2019 (3) TMI 1799 - AT - Service Tax

Imposition of penalty u/s 78 of FA at 50% of tax - Levy of service tax - service charges paid to Rajasthan Police on account of security charges - reverse charge mechanism - HELD THAT - Tribunal in several decisions including g in the case of DY. INSPECTOR GENERAL OF POLICE VERSUS COMMISSIONER OF C. EX., BHOPAL 2017 (11) TMI 346 - CESTAT NEW DELHI has held that the Police Department is performing statutory duties of providing security to the citizen including the bank. The amount so collected (cost recovers) is being deposited in the Government treasury. Further, It was clarified vide Circular No. 89/7/2006-ST dated 18.12.2006, that wherever the charges collected by any sovereign public authority for carrying out any statutory function, the same is not liable to levy of service tax. Penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Imposition of penalty under Section 78 by the Commissioner (Appeals) on the appellant
- Liability of the appellant to pay service tax for charges paid to Rajasthan Police
- Allegation of suppression on the part of the appellant
- Applicability of reverse charge mechanism
- Interpretation of Circular No. 89/7/2006-ST regarding charges collected by sovereign public authority

Analysis:
The judgment in the case revolves around the imposition of a penalty under Section 78 by the Commissioner (Appeals) on the appellant, a PSU engaged in providing services by running a currency chest for the Reserve Bank of India. The issue at hand is whether the appellant was rightly imposed a penalty amounting to ?30,15,915 by the Commissioner (Appeals). The appellant availed the services of the Rajasthan Police for safeguarding the currency in accordance with Reserve Bank of India guidelines. The Rajasthan Police Department recovered some amount as security charges from the appellant, leading to a show cause notice alleging liability to pay service tax under the reverse charge mechanism.

The Tribunal, in its analysis, referred to previous decisions and established that the Police Department performs statutory duties of providing security to citizens, including banks, and the amounts collected as cost recovery are deposited in the Government treasury. Citing Circular No. 89/7/2006-ST dated 18.12.2006, it clarified that charges collected by sovereign public authorities for statutory functions are not liable to service tax. Consequently, the Tribunal set aside the penalty imposed under Section 78, as the issue was no longer res integra based on previous decisions and the circular mentioned.

In conclusion, the Tribunal allowed the appeal, emphasizing that the appellant was not liable to pay the service tax for charges paid to the Rajasthan Police under the reverse charge mechanism. The judgment provides clarity on the non-applicability of service tax in such scenarios involving sovereign public authorities performing statutory functions and collecting charges for the same.