2011 (5) TMI 614 - AT - Service Tax

Stay application - pre-deposit - Revenue imposed demand on appellant on ground that consideration received by the Appellant from the manufacturers and other operators for technical support for manufacture and certification of equipment to be used in Indian Railways is liable to service tax under entries Scientific and Technical Consultancy, Intellectual Property Rights, Technical Inspection and Certification Service - Held that - Providing railway service cannot be considered as a Sovereign Function . This is a case where a person wanting to undertake a commercial activity seeks help from an arm of the government. Just because the organization giving such service is constituted under a statute of the Parliament the activity does not become a statutory function. Further the consideration to be paid is not in the nature of fees to recover the cost for doing such service but in the nature of a commercial consideration. In the case of fees charged for testing the equipment to be used on Indian railways system, the matter is on a more disputable footing. Therefore, we are of the view that Appellant has made out a prima facie case in their favor in the matter of time bar. We order for deposit of Rs.50 lacs within three months from the date of this order, for admission of Appeal.

Summary

Issues:
1. Whether the Appellant's activities are subject to service tax under three different taxable services as per the Finance Act 1994.
2. Whether the demand for service tax on the Appellant is justified.
3. Whether the Appellant's activities can be considered as statutory functions exempt from service tax.
4. Whether the demand is time-barred and if the Appellant should be penalized.

Analysis:

Issue 1:
The Appellant, declared as an Attached Office of the Ministry of Railways, provides technical support to private manufacturers for equipment used in Indian Railways. The Revenue argues that the consideration received by the Appellant for technical support is subject to service tax under three taxable services defined in the Finance Act 1994. These services include Scientific and Technical Consultancy, Intellectual Property Rights, and Technical Inspection and Certification Service.

Issue 2:
The Revenue issued a Show Cause Notice proposing a service tax demand on the Appellant for the period 2003-2008, which was adjudicated by the Commissioner confirming a duty demand of Rs.8,54,19,123. The Appellant challenges this order, stating that their activities are in the public interest and as a government organization, they should not be taxed for statutory functions performed under Acts of the Parliament.

Issue 3:
The Appellant relies on a CBEC circular stating that fees collected by public authorities for statutory functions are not taxable. However, the Tribunal notes that the activities of the Appellant, such as Technical Consultancy and transfer of Intellectual Property Rights, differ from classical statutory functions. The Tribunal opines that providing railway services is not a sovereign function, and the Appellant's services are more commercial in nature, not falling under the exempted category of statutory functions.

Issue 4:
Regarding the time bar, the Tribunal finds that a substantial portion of the demand is time-barred, indicating that the Appellant has a prima facie case in their favor. The Tribunal orders the Appellant to make a deposit of Rs.50,00,000 for admission of the Appeal, with a waiver on the balance amount due as per the impugned order. The Tribunal stays the collection of the remaining amounts during the pendency of the Appeal, with compliance to be reported on a specified date.

In conclusion, the judgment addresses the applicability of service tax on the Appellant's activities, the justifiability of the demand, the exemption based on statutory functions, and the time-barred nature of the demand, providing a detailed analysis of each issue involved in the case.