2014 (11) TMI 927 - HC - Service Tax

Challenge to the Show Cause Notice - Business support service or not - security services provided by Assam Tea Plantation Security Force (ATPSF) to protect the planters and their property. - sovereign function or not - Held that - The value of sovereign functions of a state is not taxable in the hands of the citizens. Support services rendered by the government are taxable. According to the government this kind of service received by the writ petitioner is classifiable as a support service . The department has the jurisdiction and obligation to determine whether the writ petitioner is receiving support services from the government. Therefore, before it could demand or even show cause under Section 73 of the Finance Act, 1995, for Service Tax, it was incumbent upon the department to make the determination whether the subject service could be classified as a support service and the writ petitioner exigible to service tax. If the department s answer was in the affirmative, only then, a show cause notice and thereafter a demand for service tax could have been issued. - the notice dated 20th November, 2013 is quashed and set aside. - Decided in favour of assessee.

Summary

Issues:
1. Whether the service provided by the Assam government to the tea plantation owners is classified as a taxable "support service" exigible to service tax.
2. Whether the service rendered by the Assam Tea Plantation Security Force (ATPSF) and later by AISF constitutes a sovereign function of the State or a support service.

Issue 1:
The writ petitioner, a public limited company engaged in tea business, sought protection for its tea plantations in Assam due to constant threats from miscreants. The Assam government created the Assam Tea Plantation Security Force (ATPSF) and later the AISF to provide security services to tea plantation owners, charging them a fee for the service. The Service Tax Department classified this service as a taxable "support service" exigible to service tax at 12%. The petitioner argued that the service is part of the sovereign functions of the State and cannot be considered a support service, citing legal definitions and guidance notes. The court analyzed the nature of the service, the functions of the force, and the absence of specific denial in the opposition affidavit. The court found indications that the service rendered by the force is sovereign and not a support service, referencing previous judgments recognizing the sovereign functions of maintaining peace and security.

Issue 2:
The court further delved into the argument presented by the respondent's counsel that the force was akin to private security guards rather than performing sovereign functions. The court noted the lack of specific denial in the affidavit-in-opposition regarding the sovereign nature of the service provided by the force. Referring to the judgment in All Assam Tea Plantation Security v. The State of Assam, the court highlighted the importance of distinguishing between sovereign and non-sovereign functions of the State. Emphasizing the sovereign function of maintaining security, the court cited precedents to support the argument that sovereign functions are not taxable, while support services are. The court directed the Service Tax Department to determine whether the service provided to the petitioner is a support service or a sovereign function before issuing any demand for service tax. The court quashed the previous notice and instructed the department to follow established legal observations in making its determination.

In conclusion, the judgment clarified the distinction between sovereign functions and support services in the context of the service provided by the Assam government to tea plantation owners. It emphasized the need for a thorough determination by the Service Tax Department before imposing service tax, highlighting the sovereign nature of certain state functions. The court's decision quashed the previous notice and set guidelines for future adjudication on the classification of the service provided, ensuring adherence to legal precedents and principles.