2024 (11) TMI 1224 - AT - Service Tax

Service tax demand - taxable services under the category Security Agency Services - as per department appellants not registered themselves and have not discharged the applicable service tax - HELD THAT - As decided in Principal Bench of the CESTAT 2016 (12) TMI 289 - CESTAT NEW DELHI the lower authorities have, however, taken the view that the activity undertaken is not in the nature of statutory duty, but an activity undertaken for a consideration which is not a statutory fee. We find ourselves unable to agree to this stand taken by the lower authorities. The police department has the mandatory duty to maintain public peace and order. For such duty, which is in the nature of sovereign function, no charges are recoverable from the citizens. In the present case, the police department has recovered fees for deploying additional police personnel on request. The statutory functions of the police of the State Govt. make it explicit that such activity, even at request of the other person, is to be carried out only for the purpose of public security or for the maintenance of public peace or order. The charge for deployment of such additional force is also prescribed by the statutory notification issued by the State Govt. We are of the view that the activity of deploying police personnel on payment basis is to be considered as part of statutory function of the State Govt. and the fees recovered are to be considered as statutory. It is also not disputed that such amounts recovered have been deposited into the Govt. treasury. On the basis of the above discussion, we conclude that police department, which is an agency of the State Govt., cannot be considered to be a person engaged in the business of running security services. Consequently, the activity undertaken by the police is not covered by the definition of Security Agency under Section 64(94) of the Act. We also find that in terms of C.B.E. C. s circular on this subject, the fees collected by the police department is in the nature of fee prescribed for performing statutory function, which has been deposited into the Govt. treasury. In the light of the C.B.E. C. s circular also, there can be no levy of service tax on such activities carried out by the police department. Also as per State of Punjab and others vs. Union of India and others 2018 (9) TMI 2001 - PUNJAB HARYANA HIGH COURT where this issue has been examined and writ petition against the similar show cause notices demanding service tax for providing security guards to the public sector Banks and General Post Office has been set aside and the writ petition was allowed. While allowing the writ petition, it has seen observed that under Article 289 of the Constitution of India that the property and income of a State shall be exempted from Union taxation. We are of the considered opinion that the issue stands decided in favor of the Home Guards.

Issues Involved:

1. Whether the appellants, engaged in providing security services, qualify as a "Security Agency" under the Finance Act, 1994, and are liable to pay service tax.
2. Whether the activities performed by the appellants are statutory functions exempt from service tax under the relevant circulars and legal provisions.
3. Interpretation of the term "person" in the context of service tax liability for government agencies.
4. Applicability of Article 289 of the Constitution of India regarding exemption from Union taxation.

Issue-wise Detailed Analysis:

1. Security Agency Classification and Service Tax Liability:

The core issue was whether the appellants, who are part of the State Police providing security services, fall under the definition of "Security Agency" as per Section 65(94) of the Finance Act, 1994. The Tribunal examined whether the appellants were engaged in the business of rendering services related to security and if they were liable to pay service tax on the amounts recovered for providing security personnel. The definition of "Security Agency" includes any person engaged in the business of rendering services relating to the security of any property or person. However, the Tribunal noted that the appellants, being part of the State Police, were not engaged in a business for profit but were performing statutory duties.

2. Statutory Functions and Service Tax Exemption:

The appellants argued that their activities were statutory functions, exempt from service tax as per C.B.E. & C. Circular No. 89/7/2006-S.T. The circular clarifies that activities performed by sovereign/public authorities as statutory duties are exempt from service tax if the fees collected are a compulsory levy deposited in the government account. The Tribunal found that the appellants' activities fulfilled these criteria, as they were statutory obligations performed under the Police Act, with fees collected as per law and deposited into the government treasury.

3. Interpretation of "Person":

The Tribunal considered whether the term "person" in the Finance Act includes the State or its officers. The appellants cited the Supreme Court's interpretation that the term "person" does not extend to the State. The Tribunal agreed, noting that the Superintendent of Police, as an agency of the State Government, does not qualify as a "person" under the Act. It was highlighted that the definition of "person" was expanded to include the government only after the introduction of the negative list in 2012.

4. Constitutional Exemption under Article 289:

The Tribunal referred to the judgment of the Punjab & Haryana High Court, which highlighted Article 289 of the Constitution, exempting the property and income of a State from Union taxation. The High Court had previously set aside similar show cause notices demanding service tax from the State for providing security services, reinforcing the appellants' position that their activities were exempt from service tax.

Conclusion:

The Tribunal concluded that the police department, as an agency of the State Government, is not a "person" engaged in the business of running security services. The activities performed by the appellants were statutory functions, and the fees collected were statutory in nature. Consequently, the Tribunal ruled that the appellants were not liable to pay service tax, allowing the appeals filed by the Home Guards and rejecting the appeals filed by the department.

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