Constitutional immunity and service tax liability: government departments remain taxable for defined services under the Finance Act framework.

Article states that Article 289 immunity extends only to taxes on property and not to indirect taxes, so it does not bar service tax. It also explains that under Section 68(1) of the Finance Act, 1994 the service provider is liable to pay service tax, subject to limited statutory departure under Section 68(2), and that the service tax rules framed under Section 94 have the force of law. On that basis, activities such as renting of immovable property, sale of space or time for advertisement, and mandap keeper services are treated as taxable services, and Indian Railways is described as prima facie liable within the charging framework.

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Issues: Whether Indian Railways, being part of the Union Government, is prima facie liable to discharge service tax on taxable services rendered by it, and whether the service tax rules could validly fasten such liability.

Analysis: The immunity in Article 289 of the Constitution of India was held to extend only to taxes on property and not to indirect taxes. Relying on the constitutional position that indirect taxes such as customs and excise fall outside that immunity, the same principle was applied to service tax. The provisions of Section 68(1) of the Finance Act, 1994 make the service provider liable to pay service tax, while Section 68(2) permits a notified departure in specified cases. The rule-making power under Section 94 of the Finance Act, 1994 was treated as part of the taxing framework, and the relevant service tax rules were regarded as having the force of law. The activities of renting of immovable property, sale of space or time for advertisement, and mandap keeper services were found to fall within the defined taxable services.

Conclusion: Indian Railways was held prima facie liable to pay service tax on the taxable services rendered by it, and the contention that it was outside the charging framework was rejected.

Final Conclusion: The stay request was not granted in full, and the matter was directed to proceed upon partial pre-deposit, with the remaining demand kept in abeyance pending the appeal.

Ratio Decidendi: Constitutional immunity for State property does not extend to indirect taxes, and the service provider liability under the service tax regime can be enforced even where the provider is a government department if the activity is a taxable service.

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