2024 (11) TMI 1445 - AT - Service Tax

Liability to pay service tax - support services - reimbursement of salaries paid to the State Police Department for services rendered - reverse charge mechanism - amount collected by the appellant on account of inspection charges tender cost and vendor registration charges - vender registration charges and tender cost - pre-term resignation of the employees and the penalty for non-compliance with terms and conditions of tender. Liability to pay service tax - support services - reimbursement of salaries paid to the State Police Department for services rendered - reverse charge mechanism - HELD THAT - From July 2012 onwards the negative list regime came into existance and the activity undertaken by the appellant if taxable the demand can be raised under Section 65B (49) of the Act. The said provisions has not been invoked to demand service tax from the appellant. Moreover for support services of business the service tax is required to be paid by the service provider not by the service recipient and the appellant is before us is a service recipient therefore no demand can be raised in the hands of the service recipients under support services of business. In that circumstances the recovery of the said amount if payable cannot be levied on the appellant. Moreover the issue whether reimbursement of salaries of Policemen by the appellant is chargeable to tax under business support service or not. The said issue has been settled by this Tribunal in the case of Superintendent of Police vs. Commissioner of Central Excise Jaipur 2019 (11) TMI 250 - CESTAT NEW DELHI wherein this Tribunal observed that no service tax chargeable under Security Agency Services upon the Appellant. The CBEC circular being binding on the department a demand to the contrary is not sustainable and needs to be set aside. - thus on merits as well as on technical grounds the appellant is not liable to pay service tax for support services amounting to Rs. 2, 43, 67, 998/-. Accordingly the said demand is set-aside. Levy of service tax - amount collected by the appellant on account of inspection charges tender cost and vendor registration charges - HELD THAT - The activity of meter inspection charges is related to the distribution of electricity of the appellant and the said activity is exempt from payment of service tax in that circumstances on inspection charges of the electric meter the appellant is not liable to pay service tax. Accordingly the said demand is also set-aside. Levy of service tax - vender registration charges and tender cost - HELD THAT - These are the charges recovered by the appellant from persons who are getting registration and a part of bidding process that cannot be termed as any service provided by the appellant therefore on this vendor registration charges and tender cost the appellant is not liable to pay service tax. Levy of service tax - pre-term resignation of the employees and the penalty for non-compliance with terms and conditions of tender - HELD THAT - These are not consideration for providing any service by the appellant. The said amount has been collected in compensation of the loss incurred by the appellant and not towards condition of any service therefore no service tax is payable by the appellant on the said amount. The said issue has been settled by the Hon ble Madras High Court in the case of GET D India Limited vs. Deputy Commissioner of Central Excise 2020 (1) TMI 1096 - MADRAS HIGH COURT Madras High Court wherein the High Court has observed that No such amounts paid by the employer to the employee for premature termination of a contract of employment are treatable as amounts paid in relation to services provided by the employee to the employer in the course of employment. Hence amounts so paid would be chargeable to service tax However any amount paid for not joining a competing business would be liable to be taxed being paid for providing the service of forbearance to act. - the appellant has received tender cost for non-fulfilment of conditions of tender which is towards the said amount is collected for damage or loss incurred by the appellant and not for providing any service in that circumstances no service tax can be demanded from the appellant by invoking the provisions under Section 66E (e) of the Act. Conclusion - i) The demand under support service amounting to Rs. 2, 43, 67, 998/- is set-aside. ii) The demand of service tax on account of vendor registration charges tender cost and inspection charges of meters are also set-aside. iii) The demand of service tax of Rs. 51, 16, 796/- for the amount recovered on account of pre-term resignation of the employees and penalty for non-compliance with terms and conditions of tender are set-aside. iv) No penalty can be imposed on the appellant. Accordingly the penalties imposed on the appellant are set-aside. Appeal disposed off.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the appellant is liable to pay service tax on the reimbursement of salaries paid to the State Police Department for services rendered, categorized under 'support services'.
Whether service tax is applicable on amounts collected by the appellant for vendor registration charges, tender costs, inspection charges, and settlement fees.
Whether amounts received by the appellant for pre-term resignation of employees and penalties for non-compliance with tender terms are taxable under the service of tolerating an act.
Whether the demand raised is sustainable considering the period of limitation and the applicability of the reverse charge mechanism.

2. ISSUE-WISE DETAILED ANALYSIS

Support Services

Relevant Legal Framework and Precedents: The appellant argued that the police services fall under sovereign functions and are not subject to service tax. The appellant relied on precedents where police services were deemed statutory and not business activities.
Court's Interpretation and Reasoning: The Tribunal found that the demand was incorrectly raised under obsolete provisions and that the appellant, as a service recipient, should not be liable under the reverse charge mechanism for support services.
Key Evidence and Findings: The Tribunal referenced past decisions where police services were not considered taxable due to their statutory nature.
Application of Law to Facts: The Tribunal concluded that the reimbursement of salaries to the police does not constitute a taxable service.
Treatment of Competing Arguments: The Tribunal dismissed the respondent's argument that the police services were taxable, citing established precedents.
Conclusions: The demand for service tax on support services amounting to Rs. 2,43,67,998/- was set aside.

Vendor Registration Charges, Tender Costs, and Inspection Charges

Relevant Legal Framework and Precedents: The appellant contended that these charges are not for services rendered and are part of the electricity distribution process, which is exempt from service tax.
Court's Interpretation and Reasoning: The Tribunal agreed with the appellant, noting that these charges are not for any service provided but are part of the operational process.
Key Evidence and Findings: The Tribunal noted that the inspection charges are related to electricity distribution, which is exempt.
Application of Law to Facts: The Tribunal applied the exemption for electricity distribution to the inspection charges and found no service was rendered for vendor registration and tender costs.
Treatment of Competing Arguments: The Tribunal dismissed the notion that these charges constituted taxable services.
Conclusions: The demand for service tax on these charges was set aside.

Service of Tolerating an Act

Relevant Legal Framework and Precedents: The appellant argued that amounts received for pre-term resignations and penalties are compensatory and not for services rendered.
Court's Interpretation and Reasoning: The Tribunal found that these amounts are not for services but are compensatory, referencing the Madras High Court's interpretation.
Key Evidence and Findings: The Tribunal cited the CBEC's clarification that such compensatory amounts are not taxable.
Application of Law to Facts: The Tribunal applied the principle that compensatory payments do not constitute taxable services.
Treatment of Competing Arguments: The Tribunal rejected the argument that these amounts were for tolerating an act.
Conclusions: The demand for service tax on these amounts was set aside.

Limitation and Reverse Charge Mechanism

Relevant Legal Framework and Precedents: The appellant argued that part of the demand was time-barred and that the reverse charge mechanism was incorrectly applied.
Court's Interpretation and Reasoning: The Tribunal found that the demand was partly time-barred and that the reverse charge mechanism was misapplied.
Key Evidence and Findings: The Tribunal noted that the demand was based on obsolete provisions and not applicable under the reverse charge mechanism.
Application of Law to Facts: The Tribunal applied the limitation period and the correct application of the reverse charge mechanism to set aside the demand.
Treatment of Competing Arguments: The Tribunal dismissed the respondent's argument for the applicability of the reverse charge mechanism.
Conclusions: The demand was partly set aside due to limitation and incorrect application of the reverse charge mechanism.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "No service tax chargeable under Security Agency Services upon the Appellant. The CBEC circular being binding on the department, a demand to the contrary is not sustainable and needs to be set aside."
Core Principles Established: Sovereign functions performed by police departments are not taxable; compensatory payments are not taxable services; demands based on obsolete provisions and incorrect application of reverse charge mechanisms are unsustainable.
Final Determinations on Each Issue: The Tribunal set aside the demands for service tax on support services, vendor registration charges, tender costs, inspection charges, and amounts received for pre-term resignations and penalties. The penalties imposed on the appellant were also set aside. The rest of the demand confirmed by the impugned order is payable by the appellant along with interest.

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