Welfare entity status defeats service tax on member fees where the organisation is not functioning as a commercial concern.

Parchee fees collected by an ex-servicemen welfare corporation from its members were held not liable to service tax as Business Auxiliary Service for the relevant pre-1-5-2006 period. The entity was constituted under the Himachal Pradesh Ex-Servicemen Corporation Act, 1979 for welfare and economic upliftment, and its functions were treated as part of a welfare scheme rather than commercial activity. On that basis, it could not be regarded as a commercial concern merely because it collected fees from members, and the service tax demand was found unsustainable.

---

---

Issues: Whether parchee fees collected by the appellant from its members were liable to service tax under the category of Business Auxiliary Service on the footing that the appellant was a commercial concern during the relevant period.

Analysis: The appellant was constituted under the Himachal Pradesh Ex-Servicemen Corporation Act, 1979 with the object of welfare and economic upliftment of ex-servicemen, and its functions under Section 15 of that Act were oriented towards a welfare scheme rather than commercial activity. On the material considered, the appellant could not be treated as a commercial concern acting in a commercial manner for the period in question. The demand was therefore not sustainable for the relevant pre-1-5-2006 period.

Conclusion: The levy of service tax on the impugned parchee fees was set aside and the appeal was allowed in favour of the assessee.

Ratio Decidendi: An entity established for welfare objectives and not functioning as a commercial concern cannot be treated as liable to service tax under a commercial service entry merely because it collects fees from its members.

---