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TMI Blog2020 (11) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... d of sale and purchase in goods to be carved out for assigning to designated subordinates or entities, with attendant accountability to authorities under normal tax laws, is not discerned in the tax relating to services. The generalized definition of services in the negative list regime appears to have been the clarion call for tax intrusion into activities of government. Much of these, not being individual-specific deliveries and, moreover, without perceptible consideration could not have held the attention of tax authorities for long but others, in which government bodies were empowered to receive fees, did. Thus, it, probably, was that the focus of the adjudicating authority rested upon the autonomy of Securities and Exchange Board of India (SEBI), the participants in the financial markets and the fees charged from them as provider , recipient and consideration respectively. Clearly, the concept of service and, particularly, the legislative reliance on the expression for in section 65B (44) of Finance Act, 1994, to substitute to in section 65 (105), did not make any impression on the adjudicating authority. The premise that there is no pale of service outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credited to the Consolidated Fund of India - no different from the deposit of fines imposed by adjudicating authorities under Finance Act, 1994. As the successor, in due course, of the Government of India in Department of Economic Affairs substituting for the abolished Controller of Capital Issues, its role in the scheme of governance for the larger public interest is not a matter of mere conjecture. Service tax authorities had raised the issue of taxability of the fees charged by the appellant within a few months of the transition to the negative list regime and the appellant had been in correspondence with appropriate levels in the tax administration seeking acceptance of their interpretation. It, therefore, does not behoove the tax administration to claim that there has been suppression or misrepresentation on the part of the appellant. The delay on the part of tax authorities in issuing show cause notice cannot be justified by the argument that the bar of limitation extends to five years past from the date of issue of show cause notice; the jurisdictional tax authority was cognizant of the non-payment, and the reasons thereof, well before the normal period of limitation h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76 of Finance Act, 1994 pertains to the second. 3. The adjudicating authority has rendered the findings in the impugned order by superimposing the functions of the appellant on the statutory definition of service to conclude that the activities engaged in by Securities Exchange Board of India (SEBI) conform to the several elements that combine as (44). service means any activity carried out by a person for another consideration and includes a declared service in section 65B of Finance Act, 1944 without being . (a) an activity which constitutes merely, (i) a transfer of title and goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery order supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution, or (iii) a transaction money or actionable claim; (b) a provision of service by an employee to the employer in the course of all in relation to his employment; (c) fees taken any Court or tribunal established under any law for the time being in force. Thereafter, with the inference, built on the obligation of registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 20th June 2012 vide notification no. 9/2016-ST dated 1st of March 2016, we do not propose to, as elaborated later, render any finding on the impact of that on the demand. However, at this stage, an elucidation of the broad scheme of taxation of services and sovereign immunity may not be a digression. 5. At its most fundamental level, service is best described as the engagement of another individual or entity for the performance of an activity that could, conceivably and but for the constraints of practical impossibility or economic burden, have been undertaken by oneself. To take an example, a person could treat himself for illness or act as his own counsel in legal proceedings by undergoing the prescribed academic courses that are precursors for acknowledging entitlement to practice those professions but, almost to a person, such recourse is not practically feasible. The ease with which professionals, well-versed and in sufficiently large numbers, can be approached for solutions renders performance by self to be unattractive and, indeed, avoidable. Nevertheless, the freedom of choice to outsource activity combined with the capacity to pay the provider for it is discernible a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Tax Practitioners v. Union of India [(2007) 7 SCC 527)] inspired the decision of the Tribunal in Paul Merchants Ltd v. Commissioner of Central Excise, Chandigarh [2012-TIOL-1877-CESTAT-DEL] to place the recipient inextricably within the context of tax on services and with the decision of the Hon ble Supreme Court in Union of India v. Intercontinental Consultants and Technocrats Pvt Ltd [2018 (10) GSTL 401 (SC)] that restricted the taxable value to the extent of description of the taxable transaction manifested through provider and recipient, the classificatory regime of taxation of service was, by now, reasonably familiar and stable. 8. As the tax itself emerged from nonage into adulthood, and coincidentally at the age of majority, the negative list regime substituted the enumerations in section 65(105) with the generalized definition in section 65B(44) of Finance Act, 1994 that closely approximated to the essence of service as an economic activity. Not unnaturally, compulsions of one sort or the other yet continue to fence some services out of reach of the tax collector. The scheme, from our analysis of the pertinent provisions, envisages a hierarchy of four tiers f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificatory regime, was a possibility only if intended by enactment and such controversy did not have opportunity to surface. 10. Sovereignty exists in a restricted sphere within governance. It is of interest to note that, in assigning his own reasons for concurring with the dismissal of the appeal in Bangalore Water-Supply Sewerage v. R Rajappa Others [1978 SCR (3) 207], the observation of Hon ble Chief Justice MH Beg that I would also like to make a few observations about the so called sovereign functions which have been placed outside the field of industry. I do not feel happy about the use of the term sovereign here. I think that the term sovereign should be reserved, technically and more correctly, for the sphere of ultimate decisions. Sovereignty operates on a sovereign plane of its own as I suggested in Keshavananda Bharati s case supported by a quotation from Ernest Barker s Social and Political Theory . Again, the term Regal , from which the term sovereign functions appears to be derived, seems to be a misfit in a Republic were the citizen shares the political sovereignty in which he has even a legal share; however small, in as much as he exercises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awhile on the statutory basis of sovereignty. 12. The prerogative of the sovereign to impose taxes is, inalienably, to be exercised by the constitutionally empowered organ of the State. It is stipulated in Article 265 of the Constitution of India that any levy, to be valid, should have the authority of legislative organ. The universally accepted canon of not subordinating the sovereign to the municipal law of any country, including its own, begs the question of tax jurisdiction over itself. To suggest that the State may tax itself or subject itself to its own subordinate, for assessment, or to its constituent judicial organ, for determination of the legality, and propriety, of such assessment is to detract from the sovereignty of the sovereign. Sovereign, not being a person but the embodiment of supreme power, the source of power - whether from divine right as in absolute monarchy, contractual transmission as by the Magna Carta or by self-conferment as in republics is not relevant to its immutability and the permanence of immunity from jurisdiction of municipal law. Such vestment, neither retractable nor alienable, is manifest in unquestioned authority over foreign relations, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1947, the Hon ble Supreme Court was called upon to examine the limits on the sovereign aspect that elevated the government to rarefied heights of non-accountability and disdain for procedure laid down by law. The scope of this expression had been interpreted by the Hon ble Supreme Court in DN Banerji v. PR Mukherjee and Others [1953 AIR 58] as all activities analogous to the carrying out of trade or business and, having observed that several decisions since then which subjected various claims to test for exclusion from this standpoint may, if taken together, be perceived as having cast a veil of confusion detracting from the clarity the decision in re DN Banerji, as, in the inimitable narrative of Hon ble Justice VR Krishna Iyer, the leading case on the point, which perhaps may be treated as the mariner s compass for judicial navigation makes it a unique reference point and as observed by the then Hon ble Chief Justice in office who presided over the seven-judge bench, had actually restored the tests laid down by this Court in D. N. Banerji s, and, after that, in the Corporation of the City of Nagpur v. Its Employees and State of Bombay Ors. v. The Hosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as inescapable and inalienable, including the legislative power, the administration of laws, the exercise of judicial power, is distinguished from non-regal functions assumed by means of the legislative power, went on to clarify that These words clearly mark out the ambit of the regal functions as distinguished from the other powers of State. It could not have been, therefore, in the contemplation of the Legislature to bring in the regal functions of the State within the definition of industry This leads to the question whether the Corporation can be set to exercise the regal function by legislative delegation. The Corporation functions under the statute The statute constituting it may confer upon it some strictly regal functions and other municipal functions. 14. From these, it is clear that legislation, enforcement of laws and administration of justice are sovereign functions. We also deduce that the discharge of these functions may be subject to such laws as the competent legislative authority intends it to be so; consequently, statutes, not especially dealing with these specifically, do not immunize the discharge of sovereign functions if the legislative intent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which government bodies were empowered to receive fees, did. Thus, it, probably, was that the focus of the adjudicating authority rested upon the autonomy of Securities and Exchange Board of India (SEBI), the participants in the financial markets and the fees charged from them as provider , recipient and consideration respectively. Clearly, the concept of service and, particularly, the legislative reliance on the expression for in section 65B (44) of Finance Act, 1994, to substitute to in section 65 (105), did not make any impression on the adjudicating authority. The premise that there is no pale of service outside Finance Act, 1994, and the fitment thereon within the definition, admittedly, without finding a place in the exclusions or exemptions, though eminently convenient, is, nevertheless in error for this reason. 17. In adjudication proceedings, claims of escapement cannot be deemed to have been accorded proper disposal unless, and until, subjected to the test of all of four sources of escapement in sequence. We take note that the adjudicating authority has limited the evaluation of the impugned activity to only three of these. The adjudicating authority has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant from the ambit of tax as surrogate of a government department. Referring to section 15 of the enactment establishing the appellant as a statutory regulator, Mr Shroff submitted that substantive compliance of conformity with Article 150 of the Constitution of India encompassed the appellant within the scope of exemption from tax. 20. To sustain his contentions, reliance is placed in the decision of the Hon ble Supreme Court in Securities and Exchange Board of India v. Ajay Agarwal [(2010) 3 SCC 765], in BSE Brokers Forum, Bombay Ors v. Securities and Exchange Board of India Ors [(2001) 3 SCC 482] and in State of Bihar Ors v. Shree Baidyanath Ayurved Bhawan (P) Ltd Ors [(2005) 2 SCC 762]. Further reliance is placed in the decision of the Hon ble High Court of Bombay in Commissioner of Central Excise, Nashik v. Maharashtra Industrial Development Corp [order dated 23rd August 2017 in Central Excise appeal no. 164/2015, 63-66/2016], and of the Tribunal in Bureau of Energy Efficiency v. Commissioner of Service Tax, Delhi [final order no. 50937/2018 dated 27th February 2018 disposing off appeal no. ST/55226/2014] and that of the Hon ble High Court of Karna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service Tax, Jaipur-I [2019 (24) GSTL 623 (Tri-Del)] is also not applicable dealing, as it does, with tax on commercial usage of property. 23. We must confess that we find ourselves in a quandary on the disposal of this appeal owing to certain limitations of jurisdiction and competence. Having drawn attention to the shortcoming in the impugned order, and considering the plea of delegated sovereign authority made by Learned Senior Counsel for the appellant, it would, normally, have devolved upon us to fill that want in the interests of justice. That was our purpose in laying the ground, so to speak, by the narrative, and our observations thereon, supra. However, it is on record that serial no. 51, inserted, by notification no. 9/2016-ST dated 1st March 2016, in notification no. 25/2012-ST dated 20 June 2012 (generally referred to as the mega exemption notification ) issued under section 93 of Finance Act, 1994, entitled the appellant herein to exemption from service tax on all the fees charged by them. We are disinclined to consider this notification to be clarificatory, and thus allow retrospective effect, as it is clearly laid down that this insertion would come into effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting establishments created for separation of policy-making from enforcing of best practices - both, doubtlessly, being two sides of the governance disc. The composition of the Board is determined by the Government of India and the organization is staffed in accordance with rules framed under the governing statute. The receipts accruing to the appellant, in accordance with procedures laid down by law, are retained in a designated fund and scrutinized by the constitutionally established auditor. The retention of such fee in the assigned fund has been prompted by the principle of separation of powers much in the same way that the three organs of State are compartmentalised. Therefore, it is difficult to conceive of any motive in not complying with tax liabilities. There is also no allegation of suppression or misrepresentation by the appellant. 27. The appellant is statutorily empowered to impose fiscal penalties for breaches enumerated in the statute and the proceeds of such imposition are credited to the Consolidated Fund of India - no different from the deposit of fines imposed by adjudicating authorities under Finance Act, 1994. As the successor, in due course, of the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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