Article 289 and service tax on State police user charges led to full waiver of pre-deposit and stay of recovery.

Service tax demands on security services allegedly provided by State police forces were examined on the basis that the consideration was recovered as user charges under the Rajasthan Police Act, 2007 and was prima facie income of the State of Rajasthan. On that reasoning, the amounts were treated as outside the Union's taxation power under Article 289 of the Constitution. The referenced departmental circulars also stated that consideration received by State police forces and remitted to the Government account was not liable to tax. Full waiver of pre-deposit was granted and recovery of the assessed tax, interest and penalty was stayed pending disposal of the appeals.

---

---

Issues: Whether, in the circumstances, waiver of pre-deposit in full and stay of recovery proceedings should be granted pending disposal of the appeals.

Analysis: The demands arose from service tax on security services allegedly provided by the State police forces. The consideration was treated as user charges recovered under the Rajasthan Police Act, 2007, and was viewed prima facie as income of the State of Rajasthan. Such income was considered to fall outside the Union's taxation power by virtue of Article 289 of the Constitution of India. The referenced departmental circulars also stated that consideration received by State police forces and remitted to the Government account was not liable to tax.

Conclusion: Waiver of pre-deposit in full was granted and further proceedings for recovery of the assessed tax, interest and penalty were stayed pending disposal of the appeals.

---