2007 (10) TMI 137 - AT - Service Tax

Appellant, State Govt Dept carrying on sovereign activity of inspection and certification of electrical installations In view of Circular 18.12.06, sovereign function cannot be subject matter of Service Tax - beneficial Circular will have retrospective effect bonafide belief, demand time-barred

Summary

Issues:
- Allegation of suppression of value of taxable services
- Applicability of Service Tax to Government Departments performing sovereign activities
- Interpretation of relevant circulars and judgments
- Bonafide belief of non-coverage under the Finance Act

Allegation of Suppression of Value of Taxable Services:
The appellant, a State Government Department, was aggrieved by an Order-in-Original confirming Service Tax for a specific period. The Revenue alleged suppression of value of taxable services, imposing penalties for failure to furnish returns. The appellant's activities fell under "Technical Inspection and Certification" services, but they contended that as a Government Department, their sovereign functions were not subject to Service Tax.

Applicability of Service Tax to Government Departments Performing Sovereign Activities:
The appellant argued that their activities were statutory obligations performed as sovereign functions, exempt from Service Tax. They cited circulars and judgments supporting their stance, emphasizing that statutory functions of State Government entities were not liable for Service Tax. The Tribunal noted similar cases where demands were set aside for entities engaged in sovereign activities, reinforcing the exemption from Service Tax for such functions.

Interpretation of Relevant Circulars and Judgments:
The Tribunal considered circulars clarifying that activities by sovereign/public authorities under statutory obligations were not taxable services. They referenced judgments and circulars supporting the retrospective effect of beneficial circulars and the acceptance of bonafide beliefs regarding non-coverage under the Finance Act. The Tribunal upheld the appellant's plea, citing precedents and legal principles that sovereign functions of State Government Departments were not within the purview of Service Tax.

Bonafide Belief of Non-Coverage Under the Finance Act:
The appellant's bonafide belief that their statutory functions were outside the scope of Service Tax was accepted by the Tribunal. They were granted the benefit of time bar based on Supreme Court rulings and judgments supporting bonafide beliefs. The Tribunal allowed the appeal, emphasizing that the State Government Department was not liable for Service Tax due to the nature of their sovereign functions and the legal interpretations provided in relevant circulars and judgments.