2019 (1) TMI 1306 - AT - Service Tax

Levy of tax on State Police - person discharging a sovereign function - Security Agency Services or not - 2018 (6) TMI 479 - CESTAT NEW DELHI - Held that - For a person to be liable under this service, foremost, it has to be a business - The appellant herein is the Superintendent of Police, the in-charge of the services as under a sovereign act for discharge of the sovereign function. i.e. the Rajasthan Police Act - police officer is by law bound to maintain law and order and it cannot be considered as an agency engaged in business of providing security. Also for the reason that amount so collected by the appellant was deposited to Government Treasury, it was not the income in its hand. Commissioner(Appeals) has failed to appreciate the difference between a person doing a business and a person discharging a sovereign function under a statutory mandate - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant, a Superintendent of Police, is liable to pay service tax for providing security services under Security Agency Services.
2. Interpretation of the definition of security agency under Section 65(94) of the Finance Act, 1994.
3. Whether the activities of the police department, including collecting fees for deploying additional police personnel, fall under the definition of a security agency.
4. Analysis of relevant laws and circulars to determine the tax liability of the police department for providing security services.

Issue 1:
The judgment originated from an Order of Commissioner(Appeals) confirming a demand for service tax of ?42,19,235 against the appellant, the Superintendent of Police, for providing security services. The demand was based on a Show Cause Notice served on the appellant. The appellant challenged the order, arguing that the police department's activities do not fall under the definition of a security agency engaged in a business. The Tribunal analyzed the duties and functions of a police officer under the Rajasthan Police Act, emphasizing the sovereign functions and obligations of the police department, which are not akin to running a security agency business. The Tribunal concluded that the police department, as an agency of the State Government, is not engaged in the business of providing security services, and hence, no service tax is leviable on the fees collected for deploying additional police personnel.

Issue 2:
The Tribunal examined the definition of a security agency under Section 65(94) of the Finance Act, 1994, which includes persons engaged in rendering services related to property or personal security. The definition emphasizes the business aspect of providing security services. The Tribunal highlighted the distinction between a person conducting a business and a person discharging sovereign functions under a statutory mandate. It concluded that the appellant, as a Superintendent of Police, is not engaged in the business of providing security services, but rather in fulfilling statutory obligations related to public security and law enforcement.

Issue 3:
The Tribunal analyzed the activities of the police department, particularly the collection of fees for deploying additional police personnel, in light of the definition of a security agency. It referenced the relevant provisions of the Rajasthan Police Act, which mandate the deployment of police officers for public security and peace maintenance. The Tribunal noted that the fees collected for such deployments are in accordance with notifications issued by the State Government and are deposited into the Government treasury. It emphasized that these activities are part of the statutory functions of the State Government and do not constitute running a security agency business.

Issue 4:
The Tribunal referred to Circular No. 89/7/2006 issued by the Central Board of Excise and Customs (CBEC), which states that activities performed by sovereign/public authorities under statutory obligations are not taxable services subject to service tax. The Circular clarifies that fees collected by such authorities for statutory functions are compulsory levies deposited into the Government treasury and do not constitute taxable services. The Tribunal applied this circular to the case, highlighting that the police department's activities are mandatory, statutory functions performed in the public interest, and not services provided for consideration. Consequently, the Tribunal set aside the Commissioner(Appeals)'s order, allowing the appeal against the service tax demand.