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TMI Blog2013 (4) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... (11) TMI 307 - KARNATAKA HIGH COURT] making it clear that, if a Government authority performs a service, which is not in the nature of statutory activity and the same is undertaken for a consideration not in the nature of statutory fee/levy, then in such cases, Service tax could be leviable and it falls within the ambit of ‘Taxable Service’. It was accordingly, that a finding was rendered that the particular type of insurance coverage being undertaken by the Karnataka State Insurance Department, in respect of ‘motor vehicles’ was liable to be reckoned as a ‘Taxable Service’. Thus the activity being pursued by the petitioner in providing ‘Life insurance coverage’ to the employees of the State Government as part of its statutory obligation giving effect to Rule 22A of Part I KSR is not a ‘taxable service’ so as to attract tax liability. However, with regard to any other service/insurance coverage provided to the General Insurance business extended to commercial institutions/individuals, even if it is a Government Company, such activities are liable to ‘Service Tax’ as no statutory duty is involved and the same cannot be avoided, unless exemption is obtained under Section 93 of the Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department, but for meeting the obligation as above and hence there is no 'taxable service', as contemplated under Section 65(12) of the Finance Act, 1994 to be mulcted with any liability. Still, the petitioner had submitted an application for registration and got registered, as provided under the Finance Act, 1994 and has been effecting 'service tax' in respect of the 'General Insurance' sector. 3. While so, the petitioner was served with a notice by the respondents, referring to some shortfall in the figures shown in the quarterly/yearly returns. According to the respondents, the petitioner was liable to pay 'service tax' in respect of the 'Life Insurance' segment as well. Inspite of explaining the position, an order was passed by the concerned assessing officer on 19-11-2001, fixing huge liability, which was subjected to challenge before the First Appellate authority, i.e., the second respondent. 4. After considering the appeal, the First Appellate authority passed Ext.P1 order on 30-7-2003, remanding the case for fresh assessment; deleting the 'penalty' imposed. The petitioner was directed to produce all the relevant documents before the concerned authority. On rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court granted interim stay of the said demand notice as well. Again, during the pendency of both the writ petitions and continued operation of interim order of stay, a show-cause notice was issued to the petitioner on 22-10-2009 for non-payment of tax for the period from 10-9-2004 to 31-3-2005. This was followed by another show-cause notice dated 20-10-2010 for non-payment of tax for the period from 1-4-2009 to 31-3-2010. Yet another show-cause notice was issued on 10-11-2011 covering the period from 1-4-2006 to 31-3-2011, claiming ₹ 61,91,64,306/- (under various heads). Notice was issued for recovery of the amount under the proviso to Section 73(i) of the Finance Act, 1994. 8. The respondents have filed separate counter affidavits in both the writ petitions, seeking to sustain the course and events. Dr. Sebastian Chempapilly, learned Spl. Govt. Pleader (Taxes) appearing for the petitioner submits that the petitioner is nobody else than an organ of the State Government itself and that the Insurance coverage provided by the petitioner in the 'Life Insurance' sector, as well as in the 'General' sector, is traceable to the pre-independence period. The Life Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the General Insurance Business (Nationalisation) Act, 1972, cannot be of any help to the petitioner. The learned Counsel also submits that, pursuant to the application preferred by similarly situated State Government Departments like Insurance Department of the State of Rajasthan, 'exemption' has been granted by the Central Government and notified in the Gazette, in exercise of the power under Section 93 of the Finance Act and unless and until such exemption is sought for and obtained, the petitioner is liable to meet the requirements towards tax liability. Reliance is sought to be placed on Ext. P5 Circular (in W.P. (C) No. 19981 of 2009) and the judgment rendered by the Karnataka High Court in W.P. (C) No. 23077 of 2011 [2012 (26) E.L.T. 521 (Kar.)], a copy of which is made available for perusal of this Court. 10. The basic question to be considered is whether the activity being pursued by the petitioner could be regarded as any business or does it constitute any 'taxable service' to attract the tax liability under the Finance Act, 1994. The scope of 'exemption' under different statutes also becomes relevant. Section 65(105)(d) reads as follows : "(105)'taxable serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te as may be determined by Government from time to time and shall continue to subscribe till he ceases to be in Government service. 12. Section 44(f) of the LIC Act is very much clear and categoric to the effect that, it excludes any Scheme in existence on the appointed day or any Scheme framed after the appointed day with approval of the Central Government, in consideration of certain compulsory reduction made by the Government from the salary of its employees as part of the conditions of service, assuring payment of money on the death of the employee or on the happening of any contingency dependent on his life. 13. Similarly, Section 36(1)(a) of the General Insurance Business (Nationalisation) Act excludes any general insurance business carried on by the State Government, to the extent the insurance relates to the properties belonging to it or undertakings owned wholly or mainly by the State Government or to such extent as clearly dealt with thereunder. 14. Section 118 of the Insurance Act, 1938 also specifies the exemptions from the operation of the said Act, which in fact has been clarified by the Insurance Regulatory and Development Authority (IRDA) vide Ext. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutions are sought to be covered by issuing a Policy, it can only be by way of a 'Contract' and not by virtue of any statutory obligation. On issuance of any such Policy by way of Contract, it may turn to be a business and of course, a 'taxable service' under Section 65(105)(d) of the Finance Act. If this be the position, it may attract the tax liability as well. With regard to 'service tax' payable under Section 66 of the Finance Act, 1994, if the State wants to have exemption from the Tax in respect of such transactions as well, it can only be by way of filing necessary application for getting exemption, as provided under Section 93 of the Finance Act, 1994. 16. Coming to the case decided by the High Court of Karnataka, referring to the concerned Circular (copy of the said Circular has been produced in the present case also as Ext. P10); Paragraphs 1.2 and 3 of the Circular are relevant and hence which are extracted below : "A number of sovereign/public authorities (i.e. an agency constituted/set up government) perform certain functions/duties, which are statutory in nature. These functions are performed in terms of specific responsibility assigned to them under the law in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a Division Bench of the Karnataka High Court as per the judgment dated 4-11-2011 in W.P. (C) No. 23077 of 2011 (CESTAT) [2012 (26) S.T.R. 521 (Kar.)], making it clear that, if a Government authority performs a service, which is not in the nature of statutory activity and the same is undertaken for a consideration not in the nature of statutory fee/levy, then in such cases, Service tax could be leviable and it falls within the ambit of 'Taxable Service'. It was accordingly, that a finding was rendered that the particular type of insurance coverage being undertaken by the Karnataka State Insurance Department, in respect of 'motor vehicles' was liable to be reckoned as a 'Taxable Service'. 17. Viewed in the above facts and circumstances, this court finds that the activity being pursued by the petitioner in providing 'Life insurance coverage' to the employees of the State Government as part of its statutory obligation giving effect to Rule 22A of Part I KSR is not a 'taxable service' so as to attract tax liability. However, with regard to any other service/insurance coverage provided to the General Insurance business extended to commercial institutions/individuals, even if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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