2011 (11) TMI 220 - AT - Service Tax

Demand of service tax in respect of services rendered for issue of PAN Cards on behalf of the Income Tax department under the category Business auxillary Services - services rendered to Employees Provident Fund Organisation (EPFO) and Department of Company Affairs(DCA) in relation to upgradation of information technology systems and operations under the category Management Consultant Services Held that - Levy and collection of income tax is a sovereign function and issue of PAN cards is in relation to such function and therefore the said activity cannot be brought under the category of a taxable service and no service tax is leviable on such activities. Similarly services rendered in respect of modernization and upgrading the Information Technology Systems of EPFO & DCA falls in category of Information Technology Software Service which has been brought under the tax net with effect from 16.05.2008 and not under the category of Management Consultancy Service . - Decided in favor of assessee.

Summary

Issues:
Classification of services rendered to Income Tax department under 'Business Auxiliary Service', classification of services rendered to EPFO and DCA, applicability of service tax on the activities.

Issue 1: Classification of services rendered to Income Tax department

The appellant provided services to the Income Tax department, including issuing PAN cards. The appellant argued that these services cannot be classified as 'Business Auxiliary Service' due to the sovereign and statutory nature of the Income Tax department's functions. The Tribunal agreed, citing precedents where similar activities were considered sovereign functions and not taxable services. The Tribunal referenced a circular stating that activities performed by sovereign/public authorities under the provision of law, fulfilling statutory obligations, are not taxable services. Consequently, the demand for service tax on issuing PAN cards on behalf of the Income Tax department was deemed unsustainable.

Issue 2: Classification of services rendered to EPFO and DCA

The services provided to EPFO and DCA involved modernizing and upgrading their information technology systems. The appellant argued that these services should be classified under 'Information Technology Service' instead of 'Management Consultant Services'. The Tribunal agreed with the appellant, noting that the services fell under the category of 'Information Technology Software Service' which became taxable from a specific date. The activities undertaken by the appellant aligned with this category, and therefore, the demand for service tax on these services during the mentioned period was considered legally unsustainable.

Issue 3: Applicability of service tax on the activities

The Tribunal carefully considered the arguments presented by both parties regarding the demand for service tax on the activities in question. After analyzing the nature of the services provided to different departments and citing relevant legal precedents and circulars, the Tribunal concluded that the demand for service tax on the services rendered by the appellant was not legally sustainable. Consequently, the appeal was allowed, and any consequential reliefs were granted accordingly.

This detailed analysis of the judgment highlights the classification of services provided to different departments and the legal implications regarding the applicability of service tax on those services.