2023 (9) TMI 651 - AT - Service Tax

Exemption from Service Tax - discharge of sovereign functions or commercial functions - appellant engaged in procurement and distribution of drugs and medicines for Tamil Nadu State Government Hospitals - Service classifiable under Storage and Warehouse Services or not - services rendered by TNMSCL in relation to loading, unloading, packing, unpacking and transporting of drugs to Government Hospitals should not be classified under the category of Cargo Handling Services or not - extended period of limitation - HELD THAT - IN RE THE BILL TO AMEND S. 20 OF THE SEA CUSTOMS ACT 1963 (5) TMI 57 - SUPREME COURT pertaining to indirect taxation, a Special Bench of eight judges of the Hon ble Apex Court exercising its advisory jurisdiction decided on whether the provisions of Art. 289 of the Constitution precluded the Union from imposing, or authorising the imposition of (a) Customs duties on the import or export or (b) excise duties on the production or manufacture in India of the property of a State used for purposes other than those specified in cl. (2). of that Article. In a majority decision the Hon ble Chief Justice speaking for himself and four other Judges held that the immunity granted to the States in respect of Union taxation, under Art. 289(1) does not extend to duties of customs including export duties or duties of excise. The impugned activities of the appellant are not primary inalienable functions and are liable to be done by a private body. It is also relevant to note the State Government has issued a conditional notification exempting sales tax payable by TNMSCL for the drugs and medicines procured and distributed to the various medical institutions. (G.O.Ms No 431 dated 18/12/96). The exemption is not on account of its sovereign functions. Had the exemption not been granted or if the conditions of the notification are violated TNMSCL would be liable to pay sales tax. The notification states exemption in respect of tax payable , this shows that had the notification not been issued TNMSCL would have to pay sales tax and the benefit of sovereign function has not been recognized by the State Government itself in the appellant s case. Further as held in In re. The Bill to Amend the Sea Customs Act the immunity granted to the States in respect of Union taxation, under Art. 289(1) does not extend to indirect taxes. For the reasons discussed above we are of the opinion that in the absence of a specific notification by the Central Government exempting their activities from service tax, like that issued by the State Government in the case of sales tax reproduced above, the appellant will not be eligible to claim exemption from service tax citing the sovereign function principle. Whether the services rendered by TNMSCL to the Government of Tamil Nadu is classifiable under the category of Storage and Warehouse Services? - HELD THAT - It is seen from the facts of the case that the impugned goods are received and stored in the warehouses. Subsequently samples are sent for testing and on completion of the testing process, the goods are dispatched to respective destinations as per the requirements. This being the factual position, the essential activities undertaken by the assessee like packing, repacking, loading, unloading etc. are a part of cargo handling service. In fact sub clause 11 of clause III (C) of the Memorandum of Association of TNMSCL dealing with other objects for which the company is established, states To carry on the business of packing and forwarding agents. The amounts are also accounted for under income from operations in their profit and loss account. If any part of this payment is also paid as statutory fees for testing to Government Authorities on behalf of their suppliers, it is for the appellant to bifurcate the said amount received from the total receipts separately towards cargo handling and for testing . They should have disclosed the factual information within their exclusive knowledge - the matter needs to be considered afresh by the Original Authority after giving the appellant sufficient opportunity to put forward his submissions both on law and fact before deciding the matter. Extended period of limitation - Suppression of facts or not - HELD THAT - There should not have been any confusion in the interpretation of law especially in the light of the Apex Courts advisory In re. The Bill to Amend the Sea Customs Act in the early 1960 s. The declaratory responsibility of an assessee in the self-assessment regime is much bigger and the non-disclosure of taxable activity in the ST-3 Return and non-payment of duty has to be viewed strictly and can only be held to be an act of suppression of facts with an intention to evade payment of duty. Hence the extended period of limitation has been rightly invoked and the appeal in this regard is without merit. The matter remanded back to the Original Authority to decide the issue of Cargo Handling Services only, afresh - impugned order is otherwise upheld except for the matter remanded - appeal disposed off.

Summary

Issues Involved:
1. Whether Tamil Nadu Medical Services Corporation Ltd. (TNMSCL) is an instrumentality of the Sovereign State and exempted from Service tax.
2. Classification of services rendered by TNMSCL under 'Storage and Warehouse Services'.
3. Classification of services rendered by TNMSCL under 'Cargo Handling Services'.
4. Validity of the extended time limit for the issue of Show Cause Notice (SCN).

Summary of Judgment:

Issue 1: Sovereign State Instrumentality and Service Tax Exemption
The appellant argued that TNMSCL, being an extended limb of the Government of Tamil Nadu, performs sovereign functions and should be exempt from service tax. However, it was found that TNMSCL is an autonomous corporation registered under the Companies Act, 1956, and not by an Act of the State Legislature. The company engages in various commercial activities that can be performed by private entities. The court held that the activities of TNMSCL are not primary inalienable functions of the state and do not qualify for exemption from service tax under the 'sovereign function' principle. The court referenced the Apex Court's judgment in 'In re. The Bill to Amend the Sea Customs Act' to support this conclusion.

Issue 2: Classification under 'Storage and Warehouse Services'
The appellant contended that their warehousing activities should not be taxable as they are part of their statutory functions. The court found that TNMSCL operates warehouses where medicines are stored before distribution and provides services such as loading, unloading, and stacking, which fall under 'Storage and Warehouse Services' as per Section 65(102) read with Section 65(105)(zza) of the Finance Act, 1994. The court dismissed the appellant's claim for exemption from service tax on these services.

Issue 3: Classification under 'Cargo Handling Services'
TNMSCL argued that their activities related to loading, unloading, packing, unpacking, and transporting drugs should not be classified under 'Cargo Handling Services'. The court observed that these activities are essential parts of cargo handling services and that TNMSCL receives a consideration for these services. The court remanded the matter back to the Original Authority to reconsider the classification and bifurcation of charges received for handling and testing services.

Issue 4: Validity of Extended Time Limit for SCN
The appellant challenged the extended time limit for the issue of SCN, arguing there was no evidence of intent to evade service tax. The court held that TNMSCL's non-disclosure of taxable activities and non-payment of duty constituted suppression of facts with an intention to evade payment of duty. Therefore, the extended period of limitation was rightly invoked, and the appeal on this ground was dismissed.

Conclusion:
The court upheld the impugned order except for the issue of 'Cargo Handling Services', which was remanded back to the Original Authority for reconsideration. The appeal was disposed of accordingly.