pays the service tax on services rendered by him to his client, the sub-contracting architect is not required to pay the service tax. However, service tax would be required to be paid in a case where sub-contracting is to a different service category. For example where an architect sub-contracts his work to a consulting engineer, the service tax would be required to be paid by both the architect and the consulting engineer on the services rendered by them. Similarly, a market research agency would be required to pay service tax on services rendered by it to an advertising agency, even if the advertising agency is also liable to pay service tax on the amount billed to its client for advertising services (which, inter alia, includes the amount paid by the advertising agency for such market research services to the market research agency).

5.7 It is also clarified that service tax is not leviable on supply of materials, items of furniture or decoration, per se, but on services, rendered in any manner, concerning planning, design or beautification of spaces. Also the services rendered by Art directors of films and others who render services of design, etc. for setting up temporary structures/ settings for shootings, etc. do not attract the service tax levy as such interior decoration has no permanency and is only of a temporary nature.