Tribunal overturns penalty for service tax non-payment under reverse charge mechanism

The Tribunal allowed the appeal, setting aside the penalty imposed under Section 78 on the appellant for not paying service tax to the Rajasthan Police under the reverse charge mechanism. It clarified that charges collected by sovereign public authorities for statutory functions are not subject to service tax, citing Circular No. 89/7/2006-ST. The appellant, a PSU running a currency chest for the Reserve Bank of India, was deemed not liable to pay service tax for the security charges paid to the Rajasthan Police, as they were considered part of the Police Department's statutory duties.

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Issues:
- Imposition of penalty under Section 78 by the Commissioner (Appeals) on the appellant
- Liability of the appellant to pay service tax for charges paid to Rajasthan Police
- Allegation of suppression on the part of the appellant
- Applicability of reverse charge mechanism
- Interpretation of Circular No. 89/7/2006-ST regarding charges collected by sovereign public authority

Analysis:
The judgment in the case revolves around the imposition of a penalty under Section 78 by the Commissioner (Appeals) on the appellant, a PSU engaged in providing services by running a currency chest for the Reserve Bank of India. The issue at hand is whether the appellant was rightly imposed a penalty amounting to Rs. 30,15,915 by the Commissioner (Appeals). The appellant availed the services of the Rajasthan Police for safeguarding the currency in accordance with Reserve Bank of India guidelines. The Rajasthan Police Department recovered some amount as security charges from the appellant, leading to a show cause notice alleging liability to pay service tax under the reverse charge mechanism.

The Tribunal, in its analysis, referred to previous decisions and established that the Police Department performs statutory duties of providing security to citizens, including banks, and the amounts collected as cost recovery are deposited in the Government treasury. Citing Circular No. 89/7/2006-ST dated 18.12.2006, it clarified that charges collected by sovereign public authorities for statutory functions are not liable to service tax. Consequently, the Tribunal set aside the penalty imposed under Section 78, as the issue was no longer res integra based on previous decisions and the circular mentioned.

In conclusion, the Tribunal allowed the appeal, emphasizing that the appellant was not liable to pay the service tax for charges paid to the Rajasthan Police under the reverse charge mechanism. The judgment provides clarity on the non-applicability of service tax in such scenarios involving sovereign public authorities performing statutory functions and collecting charges for the same.

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